End of the pot-holed road for the Bangalore boom

EAR TO THE GROUND
End of the pot-holed road for the Bangalore boom
The Financial Express

If the dream run of Bangalore’s real estate sector ends, it won’t be only because of poor infrastructure. Other niggling doubts are rearing their heads, and they are about high salaries, attrition rates, and high power tariffs - Karnataka’s power rates are among the highest in India.

A recent survey by global real estate consulting firm Equis among 150 US firms planning to expand their India operations found that many of them were rethinking on whether Bangalore really deserves those extra dollars.

Not surprising at all. Bad roads and traffic jams are already driving new investment to other cities. Not to be left out, companies within the city have also threatened to locate their expansion outside Bangalore. “The real estate industry in Bangalore is on a peak now. Prices could increase even further. But the key to further growth will be good infrastructure. It is upto the government,” comments Equis India’s vice-president for Asia Pacific Shrinivas Rao.

Mr Rao says, “Earlier, Bangalore would unquestionably be the top destination of US companies that wanted to expand. But in a survey done three months ago, corporates are questioning the city’s infrastructure.”

In a year’s time, other Tier II cities like Pune, Chennai and Hyderabad could catch up. Which is ironical, given that in the past 12-18 months, land prices in the CBD (central business district) increased by 10-25%. In the suburbs, the rise has been steeper, and prices have shot up 20-40%, thanks to the IT and BPO boom.

On the outskirts of the city - Outer Ring Road and Whitefield - land priced at Rs 200-250 per sq ft is now selling for Rs 1,000-1,200 per sq ft. In upmarket areas such as Indiranagar where land is scarce, prices are at Rs 3,500-4,500 per sq ft.

But while prices on the outskirts are comparable to some outlying areas in Mumbai, average land prices in the city are still much less than in Delhi and Mumbai.

Commercial real estate developing company RMZ Corp says that this is because development has shifted from the CBD to suburbs, driven by global corporations which want self-contained campuses. “Companies are moving into built-to-suit campuses. Unlike earlier, when small multiple locations were being leased out for short periods, companies are now making larger commitments in the city. They are leasing out or even buying larger office spaces for longer durations of time such as 10 or 15 years,” says a company spokesperson.

In 2004, the city has witnessed an addition of 4.08 m sq ft of developed land, of which 59% has so far been occupied. The commercial land requirement for 2005 is estimated to be around 3 m sq ft, primarily driven by IT, biotechnology, retail and outsourced HR activities. Growth has not yet caught on in the northern parts of the city. Regions along the IT corridor HSR Layout, Koramangala, Whitefield, Airport road and Hosur Road have witnessed most of the growth and larger office spaces here are already bought out by private developers.

Residential developments are also moving to the outskirts, and the middle class is being lured by private developers offering ‘lifestyle’ options at lower rates within residential campuses. Self-contained campuses including health clubs, clinics, shopping complexes and even schools are mushrooming, and developers are offering resort-like living away fom the city.

Prices have shot up by 40% across the city, at Rs 2,000-5,000 per sq ft in CBD and Rs 500-900 per unit on the outskirts. While residential projects are selling like hotcakes, most of them being sold out within a month of announcing the projects, newer developers are emerging in the market, some even offering ‘intelligent buildings,’ with inbuilt technology to suit hi-tech living.

According to players, this growth could continue to last for another 12 months. Bangalore has seen such peaks twice: in 1996-97 and 1999-2000.