Govt should give limited-period stamp duty cuts across all budget segments to boost demand.

Santhosh Kumar

- Vice Chairman, ANAROCK Property Consultants

What are the peculiar challenges of Bengaluru real estate and how has Covid disrupted the sector in terms of demand and supply, construction activities/ finance, etc.

In comparison to its other southern city counterparts, Bengaluru is far better placed as far as housing activity is concerned. Despite the pandemic, the city saw property prices rise by 2% - from Rs 4,975 per sqft in Q1 2020 to Rs 5,060 per sqft in Q1 2021 - the rise was the highest among all top 7 cities. This price rise was mainly because the city continued to see steady growth in housing sales q-o-q. Amidst restricted new supply, ANAROCK data reveals that Bengaluru saw total sales of approximately 8,670 units in the first quarter of 2021 while the unsold inventory in the city in the same period declined by 7% in a year - from approx. 62,800 units in Q1 2020 to nearly 58,350 units in Q1 2021, something more favourable for developers. The affordable and mid-segments were essentially driving demand in the residential sector in the city. Given the good sales, developers saw it an opportune time to increase the average prices. Also, property prices in the city have largely remained range-bound over the last few years and hence were long overdue.

Among the major challenges, lack of good physical infrastructure facilities tops the list. Despite being the IT hub of the country, the city's infrastructure woes continue. Lack of proper public transportation (including metro, buses etc.) is another hurdle which invariably leads to more usage of private vehicles, thereby increasing traffic congestion (in the pre-covid period).

States like Maharashtra and Karnataka had reduced stamp duty to boost the demand. Bangalore, on the other hand, had rationalised its rates long back. What measures do you think are needed to be undertaken by the government to boost sales?

Reduction in stamp duty in Karnataka announced in March this year was only for homes valued between Rs 35 lakh to Rs 45 lakh. The move so far has not given a significant boost to housing sales in Bengaluru similar to that in Mumbai because Maharashtra reduced it across all budget segments and not just one category. The fact is that housing demand in Bengaluru is largely skewed towards the mid segment - properties priced within Rs 50 lakh to Rs 1 crore budget. And for these properties, the stamp duty charges remain the same at nearly 5%. Hence, to boost overall sales, the government must emulate Maharashtra and give limited-period stamp duty cuts across all budget segments.

With most of the population working from home now, what is your take on the prospects of commercial office space / IT space absorption and what will be the near time challenges? Also, has WFH had any impact on demand pattern for residential properties?

The office market has been under strain since the pandemic came in. However, there was some pick up seen in the first quarter of 2021. But with the second covid wave coming in April-June quarter will be quite negatively impacted. Most IT/ITeS companies have extended the WFH option and are again in wait-and-watch mode. Add to this, industry data and ANAROCK Research reveals that over 7,400 leases spanning around 90 million sqft area will come up for renewal in 2021 across the top 6 commercial real estate hubs - Bengaluru, Mumbai, Pune, Chennai, Gurugram and Noida. 2021 has the highest lease expiry pipeline when compared to the next two years - 2022 and 2023.

That said, the silver lining is that the IT/ITeS sectors have been on a hiring spree in 2020 and 2021 due to massive business accruals. To accommodate these employees in the future when we see a gradual return of employees and adoption of hybrid workplace practices by Infotech giants, office space demand will grow. Office demand also is expected to gather momentum from 2022 in the wake of robust hiring by large corporates. These big corporates will definitely renew their leases, though some of the smaller companies may consider rationalizing space.

Bangalore Development Authority (BDA) plans to tie up with developers for opening up its land parcels for real estate development. How do you see this development?

The move as such may help bring in more affordable supply into the city depending on the type of project to be built on these land parcels. However, as said earlier, housing demand in Bengaluru is largely tilted towards the mid segment and as long as infrastructure development matches the pace of this new development, it would be good.

How do you see the current fiscal ending in terms of demand, new launches, sales as well as price appreciation?

Even while data for April-June quarter is yet to be collated, but from what we see between April till date, there is more than 50% decline in residential sales across top 7 cities against previous quarter. Most top cities including MMR, Pune, NCR, and Bengaluru have been severely impacted. Our prediction is that residential sales in Q2 2021 may dip by more than 55% against the first quarter. Q1 2021 saw total housing sales of nearly 58,280 units in the top 7 cities.

But given that housing has gained more significance amid Covid-19, we hope to see recovery from the third quarter of CY 2021, proviso the downward trend of the cases continues, vaccination drive picks momentum and the third wave (as anticipated) is prevented.

Also this time, the silver lining is that construction activity across most cities has not been completely halted. Thereby, project construction at least may not be severely impacted during the second wave. Ultimately, it will benefit homebuyers.

The first REIT was launched by Blackstone Embassy, a Bengaluru based developer. Are you seeing some more in the pipeline or has Covid taken away the interest in the commercial space since a majority are working from home?

As seen in the FY2021, REITs enjoyed wider acceptance in the country; healthy fund raising continued in the public market - REIT Size: USD 608 million Mindspace & USD 514 million Brookfield India REIT. No doubt, the success of India's initial two REITs - Embassy Group and K Raheja Corp - have paved the way for others to follow suit.

REIT continues to be seen as one of the most favoured investment options given that it has proved to be fairly resilient globally. Investors saw REITs as a stable income generator especially since it was driven by strong demand and occupancies in India's Grade A office market further backed by lease commitments from several corporate occupiers including Accenture, Oracle, IBM, Tech Mahindra, Tata Consulting Services, Microsoft and Capgemini.

Moreover, the de-densification of office space to maintain social distancing and likely rise in outsourcing business will compensate for any fall in demand due to the extended WFH policy by corporates. Interestingly, we are also witnessing consolidation of portfolios and good quality office assets are exchanging hands. Several developers and owners of commercial office real estate are in various stages of preparation for their listing.

Hits: 173