The price factor


The price factor

What’s in store? Residential prices have firmed up in multiple suburbs like Whitefield and Sarjapur Road.  File photoPrices in Bangalore are comparatively much stable then other parts of the country. Param Parameswaran, Chairman, opines, “Our analysis of 74,000 ads posted in Jan to May 2011 on the website shows a sharp 14 per cent increase in residential apartments for both 2BHK and 3BHK apartments in Bangalore (compared to Jan-May 2010). The increase has been sharper at 16 per cent for 3BHK apartments. Prices have firmed up in multiple suburbs like Whitefield, Sarjapur Road also – though some builders have an oversupply situation. Commercial areas around Electronics City, Sarjapur Road, have abundant space available for clients to take.”

Adds Krishna Rao, MD, Krishnaraja Constructions, “prices of commercial spaces compared to the boom the city experienced in 2005-10 is getting stagnated in 2011. Though it is stabilising in some areas, Whitefield and East Bangalore region have shown a rise in prices. This will continue in the uptrend even in the environment of negative policy decisions like high interest rates. The reduced rate of hike is directly proportional to the demand, for commercial space is reducing in Bangalore, hence the hike in prices is not happening to the extent. Prices of residences are coming down a bit, particularly in the case of apartments but again subjective to certain regions. Residential plot prices continue to be at all-time high because of lack of available spaces in good residential areas approved by government agencies.”

Given the robust growth of IT sector as well as other businesses, Bangalore has seen a strong bounce back in demand for residential units across all segments.

“The prices of commercial office spaces are steadily increasing and I expect that trend to continue in Bangalore for the next two-three years. The residential space prices across all segments are robust and have been showing a healthy increase. On the residential front too, I see the healthy price increase trend to continue, with specific zones commanding higher premium over the others,” says K S Sudarshan, Chief Operating Officer, Ozonegroup.

Adds Ganesh Vasudevan, Vice-president and Business Head,, “prices of commercial office spaces have gone up by about three-six per cent over the last two quarters while that of residential spaces has moved over a wider band of six-15 per cent over the last two quarters. Given the increase in interest rates we expect prices to remain flat or decrease by 10-15 per cent over the next two quarters.” Neville Vaswani, Managing Director, Vaswani Group explains, “in the commercial space, we expect an uptake of 10-12 million square feet, largely driven by IT which should lead to demand for residential units as well, which is pretty huge.”

Buyers beware

As a consumer, you need to be aware of what the price actually includes. Very often the seller/builder quotes only the rate per square foot. Additional charges like deposits for electricity and water connections, parking, clubhouse charges, sinking fund for building maintenance (if you are looking for an apartment) and value added taxes apart from registration fees all add to the cost of the flat. “The overall price including all outgoings, the payment schedule, the time duration of completion of the project, prices of similar projects in the vicinity, the construction stage, launch/pre-launch. The additional factors which can be looked at is the bank interest rates as this also effects the overall all out flow,” explains Bharat Dhuppar, Chief Marketing Officer, Paras Buildtech India Pvt Ltd.

Adds Ravindra Pai, MD, Century Realestate, “also, it is very important that customers understand the spe­cifications/amenities that the builder is offering for a particular price and compare this with other projects with similar specification/amenities.” “Undivided share (UDS) of land for the apartment is a factor. The higher the UDS the better is the deal.

For any given apartment, this is a key valuation driver in the future for resale.

Evaluate final delivered cost of apartment vis-a-vis nominal construction costs and cost of amenities provided. Extras charged like covered car park, open car park etc should be accompanied by appropriate transfer letters from the builder. Without appropriate conveyance of the title, the buyer will not be able to transfer rights for car park to subsequent buyers while selling the flat. Statutory deposits charged towards electricity, sewerage etc should be supported by appropriate documentation. Check for price escalation clause in the construction agreement and incorporate a penalty for delays in delivery of the flat,” advises Vasudevan.

City comparison

Being the IT capital of India, Bangalore has a buoyant realty sector that sparks demand for both commercial space as well as residential units.

Unlike other cities which have a large investor market, Bangalore has a large base of actual-end users. Therefore the pricing is much more realistic and controlled. According to Koshy Varghese, Managing Director, Value Designbuild Pvt. Ltd, “Bangalore is still the lowest across the board in terms of pricing compared to other Tier-1 cities. Chennai still remains higher than Bangalore after being well below Bangalore for so many decades.
“Prices in Mumbai, Delhi/ NCR regions are far higher. Bangalore has not yet come back to the positive pricing of the 2007 period. We are climbing back but not over the hump.”
According to Anshuman Magazine, CMD, CB Richards Ellis, “unlike a the large metropolitan cities like Delhi and Mumbai which have multiple demand drivers and premium office users like corporate offices of large corporations, Bangalore is an outsourcing hub, and the pricing in Bangalore is stable and attuned to the need of the large IT firms.”

Current valuations

Before the close of 2008, realty prices were in an overdrive mode. With recession, there was some amount of correction and stability which has again seen a slow but sure rise especially over the last three quarters. The question then is, are current valuations real? “Yes, they are. The input price and cost of funds have gone up so much that by in large the current valuation post recession is pretty much real. Recession has changed the entire real estate scenario in the country. It has helped real estate to have real valuation, avoided unnecessary speculation and made developers rethink their strategy and focus on need based development,” says Dhuppar.

Adds Varghese, “valuations depend on supply and input costs. Real estate valuations are more ‘real’ in Bangalore than they are in any part of India.

Developers cannot survive with lower pricing. Input costs are enormous and that is the reality of the real estate scenario. If prices go down the market will crash and that will not be good news for existing buyers of unfinished buildings as developers will not be able to complete construction and even borrow money for doing so as borrowing avenues and costs are enormous.”

Says Bijay Agarwal, CMD, Salarpuria Sattva Group, “The only worry of negative sentiments is due to the increase in the interest rates and deferred decision of the buying by the customers.

“There is a phenomenal increase in the cost of the building material including the labour wages. Developers cannot sell at any lower price, if they have to compromise on the thin margin. This may result in observing the overheads if there is any delay in project completion.”

With interest rates on home loans set to rise further, there is likely to be some kind of correction as well.

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