 |
-
News by Month
-
News by Category
Downfall of Bengaluru Real Estate
Real estate activity contributes significantly to the overall economic output in India, as it does in most economies across the globe. The sub prime crisis in the US, triggered by the high default rate of sub prime home loan borrowers, has snowballed into an economic crisis that has pulled most of the world into its grip. The co-relation and co-existence of a flourishing real estate sector with a healthy economy has never been more obvious than it is now. Here’s a reality check on the situation in Namma Bengaluru. The ascent of the real estate industry in Bengaluru started much before the city became the focus for all things IT. If you speak to local real estate czars who have traced Bengaluru’s real time growth history, they will vouch that there was a bullish sentiment about the city’s prospects from as early as 1993. After the Indian economy was liberalized, Bengaluru – like other metros in India – witnessed a hitherto unseen appreciation of real estate prices. Also, with Hong Kong being handed over to China, a large number of expat Indians headed home, especially towards Bangalore, thus causing a demand spurt. This, coupled with the then state government’s policies to encourage IT growth in the state and city, brought Bengaluru under the real estate spotlight.
Seasoned businessman Prakash Gurbaxani, MD and CEO of QVC Realty, India’s first venture capital funded realty company, says, “During 1994-96 the Karnataka government gave a major boost to the IT industry with its policies and announced development of ITPL and the Whitefield area for the purpose.” Though the IT industry was in its infancy, Bengaluru held out a certain economic promise. There was huge investor interest and the optimism led to the city seeing property prices increase at an incredible rate. Of course this unnatural growth, had to tone down. “The appreciation in property values was driven by speculation without too many serious transactions that resulted in projects. In 1997, when the markets crashed, the areas to suffer the most were the suburban regions in Bangalore which had seen speculative growth,” states Gurbaxani.
In the first half of this decade, India became a crucial and lucrative global economic destination and Bengaluru was at the centre of attention from the global business world. Analysts from multinational real estate services firm, Jones Lang LaSalle Meghraj (JLLM) say that “the investments pouring into Bangalore resulted in creating a solid demand for quality office space, thus re-defining the real estate market in Bangalore.” Bengaluru’s real estate demand has been, and continues to be, driven by IT / ITES and the banking and financial services sectors. Symbiotically, the economic changes in the nation shaped the real estate industry in Bengaluru, as it did in other key metros of the country. “The industry moved from being an unorganized business to getting organized and professional. For the most part of its history, real estate raised funds from unorganized sources. However, in the last five years, major players in the market have begun tapping organized sources like capital markets and private equity funds. Liberalization of foreign direct investment norms for real estate has made foreign funds available to developers,” says Gurbaxani.
People from the industry attest that the economic growth resulted in growth of high disposable income groups, which in turn fuelled the scaling up of residential projects in Bengaluru. Villas and premium category apartments became the fad. Attractive tax rebates on home loans and reasonable home loan rates took the real estate market to the next level. Infrastructure wise, Bengaluru grew in this period and the city became home to many campus styled IT parks, Special Economic Zones (SEZ’s) and Software Technology Parks of India(STPI’s) in the IT belt of Whitefield, Hosur and Electronic City. Outer Ring Roads (ORRs) in the city have since become a hotbed for IT campuses. Seasoned economists argue that it’s easy to spot the signs of a looming downfall after a boom. This unprecedented boom too had its signals, only nobody wanted to stop and take notice. Land prices climbed to ridiculous heights, everybody who were anybody began venturing into the real estate business greedily eyeing the high returns as prices assumed dizzying proportions. And then the inevitable happened.
The fall in the US financial sector had a domino effect on global economies including Indian economy. Realty companies that had raised funds through the capital markets and private equity funds suddenly started finding themselves in a soup. Funding options began to dry up. Asset values fell. Stock markets took on a bear run. Stock valuations of realty companies plunged and inflation reached alarming proportions. The RBI raised key rates to curtail money inflow in the system. Banks hiked consumer loan rates as also home loan rates. Corporates waking up to pressure on expenditure began to announce lay offs, salary cuts and many such cost cutting measures. Cautious consumers battling multiple whammies began to put off home buying decisions. Demand has since stagnated and fallen drastically.
News Published Under: Bangalore | No Comments »