Bengaluru realty showing signs of consolidation after structural reforms: ICRA

Organised developers to enter affordable housing segment in a big way during 2018

The Bengaluru residential real estate market has entered a consolidation phase in 2018, after demand headwinds and structural reforms witnessed during 2017. The industry has absorbed the impact of regulatory developments in 2017 including implementation of the Real Estate Regulation and Development Act (RERAD Act) and the Goods and Services Tax which had caused an extended disruption in the market. Despite the immense demand potential on account of the strong commercial office space absorption in recent years in Bengaluru, the residential real estate market had seen a slowdown in sales volumes since 2015, says ICRA.

“Some of the key favourable trends that have become evident in the market include – relatively stable demand for end-use driven projects in the affordable and mid-income categories, decreased participation of investors who have not seen much capital appreciation in recent years, strengthening of demand preference in the premium segment for completed projects owing to indirect tax savings, a cautious approach to new project launches, subdued demand for projects in the peripheral areas of the city where purchases were more speculative in nature, and consolidation of market share in favour of the large and organised developers,” says Shubham Jain, vice president and sector head at ICRA.

The ICRA analysis of the operational performance of the listed Bengaluru-based real estate developers also indicates that sales volumes in 2017 have been lower than the preceding year. However, the lower sales volumes in 2017 must also be seen in the context of the reduced project launches and the disruption created by demonetisation, the RERAD Act and the GST implementation.

Going forward, ICRA expects demand pressures to continue for some more time, especially in the premium segment. New launches are likely to remain low going forward; moreover, the development of large-scale projects is expected to be phased out and spread over a long time to mitigate risks from creating large supply in one shot. The implementation of the RERAD Act is likely to result in a consolidation within the industry and organised players could gain a higher share of the market as supply from smaller developers gets curtailed.

“The trend of consolidation is already evident in the performance of many large developers who have been able to demonstrate good growth in sales volumes in 2017 when the overall market has been declining. It is also expected that organised developers will enter into the affordable housing segment in a big way during 2018 to take advantage of the various tax benefits, which will further expand their market position,” says Jain.

New project launches decline in Bengaluru

New project launches have declined significantly over the last three years as demand was subdued and developers focused on clearing inventory from the existing projects. However, the decline in new project launches has helped offset the impact of slowing sales on the inventory levels – the estimated years of unsold inventory have seen a declining trend over the second half of 2017.

Karnataka Real Estate Regulatory Authority (RERA) processes over 2,000 project registration applications

The implementation of the RERAD Act, though delayed, has been well received by the customers and developers since the Act is likely to enhance the transparency and formalisation of the industry. The Karnataka Real Estate Regulatory Authority (RERA) has processed over 2,000 project registration applications till date, with over 70% of the approved projects located in Bengaluru. The portal of the Karnataka RERA has also been updated to provide all relevant details of approved projects. After the initial surge of applications for registration of ongoing projects, the authority has been approving around 15-20 projects in the recent months.

Highest level of office space absorption

With respect to the commercial real estate segment, Bengaluru has seen the highest level of absorption of office space across the country. With supply levels falling short of the absorption in each of the years, there has been a gradual reduction in vacancy levels in Grade A properties to around 5% by end 2017. The supply pipeline for the Bangalore market remains strong with an estimated 30 msf of stock under construction, which is expected to get gradually completed over 2018-2021, it says.

Source: MoneyControl

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