Growing office space absorption has boosted the demand for rental spaces in Bangalore. Although impact of multiple policy reforms including demonetisation and GST have led to a marginal dip in average rated rental prices in the city.
The real estate market in the country has witnessed a mix of fates with many top cities such as Delhi and Mumbai seeing a slump and those like Bangalore and Pune seeing a rise. Demonetisation and Goods and Services Tax (GST) did slow down the cash flows, but not to the extent that was anticipated. The introduction of Real Estate (Regulation and Development) Act, 2016 (RERA) instilled fresh confidence amongst buyers by promising to correct some anomalies. Investors can expect better returns in the next five years than in the past five.
In fact, according to international property consultants Knight Frank, prices in the residential real estate market in India have appreciated by 10.5 percent in 12 months, i.e. 70 percent in five years ending June 2017. This places India in the top ten international markets for residential investment. Property price appreciation witnessed in cities such as Bangalore and Pune in this time is largely attributed to infrastructure developments like metro construction. In the future, this kind of growth is not expected to continue.
The resilience of the Bangalore’s market is credited to the presence of end-user as well as a booming IT sector. Competitive pricing has helped the city stay buoyant during turbulent times. A preference to go for home loans ensures that properties are vetted thoroughly by the banks.
In yet another mid-year survey brought out by Urban Land Institute, Bangalore and Mumbai displaced Tokyo and Sydney as the top-ranked cities in terms of both investment and development.
In fact, when new sales and launches dipped by 50-70 percent in Delhi NCR, 30-50 percent in Mumbai, 16 percent in Chennai, Bangalore witnessed a rise in office space by 10-50 percent and even 100 percent in retail sector.
Demonetisation and downsizing in the IT sector resulted in a slump, but it did not last long. The mid-to-long-term effects of GST and RERA seem to have boosted investment.
There was trepidation in the real estate sector following the dramatic announcement on November 8, 2016. Players expected the market to recover in six months but then the next blow came from GST and a lot of confusion ensued. Many were clueless about what would happen next. But luckily for those in the rental market, all this created a big demand.
In Bangalore, the demand for rentals has naturally gone up with property price surge. Young Turks prefer to rent a space close to office, preferably in gated communities, rather than buying a property. The EMIs for buying an apartment can be a big drain on the income for freshers. Relatively, the rents are better, even if higher than in some other cities. With metro connectivity, the choices have increased too, and renting a property in places distant from office, too is no more a disadvantage.
With many start-ups cropping up in the city, the rental space also saw a boom alongside. For one, those working here seek to avoid the deadly traffic commute and look for residences around.
Residential properties will not be affected by the GST unless the income from these exceeds Rs 20 lakh. Demonetisation, too, has not directly impacted the rental sector though property prices initially dropped. Laying hands on cash became difficult for some time and prohibited transactions. But the subsequent rise has helped drive people to the rental market.
However, for those looking for returns from renting out properties in Bangalore, rental prices have dipped by 20 percent from last year. A 2 BHK in Electronic City used to fetch Rs 24,000, but now gets Rs 20,000 per month. There is more demand for furnished homes.
Still, rental yields in Bangalore are way higher than anywhere else. Fetching almost 3.5-5 percent on the price of the property, this is directly related to the absorption of office space which is highest in the city, nearing almost 5 mn sq ft.
The scenario is sure to get better with addition of newly constructed space available for renting out. Rentals should be picking up by at least 5 percent in the coming year. Buying and selling property too will pick up as people become familiar with GST.
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