Bengaluru Realty: Trends to watch out for

By SiliconIndia   |   Tuesday, 09 April 2019, 11:48 Hrs
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BangloreBengaluru, unequivocally the country’s most vibrant real estate market with office space consumption strengthening with each passing year and the organized residential sector growing in tandem, was perceived as shock-resistant, until a couple of years back. Come 2016, and the spate of regulatory reforms irrevocably altered the market dynamics giving a severe blow to residential real estate. In H1 2017, residential sales contracted by 19% over H2 2016. In H2 2017, residential sales shrunk by 34% over H2 2016. In 2018, we witnessed many developers embracing the new market realities, becoming RERA compliant and focusing on customer relationship management and responsible execution of real estate projects. In 2018, several key trends came to light which are set to rule the roost in 2019 and bring stability to Bengaluru’s real estate sector.    

Affordable and mid-income housing to steer Bengaluru’s residential sales recovery – Before the introduction of Pradhan Mantri Awas Yojana (PMAY), developers hesitated to venture into the affordable housing play. The subsequent popularity of the credit linked subsidy scheme (CLSS) and the extension of carpet area limit for MIG I category from 120 sq m to 160 sq m and MIG II category from 150 sq m to 200 sq m in June 2018 has been instrumental in giving a fillip to residential launches of products up to INR 5.0 million ticket sizes. 

% of Ticket Size in Total Launches Pie

2016

2017

2018

New Products up to INR 5.0 million

48%

59%

62%

From 48% in 2016, the share of these products now accounts for as much as 62% in Bengaluru’s total launches pie. Locations such as Devanahalli, Bellahalli, Hebbal, Yelahanka and Sarjapur Road have witnessed good sales traction with these product categories. RERA has shrunk the market for good and in this new environment, products with rationalized prices such as above are still finding takers. Many developers are increasingly apportioning a big percentage of integrated townships inventory for these ticket sizes. Many local developers who earlier used to focus only on the luxury ticket size segment of above IN 2.0 crores have either set up subsidiary companies or carved out sub-brands to cater to the affordable and mid-segment residential inventory with ticket sizes squeezed within the INR 5.0 million bracket. As developers diversify into this new product category to create a balanced portfolio and sustain cash flows, we have also noted that the share of affordable segment has been rising steadily as a percentage of total developable area for some of them. Purvankara, Embassy, Prestige, Salarpuria and Adarsh Builders are leaving no stone unturned to create a sustainable business model which thrives on the unmet demand for these homes. Developers are also forging joint ventures with institutional investors to build a mid-segment and affordable housing portfolio. Buyers, too, are having a field day as they get access to a quality developer’s product at a price which scream affordability.

Shared living spaces models on the horizon - Co-living is evolving at a fast pace and early estimates indicate that more than 25,000 beds have come into supply across the country amongst the top 7 co-living operators in past two years. Many co-living operators such as StayAbode, SquarePlums, Co-Live and Zolo Stays have spurted out of Bengaluru and provided a new lease of life to the dying, and largely, unorganized paying guest accommodation market. Bengaluru has always witnessed robust in-migration of millennials as it is an IT and a technology hub and tops the home-grown co-living operator’s expansion plans as well as new players setting up mass co-living inventories. Despite the novelty of concept, developers in Bengaluru have started partnering with co-living operators for such projects. In Dec 2018, StayAbode announced a strategic partnership to create a co-living project with CP Developers. Co-living inventory is the next thing regional developers should think about as target end users for this product are the same as those buying 1 BHK or studio apartments.

Office market moving towards maturity – Bengaluru’s commercial office sector has seen phenomenal growth over the past one decade and investors have been making a beeline to acquire premium quality IT Parks and SEZs while rentals still remain low. Blackstone, an early mover to identify the income generating opportunities in the city’s office segment boasts of a portfolio with many office assets and lease contracts locked in much below current market rates. With Embassy Office Parks, Blackstone’s joint venture with Bengaluru’s Embassy Group, the real estate market in Bengaluru is set to mature as some assets under this REIT which are located in the city will attract higher rentals over the next few years and valuations of these assets will increase exponentially. 

Non-traditional occupier profile to dominate leasing – Long been the start-up capital and stronghold of the information technology sector, the leasing trends in Bengaluru over the past two and a half years suggest a gradual decline in the share of leasing by IT/ITeS sector. From 62% in H2 2016, the share of this sector in the overall leasing pie has shrunk to 37% in H2 2018. New age technology companies focused on artificial intelligence (AI), robotics and automation, digital technology, increasing expansion by flexible workspace providers as well as fintech, foodtech and healthtech start-ups will dominate office space consumption in the city going forward. While IT/ITeS will continue to generate a lot of demand for office space consumption in the city, BFSI and these non-traditional occupiers will dominate the overall leasing statistics.

Bengaluru is back to its basics as far as the residential segment is concerned. Hurdles and hiccups remain for the residential segment, but the market has started responding positively as impact of policy reforms and market restructuring subsides. The extension of the CLSS on home loans under the PMAY till March 2020 will further push sales velocity and help the residential segment to stabilize. The commercial segment, which is already witnessing high demand, will benefit from new supply infusion and leasing will continue to climb up sequentially.

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