The garden city cools

Until recently, few developers in Bangalore were willing to accept the fact that residential prices were trending down. Then, in January this year, the Stamps & Registration Department hit them with official numbers that confirmed the undeniable. In the three quarters to December 2007, property deals in India’s Silicon Valley had dropped 40 per cent. The trend continued in the fourth quarter, too. Property transactions in Bangalore, which account for 70 per cent of the state’s revenues from stamp duty, have fallen close to 45 per cent. Housing prices in most parts of east Bangalore have dropped 6-12 per cent. Whitefield and Marathahalli, close to HAL Airport and the offices of IT majors, have seen the biggest drop of 40 per cent in volume terms. Only northeast and northwest Bangalore have held off with either stable volumes or small increase in prices, says Amit Bagaria, Chairman and CEO, Asipac Group, which has conducted elaborate research on real estate trends across the metros.

Inspector General of Registration & Commissioner of Stamps, H. Shashidhar, explains what’s behind the housing slowdown in Bangalore. Banks, he says, have turned wary of realty, as a result of which only end-users are buying flats. Speculators and investors are staying away because second and subsequent sales have slowed down. After the government increased the guidance value of properties (an indicative value for calculating stamp duty), those buyers with black money have backed off as they cannot account for the money used.While Asipac’s survey reveals that prices have corrected around 12 per cent at the upper end, Revenue Department officials note prices have corrected close to 20 per cent in areas outside the core city.

Key trends Builders are offering 10-15 per cent cash discounts as property registrations in Bangalore dropped 45 per cent in 2007-08. In Whitefield and Marathahalli, both prices and volumes have dropped more steeply than they have in other parts of the city. In calendar 2007, an estimated 26,000 homes were sold in Bangalore against 33,500 in calendar 2006. Commercial property prices are holding firm; 12 million sq. ft of commercial space was transacted in calendar 2007 compared to 11 million sq. ft in calendar 2006.

The Karnataka Chapter of Confederation of Real Estate Developers Association of India (Credai), however, denies there’s any drop in prices. “Property prices have gone up 3-7 per cent in select places like Kanakapura Road, Bannerghatta Road and Bellary Road,’’ claims A. Balakrishna Hegde, President of Credai (formerly KOAPA). Credai represents the real estate lobby consisting of 120 leading developers. There are another 150-200 medium and small developers operating out of Bangalore who are not members of Credai.

Hegde also claims the prices of flats from branded developers (read Credai members) are either holding firm or have risen, and they don’t make promotional offers to push their products. Sushil Mantri, CMD of Mantri Developers, endorses Hegde’s point: “Mantri Developers does not discount the value of its properties by giving freebies.’’

Claims of no slowdown, however, fly in the face of Asipac’s findings, which show that the organised sector sold about 26,000 homes in Bangalore in calendar 2007 compared to 33,500 the previous year.

The Stamps & Registration Department finds the claims and demands from the developer community quite contradictory. Shashidhar wonders why there would be any need for reducing the guidance value if property prices were holding firm. Besides, there are some developers like Vintage Shelters who’re offering free interiors, or Skyline Constructions, which is offering cash discount on booking a flat. Vintage is not part of Credai, but Skyline is.

The one bright spot for Bangalore is its market for commercial properties. In 2007, around 12 million sq. ft of commercial property space was transacted compared to about 11 million sq. ft in 2006. “These were all mostly lease transactions for office and commercial purposes.’’ That’s good news for the economy, too.