A study and vision of Bangalore housing sector in 2014

The rapid growth of Bangalore City in few decades in terms of infrastructure, educational institutes, social infrastructure, and the real estate sector is driven by the flourishing IT industry.

The city is now home to a large number of High Net-worth Individuals (HNIs) and is the third-largest real estate hub for HNIs who park their assets here and one of the topmost cities where NRIs want to settle down in the future.

Due to its multicultural ethos, the city attracts more populace and today the city houses around 10,000 individual dollar millionaires and also home to many NRIs who are professionals and settled down in the city, which drive the demand in the real estate sector especially the housing segment.

Particularly, in sub-markets like Whitefield, North Bangalore, Outer Ring Road, Central Business District (CBD), and Secondary Business District (SBD), the demand for high-end residential apartments in the city has increased.

Right now, the most optimistic and preferable residential micro-markets in the city are the North Bangalore, Whitefield, Sarjapur Road, and Outer Ring Road (ORR).

With many ups and downs in the sector, a study and outlook of different residential categories is given below:

High-end residential category
Property price - Rs.1.5 Crore and above
Residential Type - New villa, villaments, and row houses
Locations - Whitefield, North Bangalore, Sarjapura, and Outer Ring Road (ORR)
Study & Vision - Demand is likely to remain stable in the coming year

Mid-segment residential category
Property price - Rs.75 Lakh to Rs.1.5 Crore
Residential Type - Above 2 and 3 BHK luxurious apartments
Locations - Electronic City, ORR IT Corridor, Whitefield, and some areas in North Bangalore
Study & Vision – Demand driven by IT/ITeS professionals who look for home close to their office and focus on social infrastructures, educational institution, hospitals and many other facilities
 
Affordable residential category
Property price – Rs.50 lakh or below
Residential type – 1, 2, 3, BHK apartments
Locations – Outskirts of the city, Peripheral Ring Road (PRR), South Bangalore, North Bangalore, West Bangalore
Study & vision – The proposes infrastructure projects like Metro Rail drives the demand

Synopsis of reality market
In the fourth quarter of 2013 there was an increase in the absorption of residential sector against the third quarter of the same period. About 30 residential projects were launched in the fourth quarter of 2013 and a slight appreciation in capital value and the sales volume increased as the most of the projects were in completion stage.

Opinion about Bangalore Reality Market
It is likely that in the first half of the 2014 the growth of residential market will remain stable and a modest number of launches in residential projects will be witnessed, while leasing and capital values will remain stable and is expected to rise in second half of 2014.

Factors that drive the leasing and capital value of Bangalore residential segment:
•    Development in IT sector
•    Investment by more HNIs and NRIs in residential segment of the city
•    Proposed infrastructure projects by government like Elevated expressway, Metro Rail, and Peripheral Ring Road (PRR), many others
•    Projected SEZ and IT Parks in North Bangalore such as Devanahalli Business Park, ITIR in Devanahalli, Aerospace SEZ, Airport City and others

Land Loser has the right to make decision in Land Acquisition and Compensation

The new land acquisition law that has been enforced has comforted the landlords who have sold their land for public sector infrastructure projects in Bangalore City.

For example, if an agency requires a land of 2,000 Square Feet. in a location for any proposed public sector infrastructure project then the approaching agency should pay an average compensation cost existing in the area for an instance if land is required in MG Road, then the agency should Rs.27, 000 per Square Feet. as an average compensation keeping in mind the current market value and if it ranges between Rs.25, 000 and Rs.30, 000 per Square Feet.

Based on the new law, the land or property owner should get a compensation of Rs.54, 000 per Square Feet., as it says the land owner should get double the price of the market value. The new law also gives right to the land owner to argue with the approaching agency about the compensation cost if the land owner feels the deal is not fair. And, this dispute can be held at a proper platform solely formed by the government by providing documented substantiation.

The new law is regarded as favorable for farmers as the compensation cost for land owners is four times the market value and will also make sure that the land loser is provided with rehabilitation and resettlement. The provision in the new law also says that the land cannot be acquired without the approval of the land owners.

The idea of Transfer of Development Rights (TDR) under which the land owners can be given land as compensation instead of cost for the loss of land area that is acquired by the government for public purpose like for constructing flyovers, roadways and other infrastructure.

The new law in the foreseeable future may surely cause less conflict to a whole range of infrastructure projects in the row that includes road broadening, construction of flyovers and passageways, and elevated expressways.

Stipulation in the Law

• The new Land Acquisition Act says that in case the acquisition of land is less than 50 acres of area in cities and 100 acres in rural areas then the law will be discretionary.
• The TDR should be more attractive an approachable in such a way that land owners to choose TDR instead of compensation cost.

Adverse for Farm Sector

• Farm land will be gobbled through this new law.
• The compensation cost will attract the farmers to give away their lands.

Many farmers say that they don’t have any complaint to acquisition of land for Metro, rail, roads, and other necessary public sector projects by government. The government should also understand that no compensation can recover the food calamity in the anticipatable future.

Compensation for Land Loser

• Urban Areas - Compensation cost will be twice the market value of the property in addition to this 100 per cent solace on this amount.
• Rural Areas - Compensation cost will be four times the market value of the property
• Market Value - Value of the property registered at the sub-registrar offices, but it is still unclear in the market value whether the exiting market value or the regular market value will be considered.
• Discussions can he be held by the land owners if the deal is not fair and the discussion can be held in a forum formed by the government 

About The New Law

• The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013 has substituted the 120-year-old Land Acquisition Act of 1894
• The President approved the new Land Acquisition Bill on September 27, 2013
• The Bill was introduced as  the out-of-date 1894 Act underwent several inadequacies, such as the resettlement of the land loser
• Fair compensation and compulsory rehabilitation and resettlement (R&R) for the land loser
• A study should be conducted on the land acquiring agencies about their plan to use the land and how the land owners are rehabilitated and resettled.

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The Slow Movement in Land Acquisition Delayed the Construction of New IT Hub

The sluggish movement in land acquisition worsened by increase in land costs has obstructed the Karnataka government’s plan to build a new information technology (IT) hub in the vicinity of new international airport on the periphery of Bangalore.

This plan of building new IT hub was planned by Karnataka government under the plan of central government in May 2008 to boost the Information Technology Investment Regions (ITIR) in the country. In a Global Investor Meet in 2010, the Karnataka government said that the IT hub was visualized to bring in 2 lakh crore new investments and generate around million jobs.

A government official with a adequate knowledge about land acquisition process and who wanted to remain anonymous said that the department has delayed in acquiring land and now with the increased cost of land the total projected cost of the project could twofold.

In 2010, Karnataka government permitted the ITIR to build on more than 10,000 acres of land. In regarding the same, the government said in a meet that around 55 companies including many major IT companies like Cognizant, TCS, Infosys, Wipro, and many others came forward and has shown interest.

According to another person with good understanding in the land acquisition process said that in 2010, the cost of land was somewhere around 60 lakh to 75 lakh per acre but today the cost per acre of land has increased to 2 crore. He also added that private property owners who own land nearby the international airport demand for higher cost on lands.

The Karnataka Industrial Area Development Board (KIADB), the agency in authority for land acquisition, handed out a notice to speed up the work of acquisition for ITIR. M N Vidyashankar, Additional Chief Secretary of Government of Karnataka said in an emailed statement that the amount of land elaborated is 2,074 acres.

The accumulating pressure on Bangalore's infrastructure has been a difficulty of constant distress for companies that played important role in making the city as IT destination in India and third in IT services being exported from the country.

With continental Europe coming-up with a notion to send more IT work to India, the industry is growing and with delay in building this new IT hub, Bangalore could lose companies that want to set up centers and the opportunity may be bagged by other cities like Indore where Tata Consultancy Services is setting up its center.

The Bangalore Political Action Committee supported by business many leaders like Mohandas Pai-Chairman of Manipal Global Education and Kiran Mazumdar Shaw-Chairman of Biocon saw Karnataka's Chief Minister Siddaramaiah regarding many concerns and also forced for quicker measure on infrastructure expansion.

The Karnataka Information Communication Technology Group headed by Mohandas Pai, who is also a former board member of Infosys in Bangalore, submitted a report to the government in January that made thorough endorsements on making Karnataka as a technology powerhouse and electronics manufacturing.

Follow our blog Bangalore Property Reviews regularly for more updates.

Real Estate Prices Increase Irrespective of Slow Demand

A recent study by India Ratings & Research has showed a negative sign regarding the unchanging view of reality industry in 2014-15, which is based on the unrelenting depressed end-user demand and the differing consumer sentiments.

The rating agency also showed that the real estate market is seeing drop in sales, reduce in income, Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) limits and sustained deterioration in credit metrics and inflow of cash.

The agency rated most of real estate companies with a steady view, based on the hazards impacting the sector. The companies or group rated at investment level are residential companies with robust sales and resilient cash flows or single commercial properties with long-term lease agreements.

The rating agency believes credit metrics will continue to decline in fiscal year 2015, due to increase in residential prices that will lower the sales, that will lead to increase in bank credit and an increase in inventory for the sector.

In the first half of 2013-2014, the sale of new residential units has recorded a decline and the reason behind this is the reducing consumer sentiments and high price of real estate properties.

Though, the end-user demand seem to be weak, prices continue to remain high and it is considered due to the restrain of gold import by the government that has regarded to have boosted the investors and speculators.

This rise in property price is also justified by the report of National Housing Bank's house price index in the second quarter of financial year 2014, which recorded after a decline in the earlier two quarters, as it overlaps with the obligation on gold import.

According to Ind-Ra, it is likely that the commercial property demand would continue to subdue in 2014, because of decline in economic growth and it is due to the continued slow economic growth that would affect the new requirements in most sectors of the real estate market. It is also anticipated that demand in retail will be sluggish in Financial Year 2015, as retail companies would endure to enhance their store ranges.

In 2013, the private equity and foreign investors interests was observed to be strong in the real estate sector and strong investment was seen in rent-yielding commercial properties where several large transactions took place by the leading private equity players like Blackstone.

Ind-Ra also anticipated that the starting of real estate investment trusts (REITs) would be optimistic for the sector, as it would attract new investors and enhance finance convenience. It is also anticipated that REITs would give easy liquidity option for commercial property developers as most of their funds are invested into rent-yielding commercial properties.

In Depth Analysis of Real Estate Appreciation

When it comes to real estate appreciation, a question pops up as to what are the reasons behind the rise in property prices in certain areas. The whole procedure of augmentation of a property’s market value over time is a prime idea behind real estate investment. This procedure is known as appreciation. There are basically various causes to real estate appreciation which includes: Inflationary pressures; the supply and demand dynamics of a particular location; Arrival of new real estate market drivers in a location; Population growth and Home loan interest rates (cost of borrowing).

Inflation: Inflation results due to an excessive amount of money in circulation. What else happens in this procedure is that there is over-abundance of money which leads to a situation wherein its value falls. During the course of this action the prices go up for a number of things which includes construction materials, the prices of land, legal building permits, number of other things and labor.

Demand and Supply: When there arises a situation wherein there is a noticeable increase in demand for homes in a certain area, then if in case the amount of residential real estate projects is not catching up fast enough, the property prices shoot up. To put in other context, self-use buyers are more than ready to pay extra for a property as they tend to find living in that area extremely favorable.

As a resultant factor, when this demand brings in real estate investors, who eventually buy properties there to sell them at a profit when supply slows down again. As a result what happen is that the property prices in that particular location tend to shoot even further.

Home Loan Rates: There is a direct bearing on property appreciation of behavior of home loan interest rates. When there is an increase in the home loan interest rates, then the demand for property also slows down owing to lesser buyers as they can afford to shell out the extra money required by the banks. On the same facet, what leads to an upbeat in the demand for properties is that a sufficient decrease in home loan interest rates which leads to an increase in affordability.

Population Growth: On the same note, the growth in population in area such as PCMC obviously shots up the demand for residential properties there. This eventually, transforms directly into appreciation in real estate rates.

Aerospace Park in Bangalore Urged Not To Be Treated As a Real Estate Project

According to the head of UTC Aerospace Systems (UTAS), in Bangalore, the aerospace industry has the prospect to gain $20 billion in revenues over the next 10 to 15 years. This is possible provided the state government can encourage an ecosystem that pulls global companies.

Bangalore is considered to be the aerospace capital of India.

According to the VP of UTAS, the government needs to draw companies to invest here. It has been noted that the state has formed a 1,000-acre aerospace park near the Kempegowda International Airport Bengaluru. However, the project isn't pulling global tier I aerospace manufacturers. It is a known fact that Bangalore has the right talent pool. This talent pool has been cherished over the years by public sector enterprises like DRDO, ISRO and HAL. The VP stated that the government surges ahead about the project (Aerospace Park) by merely selling land parcels, then they would definitely not be giving rise to an ecosystem concept. He also stated further that in order to for the tier I companies to set up shop, an aerospace SEZ must have tier III and IV suppliers along with training and academic institutions.

He also laid stress on the fact that they were insisting the government to cultivate the park as an ecosystem. They were against the park being given to a real estate developer as they believed doing so would give rise to problems. Instead, the park must be given to an ecosystem developer.

He also stated that industry should invest in people and technology and not in infrastructure and land. Currently, the aerospace industry is focused in the US and Europe. China and India seem to be gaining increased attention what with majority of companies looking forward to expand outside of the given two markets. But given the fact that China has been facing issues over intellectual property rights, hence, aerospace companies are inclined towards India. UTAS gained a position in India with its global $19 billion purchase of Goodrich two years ago. UTAS produces lighting systems, evacuation slides, seating systems, cargo systems, integrated systems, electrical power systems and sensors for Boeing aircraft and Airbus.

He further stated that on an average around 60 percent of the global production of those products were done out of Bangalore. Moreover, UTAS employs approximately 2,000 people. It has also expanded its 700,000 sq. ft. facility which is situated in the IT hub of Whitefield. Apart from this, he added that they were looking forward to reach a stage wherein they can develop, design, support and manufacture products from India. Besides, there were many areas which needed attentions such as the design side, he stated.

Take a Reality Check before Buying a House

According to a recent report from property consultancy firm Knight Frank, it has been stated that real estate prices in certain Mumbai areas have come down by 10%. The report also states that nearly 45% of the new properties that are coming up in Mumbai are unsold.

According to real estate consultants, the situation is not any different in other cities too where prices have softened. The question that props up in the mind of the people is that whether it is the right time to invest in real estate.

According to national director, residential agency, Knight Frank India, he states that it is a good time for investing in property. Owing to the uncertain economic scenario and political situation, the prices are submissive across cities. These are considered to be the two macro factors which influence property prices.

He further states that post-elections in mid-2014, in case a stable government comes to power at the Centre, prices might shoot up due to improved confidence levels. However, in the event of a fractured mandate, the reverse might also be true. He added that it is a short-term trend wherein presently there is pressure on prices.

An executive from Cushman & Wakefield states that from an investment point of view, if some of the fundamentals like job or business security, financing options, etc are in place for an individual, then this might be considered to be a good time for real estate investments.

The report further states that, the fact that real estate prices are showing signs of weakening is indicative of the fact that the long-standing stalemate between buyers and builders is finally turning in favor of buyers.

It is advisable that by taking into account various factors, one must make an investment in real estate. To start with, one must be convinced about the potential of the location. Other key factors are existing and upcoming infrastructure developments and access to prime locations of the city.

Apart from this, the area must also have social infrastructure, which is necessary for attracting tenants. Proximity to places of work, colleges in the neighbourhood and quality of schools, entertainment and healthcare facilities, retail malls and other amenities are something that people usually look out for.

In case it happens to be a suburban location, it must have unabated access to the main city locations. Moreover, one must check for infrastructure development plans which are announced or the ongoing development projects. The chosen location must also have a development authority to make sure future development prospects.