Demand And Pricing Of Real Estate In Bangalore

Bangalore is home to thousands of non-natives who flock down from different parts of the country to work in the flourishing IT sector. Most of the housing demand is from these people who earn a hefty sum every month. The residential property bazaar of Bangalore has been quite steady in the first quarter of 2014. The mid segment which forms majority of the sales showed a good balance between supply and demand and registered steady growth.

Almost 90 percent of the market is comprised of 2BHK and 3BHK apartments. Incidentally, the 2BHK apartments had a demand of 54 percent almost which is roughly equal to the market’s supply. When developers have understood the markets well and catering to demands accordingly, then supply in the market is almost equal to the demand. It is a healthy market where both consumers and producers gain.

In terms of the price bracket, it was seen that apartments in the range of Rs 40 lakhs and Rs 60 lakhs had almost 28% growth in Bangalore for the first quarter of 2014. Similarly, the segment comprising of the upper middle demand, which comes in the Rs 60 lakhs to Rs 1 crore categories the demand stayed at 23% whereas the supply was at 20%. In this case too, market demand and supply more or less matched.

However, the trends noticed in the luxury and budget segments were much in contrast to the middle and upper middle segment. For apartments in the range of Rs 20 and Rs 40 lakhs, the demand was around 28% whereas the supply was a meagre 19%. In the Rs 100 lakhs and above category, the demand was a mere 15% while the supply stood at 23%.

Therefore, areas in JP Nagar and Whitefield had a steady rise of only 3% each followed by Bannergatta Road, RT Nagar and Hebbal which had a 2 percent rise only in property value. En route areas or areas in proximity to the IT corridors such as HSR Layout, Silk Board, CV Raman Nagar, Electronic City and Bellandur also did not show any rise or fall in the property value. It was the same as it was back in the October to December quarter of 2013.

Electronic City has a diverse set and wide range of offerings that are priced between Rs 40 and Rs 60 lakhs, which makes it one of the most affordable localities of Bangalore. Similarly is the case with areas such as HSR Layout, Marathahalli, Mahadevpura and Silk Board. These areas cater to the upper middle and middle class community. There are several ongoing and completed projects of most of the noteworthy real estate in Bangalore.

Closeness to work place, bettered connectivity due to broader roads, flyovers and outer ring roads have ensured Bannergatta Road, Whitefield and Sarjapur the top spots among the most preferred localities of the city.

What determines the cost of an apartment?
There are several steps to undergo for a project even before it is pre launched. Other costs that property development has to bear are manpower cost, construction cost, material cost, regional fluctuations, inflation, approvals that have not yet been gotten and numerous other issues.

These factors significantly affect the final price of an apartment. The cost matrix of a developer has been given below so that buyers can understand what they are paying for and therefore can plan budget allocation effectively.

A project is sold usually at a margin between 18 percent and 25 percent. Almost 30-40 percent of the cost incurred by a developer is the land cost followed by 30-40 percent more as construction cost, based on the location of a project.

As 60% of the cost is received by a developer, he/she/the developing company does not feel compelled to lower the prices even when sales are low. This is a theory propounded in the RICS School of Built Environment. A reliable developer will put in a lot of sweat to ensure that the papers are in order and that the land bought has no litigations. The developer also has to ensure plenty of access to water, sufficient manpower at the time of construction and numerous other clearances that are required during construction of an apartment complex.

A part of the cost is sometimes borne through money that comes in from pre launch loans and offers, in case of advanced land construction and development. With the corpus coming in, the developer can go ahead with debt finance and construction.
By this time, developers often reach break-even and start thinking about earning a profit. Banks too want to lend money in projects that are being held by good developers. One of the biggest avenues for earning for a bank is from construction lending. The lending from banks keeps the projects on track for developers.

House hunters and investors should always remember that developers never play with their own pile of money. The construction industry functions this way globally. Moreover, wealthy financers will not force a schedule of repayment either. Therefore, there is no reason to drop the price of real estate in the short run.

When considering the various segments of construction, luxury projects have the largest margins followed by the mid segment. The affordable segment presents profits only in bulk. Therefore, projects which have a margin of more than 25 to 30 percent can see a correction in long term. These luxury projects are usually in the bracket of Rs 8000 sq. ft or more and offer all the amenities that one would want to see in and around their area of residence.

Projects of the middle segment which are sold at Rs 4,000 for square feet can be expected to fall a bit depending on the ability to bargain of the buyer as the profit margin is much lower. Since investors would not pull out for the next 5 to 10 years, prices of real estate tend to stay stable. If inflation at 7 percent is factored in, then the real cost of an apartment can actually fall depending on money’s value.