Will the unsold stock of Bengaluru impact property prices?

Although people are of the impression that Bengaluru has one of the most favourable real estate market conditions in the whole country that is not really the case. Bengaluru registered a stock of unsold inventory which was an all-time high since 2008 with more than 1.01 lakh inventory lying unsold. This stock collectively amounts to Rs. 85, 000 crores in terms of revenue. This is primarily the reason for the market to be stagnant.
 
The primary reasons for over supply

The market watchers opine that 85 percent of the unsold stock which tantamount to over supply is in with the upper and the midrange builders. The excessive supply and the fear of unsold inventory are perpetrating the builders to sell the apartments at lower prices. Broadly the reasons for the oversupply are; firstly the saturation of demand in the high and midrange markets; Secondly there is a high demand in the affordable segment for which there is a lower supply and the developers have been from mid and higher segments and thus many are forced to lower the prices and tailor make the projects for the affordable segment. An excess of new launches at this moment of time can worsen the situation remarks the expert realtor and the trend watchers. 

What’s the impact of over supply on pricing?

The expert realtor remarks that prices of luxury and the high priced segment will be mostly unaffected by this problem of oversupply. There is a huge demand for the affordable segment but simultaneously there is a demand for the luxurious segment too. Few projects at Jayanagar, Koramangala and Sadashiv Nagar where per square feet price is estimated at a range of Rs. 20, 000 to Rs. 30, 000, the pre-sales was fabulous with many enquires and fast sales. This signifies that there is an increasing demand in the higher segment with a simultaneous demand in the cheaper housing. 

Subsequent stagnation of projects:

There is a prediction from many market watchers that the prices are expected to drop and the market to stagnate. This will happen, opine the realtors as the market struggles to get back on track. The budget that was announced was primarily a remedial one. In such a situation most of the prospective buyers with affordability is hesitant to buy and are waiting for the market to stabilize. So, in such a situation it is expected that developers will revise the prices of the project with the introduction of attractive schemes to attract the buyers. 

A buyer’s market is expected very soon

The magnitude of the unsold stock makes the trend watchers predict that there is a possibility of the prices being pushed lower.  They say that there is a possibility that the market of Bengaluru becoming a buyer’s market where the buyer will be having the choices and all the options to negotiate. But Bengaluru real estate market is too complex to become a solely buyer’s market.
 
But the credit rating agency ICRA has stated that despite poor absorption rates, oversupply and unsold stock the prices are expected to remain stable for a considerable point of time or even there is a possibility to increase by 8 to 10 percent in short term. This may happen due to increment of prices, construction cost and the service tax increment. The infrastructural improvement like metro connectivity can make the prices steady in spite of the pressure of unsold stock. But still the expert notes that unsold stock will impose a higher pressure which is time bound which is unlikely to be offset by the infrastructural growth like Metro.

But even then few others state that unsold stock is really not a great problem and does not restrict the new entry so much as they cite the example of 2010 when there was huge pile up of unsold inventory and even then large scale real estate players like Reliance and Microtek infrastructure entered the industry.

Read More: On Selling the Property

Invest in emerging localities for higher return.

Bengaluru

A property is desired by all and is obviously is a long term investment option which one may need for various reasons. In terms of capital gains also a property is viewed as an indispensable asset. Property investment also comes handy as an option of increasing wealth which becomes useful even at the post retirement stage. Even as well a land plot or a site can serve the purpose of much needed cost of higher education of children. Not only higher capital gains are what a property yields but the property also helps in capital protection as well. For an investor who doesn’t want to take much of a risk, property is a much stable option that one goes for which can be encashed at anytime and any stage of life.

The tax deductions that an investor can avail of against the repayment of home loan gives an additional benefit and makes it more cost effective. If the amount of tax deduction against the principal repaid is within Rs. 1.5 lakhs per year the total interest paid on the home loan amount can be claimed as a tax deduction if the property is residential in nature or is rented out. It is also true when the house is self-occupied by the investor. 

The rapid pace of urbanization along with simultaneous sprawling of emerging residential townships and localities supported by proper infrastructure is leading to the increased demand of upcoming residential areas. Numerous residential projects are seen to be developed in these zones and few of them are even in the nascent stage of infrastructural development. Thus in these areas the properties can be a value buy as with the gradual development of the area and simultaneous influx of population the prices  of properties are sure to go up. But the advantage is that as the prices go up the rate of increase of prices in these areas will be higher, yielding a higher return on investment in a short span of time. The investors need to keep a close watch on these factors and can take advantage of such situations. 
 

Physical infrastructure and Connectivity

Investors can keep a watch on the localities near metro railway projects as these corridors gradually do increase in the influx of the population as the metro project is in progress with road widening and gradual increase of the density of social infrastructure improvement. 

 Social Infrastructure

The city of Bengaluru is high on increasing the state-of-the-art healthcare facilities and there are an increasing number of malls and retail centres that are burgeoning at a rapid pace. The property prices are bound to increase as the population increases due to spurt of the social infrastructure and slowly the neighbourhood turns into a self-sustaining area. The intelligent investor also needs to track the pace of social infrastructure which is an indicator of the higher prospect of the place in terms of return on investment. 

The advantage of the early movers 

The projects which are just launched are better opportunities for the real estate investors as the buyer can avail the lowest prices. With the gradual development of the locality and improvement of connectivity and social infrastructure these projects will surely pose to be even more lucrative and will definitely yield higher rental income.