Friday, January 28, 2005

Residential Property market: IT sector driving demand

Residential Property market: IT sector driving demand
The Times of India

The skyline of the Bangalore residential property market has undergone a major transformation over the last few years. The idea of living in apartments has caught the imagination of city dwellers. This amounts to nearly 60 percent of the home buyers segment. The 40 percent of the population interested in constructing their own homes primarily comprise local residents of Bangalore. If the local resident still prefers to construct a home, who then, is driving this demand for the large apartment complexes in Bangalore? The growing migrant population mostly employed in the IT, ITES and BPO industries are the main demand drivers.

Housing finance companies and banks claim that the migrant population accounts for almost 60 to 70 percent of the demand for apartments. Further, 75 percent of these buyers are employed in the IT sector. Relatively higher salaries in the IT sector, double income families, and more importantly, tax benefits on availing a housing loan and attractive interest rates are primary reasons contributing to the demand for apartments in Bangalore.

While new developments have been noticeable in almost all localities in Bangalore, certain localities clearly stand out. The highest stock generation has been in the south and south-east of Bangalore. Within these zones, Bannerghatta Road and Sarjapur Road have been
witnessing a large proportion of the construction activity. Out of the total number of projects that have commenced construction in the last two years, the stock in the south and south-east constitute 30 percent and 35 percent of the total stock across all localities. The level of proliferation of stock within these zones could be explained by the proximity of the locations to places of work especially in the IT and ITES sectors.

Says Manisha Grover, Associate Director, Strategic Consulting and Research, Jones Lang LaSalle: "There is no concrete outlook on 2005 though we feel that the absorption of prime apartments in the city would grow, albeit at a lower percentage due to the higher base than last year. Although the market across Bangalore has been largely buoyant, the proportion of stock and absorption has been pronounced in the 3-bedroom segment. Out of the total stock, 3-bedroom apartments constitute almost 58 percent followed by the 2-bedroom segment, which is almost 25 percent. The absorption levels match the proportion of stock, which explains the attraction of these segments within the overall residential market. The two and 3-bedroom segments are available within an average budget which makes it attractive for purchase. On an average, two and 3-bedroom apartments get absorbed early primarily due to the budgets".

This market scenario has certainly created plenty of anticipation and positive sentiments amongst developers. Projects have been selling prior to completion, which has given the developer segment enough to cheer about. "This phenomenon is not only true for the established developers but is also being experienced by the new entrants. Not surprising then that first-time developers have been constructing a significant bit of the total stock. More specifically, the first-timers are focusing on Yelahanka and Jakkur in the north, Sarjapur Road in the south-east and Kanakapura Road in the south west," she added.

In the experience of housing finance companies and banks, 50 percent of home loan seekers in Bangalore have annual salaries between Rs 4 to 6 lakhs while 25 percent each have salaries less that Rs 4 lakhs and above Rs 6 lakhs. Given the permissible sanctioning limits, the approximate EMI for 50 percent of the home loan seekers in Bangalore ranges between Rs 20,000 to 30,000 for a loan tenure of 20 years, which corresponds to a total budget (including stamp duty, registration, maintenance deposits) of Rs 25 to 35 lakhs for an apartment.

Also, considering the fact that the average age of borrowers is reducing, the incremental demand is coming from the middle to bottom band of the salary bracket (Rs 4 to 6 lakhs). In order to sustain this interest, it is important to maintain budget levels. Hence, future price increases should also be based on an increase in cost of steel, cement etc. rather than just buoyant market sentiment. Coupled with this price rationale, infrastructure such as access roads, water and power will also play an important role.


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