A deep look at the property market
Over 49,000 units of ‘stock’ under construction and 20 per cent of it (say, 10,000 units) unsold at present, with an underlying absorption rate of 40,000 units a year and a large pool of unwanted ‘speculator’ stock in the market!
These are some of the key findings about the Bangalore residential market that a recent study from L.J. Hooker, titled Property Research Report: Bull or Bear?, reveals.
Considering that L.J. Hooker, “established in 1928, has over 720 offices, with a total staffing of more than 10,000 employees, and an annual turnover in excess of $36 billion in property sales and leasing transactions,” the 32-page report merits a detailed study, especially by anyone with ‘real’ interest in Indian urban property.
More so, because of the important questions it raises — How large is the pool of unwanted ‘new’ stock? Can this stock be absorbed into the market in the short-term? And how long before pent up demand will overcome short-term negative sentiment?
Overview
The study begins with an overview to assess the impact on the sector from macro factors such as interest rate, inflation and economic growth rate. The prime mover in achieving high growth rates is the increasing share of investment to gross domestic expenditure, observe the report’s authors.
“Gross fixed investment as a proportion of the GDP [Gross Domestic Product] has risen progressively from 24.8 per cent in 2003-04 to 29.5 per cent in 2006-07 by nearly equal increments in each year. It is estimated that in 2007-08 the gross investment rate would rise to 36.3 per cent.” Good news, in short, is that we are investing more.
Not-so-good news, globally though, is that residential property in virtually all international markets is weak with low consumer confidence as a result of the U.S. sub-prime fallout. Major residential markets such as the U.S. and the U.K. will, in all likelihood, soften throughout 2008 and possibly till 2010, foresees L.J. Hooker.
This definitely weighs behind the global real estate biggie expecting the residential property market in India to see an increased repatriation of funds from non-resident Indians located in the ‘softer’ world markets.
A matter for us to feel smug about, therefore, is that the higher returns and a better short to medium term gains will be significantly more attractive in India than in other world markets.
With Bangalore being a cosmopolitan city, migration triggers have been education, employment and secondary business, notes the report. The city’s population has grown by over 19 per cent in just five years, it adds.
Queerly, “population of the areas defined as rural Bangalore has grown form 18,81,514 lakh to 29,42,459 lakh, an increase of some 56 per cent.”
According to L.J. Hooker, the urban and rural growth not only explains the increase in urban built-up area and population but also the continuity of this trend, with a much more accelerated pace since Bangalore qualified as a mega city. “In the Bangalore urban and rural areas the decrease in agricultural land suggests both conversion of land to urban land use and discontinuation of agricultural activities in anticipation of conversion to urban areas,” notes the report.
It should not surprise you, hence, to find ‘rural’ lands near urban conglomerations being left undeveloped or converted into layouts and apartments.
Short to medium term predictions are that demand will push through the current downturn in six to 12 months, even as areas (such as Whitefield) that have an oversupply and diminishing demand will take longer to recover. “High demand areas such as the north and CBD top end will be largely immune to the downturn.” Affordability, says L.J. Hooker, will be a key issue over the next 12 months; this will be determined jointly by price and interest rates.
Watch out: “The middle and upper middle market will bear most of the pain.”
So, how to survive and prosper as a developer? Conduct thorough research to ensure your market positioning and have a product that is appealing to investment buyers, advises the report.
D. MURALI
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