South Indian cities are witnessing a spike in real estate investment in sectors of commercial office spaces, residential and retail spaces. However there is still oversupply in the market.
Out of the total housing absorption in cities across South and North India in Q1 2018, the southern region is ahead with two third of the supplies getting ‘absorbed’, while in the National Capital Region (NCR) market sales are much less. Market watchers say that the low-cost economy housing segment is growing faster. A lot of expansion in Bengaluru is in the surrounding areas even up to Hoskote.
Hit by demonetisation and GST in the last two years, realty markets across India are now recovering. But even when hit, the realty markets of Bengaluru, Chennai and Hyderabad had proved more resilient than cities in other parts.
Data by Anarock Property Consultants reveals that housing sales in the southern regions have seen a significant increase of nearly 28% in Q1 of 2018, as against the same quarter in 2017. On the supply front too, there has been a steady momentum with nearly 39% increase in the quarter ending March 2018 as against Q1 2017. Average property prices have seen a marginal increase of 2-3% across the southern cities in Q1 2018 as against Q1 2017, according to Santosh Kumar, vice-chairman, Anarock.
Among the South Indian cities, Bengaluru outstripped Chennai and Hyderabad in terms of housing, posting a 127% rise in supply. The city saw the highest launches with 6,800 new units compared with Hyderabad and Chennai’s 2,600 and 2,100 units, respectively. Bengaluru also lead on the absorption front, selling 11,500 units in Q1 2018.
Data by Jones Lang Lasalle has indicated that the rental value in Bengaluru for retail spaces is ranging between Rs 80 and Rs 120 a sq. ft (capital value of Rs 10,000-12,000 a sq. ft). It is around Rs 20-40 for residential (capital value of Rs 4,000-6,500 a sq. ft) and Rs 40-60 for office rentals (capital value of Rs 6,000-9,500).
In Chennai, rental and capital costs remained almost in the same range as that of Bengaluru. Commercial office space and retail spaces are a big draw in Chennai and Hyderabad as compared to the North Indian markets.
The Hyderabad Metropolitan Development Authority auctioned 189 open plots raking in Rs 352 crore. Market watchers say that Hyderabad still has a lot of land, thus there is a scope of a lot of expansion. This has kept the prices in Hyderabad in check. A lot of business has moved to Hyderabad from Chennai because of this reason.
Realty vs equity investments
With the real estate market heading towards greater transparency and efficiency due to several reforms, buyer confidence is returning and many erstwhile fence-sitters have now entered the market with decisions to buy. Most of these buyers are end-users.
In the current scenario, the volatile nature of the stock market has once again given real estate an upper edge. Historically, Indians have preferred real estate over asset classes like stocks and mutual funds.
To mitigate risks associated with each asset class, millennials now prefer a little of everything in their investment portfolio. However, the growing transparency and efficiency in the real estate sector is giving a booster shot to the sector, say market analysts.
C Shekar Reddy, former president of CREDAI (Confederation of Real Estate Developers Association of India), speculates that the cause for huge interest in the real estate sector is the Financial Resolution and Deposit Insurance (FRDI) Bill that hit people’s confidence in parking their money in the banking system. The bitter experiences during demonetisation have compounded the enthusiasm in safer investments. People began investing in gold and real estate because they feel safe.
There has been a significant dip in the risk-taking appetite of investors, who have become more cautious now and are now making smaller investments. They are largely seen to be investing in either the affordable or the mid-segment properties within Rs 80 lakh price bracket.