To buy or not to buy...

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COURSE CORRECTION? The maximum demand is for Bangalore South at 19.16 pc, followed by Bangalore North at 12.15 pc. Photos by the authorA Cushman & Wakefield report says that the second quarter of 2009 saw interest in the housing sector picking up among homebuyers. Bangalore’s high-end segment witnessed a considerably higher rate of rental drop over the mid-end sector in the second quarter of 2009.

The city’s north micro-market (Hebbal, Yelahanka, Dodballapur, etc.) saw significant correction across both high and mid-end segments.

Central and off Central locations witnessed 15 to 17 per cent drop among high end properties (Lavelle Road, Off Palace Road, Off Cunningham Road, Frazer Town, Benson Town, Richards Town, Dollars Colony) and about nine to 18 per cent drop in the mid end segment (Brunton Road, Artillery Road, Ali Askar Road, Vasanth Nagar, Richmond Town, Indiranagar). Capital values saw milder corrections over the last quarter.

High-end properties in central and off central locations witnessed the highest correction of seven per cent and 11 per cent respectively while in the mid end segment off central locations showed no movement.

Professional outlook

Vakil Housing CEO H R Girish opines, “there has been strengthening of the operational systems and tweaking of the business models in the real estate industry resulting in a much more professional outlook and ensuring due diligence on major business decisions.”
 
Makaan.com also recently carried out a survey on Bangalore’s realty scenario. The survey says that the total demand for property in Bangalore has grown by six per cent over Jan-July ‘09 period (after dropping by 11 per cent in Oct-Dec ‘08 period).

“As much as 83 per cent of people in Bangalore want to buy a property under Rs 40 lakh; demand for property between Rs 40-75 lakh is 14 per cent and only three per cent of people are looking at greater than Rs 75 lakh homes,” says Aditya Verma, Business Head and Vice President, makaan.com.

The maximum demand is for Bangalore South at 19.16 per cent; followed by Bangalore North at 12.15 per cent. At least 43 per cent of people in Bangalore are willing to take a house anywhere in Bangalore if it meets their budget and specifications, the survey says. The market in Bangalore followed the rest of the country, with sales coming to a complete stop between October 2008 and March 2009.

“Since then, we have seen buyers re-entering the market in increasing numbers and sales volumes starting to return. The only buyer segment that is active at present is the end user, with investors and speculators still standing back. Areas that were hard hit such as Whitefield are seeing good buyer numbers again that have been driven back to the area by the strength of the deals on offer. There is a distinct buyer preference for buildings that are completed or near completed with buyers wanting to get product that is ‘move in’ ready, or close to it. The northern corridor remains the perceived ‘hot spot’ but areas such as Electronic City and Whitefield are still on the radar for buyers,” explains Alexander (Sandy) Moore, Managing Director, L J Hooker Project Marketing.

Encouraging enquiries

According to A Balakrishna Hegde, MD, Chartered Housing, “the second quarter enquiries are very encouraging, site visits are brisk. Those who have been sitting on the fence for the last several months have been concluding the deals. And even those who have entered the fray recently are concluding faster. Conclusions are taking place anywhere between two-three weeks now. All the developers have been registering satisfactory sales figures.”

Whither pricing trends?

The present trend of pricing will remain so for a short span of time before gradual climb will begin and by the end of the year, gradient of curve is expected to go up substantially as the products in the market will be focused more towards domestic consumption than towards the customer base which was basically focused towards IT and ITES industry. As the transaction volumes pick up, prices will invariably rise again.

“We have seen some very large price drops across the board over the last few months and these prices can’t last. Builders are under pressure as prices or raw materials continue to firm and they look for ways to restore their margins. A number of builders have already started to escalate their prices by between five per cent and 10 per cent. Pricing is simply a function of the relationship between supply and demand, as the demand picks up prices will invariably follow,” says Moore.

Narain Agarwal, Regional Head - South, All Check Deal adds, “the upswing in sales is evident in increased marketing budgets of developers which happen only upon good returns on add spends. That the prices are on the verge of getting hiked is anybody’s guess. Developers are now not in mood to negotiate much – the take-it-or-leave-it offers are promptly given which are now finding quick takers”

Investment decisions

This seems to be a particularly good time to enter the market. Affordability is at the best rate for years with massive price drops, cuts in interest rates and lowering of the duty rates.

Property is without a doubt the best long-term investment strategy.
People should look for quality product in good areas and just secure the best deal they can and close it.

“The number of apartments that are going to be completed during the next one year is very limited due to the fact that hardly any new projects were launched during the last year. In such a situation and as the demand has picked up now, there is a possibility of these apartments being lapped up quickly,” opines Hegde.

“This is the right time to invest in the real estate sector, as the market is in the stage of improvement. It can be seen from the current trend that the market condition may go up, but it will take some time. With the reduced real estate prices, people are expected to get more value from every rupee they spend for properties,” seconds R Balaji, CEO, Propmart.

Affordable homes

A positive development in the last six months is the evolution of developers ‘affordable homes’ (defined as property in the price range of Rs 15-25 lakh. “The new price point is both on account of lower base price and smaller size properties. The demand for such properties has been strong, as they have been backed by a good value proposition and is composed entirely of end user demand. This demand is sustainable over a long period of time, provided developers continue to work on a strong utility based value proposition, offer fair pricing and deliver projects on time,” opines P S Jayakumar, MD and CEO, Value Budget Housing Development Corporation (VBHDC).

A few buyers voice an alternate sentiment. Gary Findley, Senior Vice President (Franchisee Sales), SNAP Fitness says, “location plays the most important role in the success of any SNAP location and for this reason we are constantly on the lookout for properties which are in the range of 2500 to 4000 sq feet in residential areas, have good visibility and parking for members. We have noticed a 20 per cent correction in realty prices and an oversupply of retail space.

The lessees’ position has become stronger with the landlord willing to compromise to a larger extent.

Rentals have fallen by almost 50 per cent in areas like Whitefield with prices expected to head further south. In this situation, most property owners are seeing the advantage of investing in SNAP with a 40 per cent year on year growth in the fitness and wellness industry and an ROI of 35%. Based on our experience in the realty sector, we would advice investors to wait for some more time before investing in property.”

All said and done, the slowdown is widely believed to be beneficial, as it has separated the non-serious players from the serious players in business lending the much-needed credibility to the industry.

The Union budget 2009-10 is in the favour of infrastructure sector.
The government is planning to push more infrastructure projects that has given the opportunity to investors to invest at the right location and get the first mover advantage. 

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