#DemonetisationAnniversary: End-user driven Bangalore stood strong against demonetisation

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Demonetisation story Bangalore

When the Centre stripped India of Rs 500 and Rs 1000 as legal tenders, the entire country went berserk. It meant that the morning of 9th November came with multiple challenges including getting ‘workable’ money. Industries and sectors across the country came to a sudden halt. Long queues in the front of banks and ATMs became a common sight for months after the announcement. With so much to tackle, real estate sector, too suffered a blow. The ordeal continues even after a year. 99acres.com analyses the currency ban’s impact on the top real estate markets of India. 

The sudden demolition of 500 and 1000 rupee currency notes on November 8, 2016, disturbed the smooth functioning of several businesses across the country, not sparing the real estate sector – considered to be one of the most cash-dependent sectors. While it disrupted buying and selling of homes in the most volatile markets of Delhi NCR and Mumbai, the relatively resilient markets of Bangalore and Hyderabad remained cushioned by the hefty buyer base of end-users and more traction in the primary market – which is largely loan-reliant.

Though in the short term, demonetisation severely disrupted sales and new residential project launches, the market seemed to settle down to the turmoil rather quickly and witnessed renewed demand from buyers by March 2017. The immediate lull induced by the currency ban brought the sales figures down by 45 percent in Q4 2016 as against Q3 2016, as buyers withdrew from the market on the back of multiple ambiguities and distractions, cash crunch being one. The resale market, in particular, was testimony to harsh times in the first two quarters of demonetisation.

The investor-driven markets of northern and western Bangalore were the worst hit as transactions came to a standstill in the first two-three months. The IT-driven, end-user-heavy eastern and southern quadrants continued to witness some enquiries. Nevertheless, transactions ceased as buyers awaited clarity and expected price correction. Several deals which were close to conclusion re-entered the negotiation cycle. However, both owners and developers maintained a common stance and refused to budge to the market uncertainties. Bangalore reported one of the lowest number of distressed sales in the first quarter after demonetisation. As a result, the average weighted property prices across zones maintained status quo in Oct-Dec 2016 as against the previous quarter.

The market also sustained the temporary setback in buyer sentiment on the back of commencement of the Green Line of Namma Metro and the allotment of Rs 4,410 crore towards road widening, railway expansion and development of model townships in the city.

The impact of the currency ban move did not stay restricted to the buyers and trickled down to the developer community, as well. Almost all the construction activity in the city came to halt as developers faced massive liquidity constraints, extending the completion deadlines by another two to three quarters. New launches, too, were deferred resulting in the supply of fresh inventory to dip by a whopping 65 percent in Q4 2016 from Q3 2016. While demonetisation led the new project launches to nosedive in that quarter, the slowdown had already begun on the back of other factors such as a piling inventory of 1.2 lakh housing units and interruptions such as the civic body’s demolition drive against land encroachment and Akrama-Sakrama penalties. The number of new units added to the market in H2 2016 remained limited to 13,395 as against 24,190 in H2 2015.

As enquiries started regaining momentum by Q2 2017, the market dealt with the implementation of two other radical reforms, RERA and GST. Unlike expected, the two reforms further stumped buyer sentiment owing to ambiguous norms. Fence-sitters soon shifted focus towards the rental market, especially in areas close to the IT hubs of Whitefield and Electronic City or those directly connected by the functional stretches of the Namma Metro. Increased demand, however, did not translate into an appreciation in the rental ‘ask’ rates due to excess stock in almost all popular locales. In fact, the rental market, too, received a temporary setback when several low-lying areas reported water-logging during the rain-fed floods in August 2017.

Overall, Bangalore’s natural resilience to market uncertainties helped it sustain the severe impact of demonetisation.

Market Analysis

Bangalore Story_demonetisation

 

Impact of Demonetisation

Primary Residential Market

Demonetisation hampered the fresh supply of residential units in the market almost immediately. Developers halted ongoing constructions and deferred project launches to battle liquidity crunch. This led to a sudden dip of approximately 10 percent in the supply of under-construction apartments in the market (Oct-Dec 2016 vs Jul-Sep 2016). The implementation of Karnataka RERA and GST instilled further qualms about market normalcy and kept developers away from both advertising the available stock as well as adding new. This brought the total share of under-construction apartments to 22 percent in Apr-Jun 2017 as against 36 percent in Jul-Sep 2016.

Fence-sitters did not showcase any notable resistance towards the primary market owing to the relatively transparent and organised conduct of developers in Bangalore as against Delhi NCR and Mumbai. The premium under-construction segment, however, seemed to suffer the most as buyers feared delayed project completions and thus, preferred ready homes.

South Bangalore displayed stability in the primary market owing to competitive property prices, presence of employment hubs and fast-expanding metro connectivity. Areas such as Kanakapura Road and Bannerghatta Road continued to receive enquiries; sales, however, remained muted. Peripheral areas such as Hoskote in the East and Mysore Road in the West, too, remained popular choices amongst homebuyers looking for budget properties. However, not many enquiries translated into sales on the back of subdued sentiment triggered largely by RERA and GST.

Cumulatively, the three reforms extended the home buying cycle from one quarter to two-three quarters.

Secondary Residential Market

Cash crunch completely ceased demand for properties in the secondary market. While buyers attempted negotiating, owners decided to hold on to the properties. A few chose to put their homes on rent for an elongated time and wait for the market to soothe. Low negotiations led to only marginal price fluctuations, insufficient enough to leave a dent on the average weighted capital prices. As a result, property ‘ask’ rates in Bangalore displayed stability in the last one year.

The inventory-heavy locales of East and South Bangalore were the worst hit. As a result, Jayanagar in the South and Mahadevpura in the East registered a price correction of up to 10-15 percent, YoY. Property prices in Electronic City and Whitefield buoyed despite excess inventory owing to robust enquiries from end-users.

The implementation of RERA in second quarter of 2017 improved the buying climate. While sales continue to remain meek, enquiries have picked up pace, especially in areas offering affordable stock and seamless connectivity via the planned metro in future.

Prices trends in the popular micro-markets of Bangalore

Locality

Current ‘ask’ rates*

Capital Growth**

Growth Drivers

Whitefield

5350

5%

  • Proximity to workplace
  • Availability of ample ready inventory

Electronic City

4300

9%

  • Proximity to workplace

Bannerghatta Road

5200

5%

  • Demand for premium projects

Kanakapura Road

5120

1%

  • Upcoming metro connectivity

Sarjapur Road

4800

0%

  • Affordable properties

* Current ‘asks’ are median rates for listings in the respective localities posted on 99acres.com in Jul-Sep 2017 – both resale and new projects

**Capital growth is calculated basis the changes in average weighted ‘asks’, YoY – Jul-Sep 2016 vs. Jul-Sep 2017

Rental Market

The rental landscape of Bangalore is independent of market turbulences due to a healthy influx of migrants, year-on-year. The city recorded a three percent hike in average weighed rental prices between Jul-Sep 2017 and Jul-Sep 2016. Landlords seem to be largely holding on the prices and there are no reports of a knee-jerk fall or rise in rental rates in any of the tracked localities in Bangalore over the last one year.

West Bangalore is the only region where rental ‘asks’ have slipped downwards, albeit minimally. Absence of economic hubs, poor road and rail approach and limited residential development has impacted housing demand in the area. 

Demonetisation rental graph bangalore1

 

National Outlook

National Outlook_Demonetisation

Bangalore’s residential real estate market narrowly escaped the pit created by demonetisation. The drop in sales is just a result of the cautious stance taken by homebuyers in the short to mid-term on account of RERA more than any other reform. Property prices are less likely to trickle down in this end-user heavy market. Increased pressure on the limited under-construction inventory in the wake of reduced new launches is expected to propel rates in the long term. Housing demand, too, is expected to revive, especially for projects registered under RERA. 

Expert Opinion

By Ashish R Puravankara, MD, Puravankara Ltd

By Niranjan Hiranandani, Founder & CMD, Hiranandani Communities

By Aaron Solomon, Partner, Solomon & Co

By Saurabh Jindal, JMD, SVP Group

By Sanjay Jain, Group Managing Director, Siddha Group

By Arjunpreet Singh Sahni, Executive Director, Solitaire Group

By Pankaj Kumar Jain, MD, KW Group

By Mukund Patel, MD, Rutu Group

By Shishir Baijal, Chairman & MD, Knight Frank India

By Manju Yagnik, Vice-Chairperson, Nahar Group

By Aashiesh Agarwaal, Founder & Managing Partner, Pinakin Advisors LLP

By Anuj Puri, Chairman, ANAROCK Property Consultants


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