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Thursday, July 6, 2017

RERA, Demonetisation Gloom and Unsold Stock Cripple Launches in Bengaluru: Knight Frank India



Knight Frank India has launched the seventh edition of its flagship half yearly report - India Real Estate. It presents a comprehensive analysis of the residential and office market performance of Bengaluru for the period January – June 2017 (H1 2017).

Residential Takeaways:

·         Bengaluru residential market continued to be restrained in H1 2017 and witnessed a marginal increase of 5% in new launches and 4% in sales over the figures in H2 2016
·         Despite the slight improvement, the  number of new launches  in H1 2017 lagged behind H1 2016 by 42%and sales lagged by 19% during the same period
·         Factors such as RERA, demonetisation hangover and considerable unsold stock played a major role in constricting the market
·         A significant chunk of new launches in H1 2017 lies in the INR 25-50 lakh range, a welcome development given the government’s focus on the affordable housing sector
·         South Bengaluru continues to lead in both new launches and sales, courtesy its healthy congregation of large IT hubs, and is preferred by both the local populace and expatriate population.

Office Takeaways:
·         Bengaluru records 5.8 mnsqft of office space transactions in H1 2017, depicting moderate activity,as compared to previous years. New completions at 3.7 mnsqfttake a hit.
·         Tepid growth in the IT/ITes sector, stiff competition from other cities and a dearth of ready office spaces are some of the major factors leading to the dip in transactions
·         While IT/ITeSsector continued to drive Bengaluru office market in H1 2017, a prominent development observed during this period is the quantum of office space taken up by co-working space operators
·         Vacancy rates, which had been declining steadily over the years owing to consistent transactions and restrained new completions, continued on its downward movement and are presently at 4%
·         The ORR office market, which has been struggling in the past few quarters on account of dearth of ready to occupy space, saw its share increase in H1 2017 owing to a slew of big ticket transactions

Speaking about the findings,Shantanu Mazumder, Director – Bengaluru said,“Until recently recognized as one of the most resilient residential markets in the country, today the market is reeling under pressure. However, things have started looking up slightly in 2017 and although the figures are still restrained, marginal improvements were observed in the number of new launches and sales at 5% and 4% respectively in H1 2017 on a YoY basis. A significant chunk of new launches in H1 2017 lies in the INR 25-50 lakh range, a welcome development given the government’s focus on the affordable housing sector. Moreover, the inclusion of Bengaluru in the Smart City list is expected to have a far reaching impact on the residential market in the forthcoming years, as that would lead to improved infrastructure in the city. This would, in turn, add to the overall attractiveness and brand image of Bengaluru as a residential market.

On the office market front, 5.8 mnsqft of transactions depict a slight dip, signalling moderate activity compared to previous years. This decline could mainly be attributed to dearth of ready office spaces that forestalled potential occupiers looking to expand. Another factor is the tepid growth the IT/ITeS sector - the key demand driver of the office market in Bengaluru. Having matured over the years the sector stands on a bigger base today thereby limiting the scope for remarkable expansion that was witnessed earlier. On the new completions front, the city witnessed the infusion of 3.7 mnsqft of office space in H1 2017, whichis slightly better than the quantum of new completions in H2 2016. However, this figure is considerably less in proportion to the demand observed in the recent periods. While the IT/ITeS share is gradually reducing due to the advent of newer service sectors, take up of space by co-working companies is a trend to watch out for.”

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