Real Estate Bull Run Hits “PAUSE” button
(18th Oct 2007)
By
Vishnu.S.Jarugumilli
9845077374
http://crorepatihomes.net
First it was DHOOM. Then DHOOM-2. Then TARARUM PUM. And JHOOMBARABAR JHOOM. Now at the TRAFFIC SIGNAL it is OM SHANTI OM (All quiet) and Dard-e-disco (dance of pain). No, I am not a Taran Adarsh discussing Hindi cinema. I am talking about the state of the real estate sector.
Even six months back, the real estate market was flying like Hrithik in KRISHH and grinning from ear to ear like Abhishek in GURU. Now it is limping like Shah Rukh in KANK and sulking like Rani in LAAGA CHUNARI. Most of the market players who had bitten off more than they can chew are looking like Paresh Rawal in HERA PHERI and repeating his famous dialogue- “All I want is a good night sleep at least for a day without any tensions”.
OK, let me stop this Bollywood dramabaazi here and do some serious talking. Real estate markets are heavily dependant on macro-economic factors and the dream run of the last 4 to 5 years has been aided by a dream like economic situation. Particularly so, for Bangalore. Now, layer-by-layer this is getting peeled off. But before you draw any conclusions, let me clarify that I am talking about the mass market, which in Bangalore’s case is property in the range of 25- 75 lakhs. There are other segments and niches where the conditions are peculiar. I will come to them later. First, let us examine each of the factors affecting the mass market.
1) JOBS GROWTH: The correlation between jobs growth and real estate is easy to understand. The last 5 years have seen unprecedented numbers being created in the corporate sector and particularly IT / ITES, which is Bangalore’s trump card. There are signs that this is now heading for a slump. Rising rupee and increasing wage burden are the reasons. Hence Corporates are looking at increasing employee utilization rates and reducing bench strength. The top 5 or 6 players in the industry may be able to add to their numbers but on the whole the pace of new recruitments will show a slower growth.
2) LOCAL INDUSTRY: Bangalore is more or less a one legged horse. Almost all other major cities in India have something or the other as a back up besides IT. Bangalore has not seen other sectors prosper. The only other with some significant presence like the Garments/Apparel sector has the same problem of the rising rupee like IT. Even the Media here is non-local and the film industry small and weak. In contrast Chennai has Auto OEMS/Auto components, strong local media and film industry, Hyderabad has Pharma, Infrastructure companies like GMR, GVK, IVRCL, NCC and Lanco, strong media and film industries, Mumbai has the financial services, robust exim market, manufacturing and Bollywood and Delhi has the Central govt, Auto OEM/components, strong trading markets and SME industry. Any dip in the income of the IT industry here in Bangalore is bound to have an adverse impact on the real estate sector.
3) INTEREST RATES: With inflation under control, it was thought that the interest rates might now start correcting. But those hopes are now belied. Rising international crude oil prices (rising faster than the rupee and hence leaving a negative balance) have not still been passed on domestically. When that happens inflation will raise its ugly head again leaving virtually no chance of any rate cuts in the immediate future.
In short all the above factors, which were POSITIVE and helped the Bull Run have now turned NEGATIVE. Massive supply in the mass-market segment in important pockets also is a factor to reckon with.
What about the other two segments. Namely, below 25 lakhs and above a crore
BELOW 25 LAKH: The supply here comes only from small builders and retail house owners building another illegal floor. Govt’s failure in making the new BDA layouts like Anjanapura, Visweshvarayya, and Banashankari 6th stage even remotely livable has wasted supply of at least 50,000 BDA plots. And hence anyone with a budget of less than 25 lakhs (which by no means is a small amount for a huge population) has practically nothing decent on offer. A matter of great shame.
ABOVE A CRORE: This segment is going through its inflection point (if you read Andy grove’s book on what inflection points are). Almost all 60*40 houses in all Bangalore BDA layouts cost you more than a crore and there is a good supply but no body seems wanting to stay in a BDA layout anymore. Every one wants a gated community and there is a huge shortage in areas where they are wanted. As your budget grows to 2 or 3,4 or 5 crores your problems compound. You may have just returned from outside India, and your tastes are different. What is available costs you a bomb and is not to your liking even if you are willing to pay.
Shockingly, this segment may remain like this for another 3-5 years. Job recession at the entry level may be in the offing but Bangalore continues to attract professionals at the cutting-edge level who are all looking for top-notch housing. And there is a definite shortage, which is unlikely to be bridged in the near term. Builders like Total Environment (Windmills), Mantri (Espana) and Brigade (Petunia) and Sobha (Lifestyle) have started projects offering large flats or villas but the numbers in the pipeline are no match for the projected demand.
In short, the market condition now is a perfect recipe for disaster. What is available is not wanted and what is wanted is not available. And this is across all segments. And brokers like us can do nothing more than wait at the traffic signal singing Om Shanti Om (let there be peace and quiet all around) not knowing whether the next light is red or green.
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