AXR sees renewed interest in Bangalore

Dubai:  With its property values on the mend, new residential projects are making a comeback of sorts in the southern Indian metropolis of Bangalore. AXR Properties certainly hopes this is the case with a townhouse development — the Zeus — located within the city limits and aimed directly at the premium end of the residential space.

Total project cost would be in the range of 1 billion rupees (Dh78.7 million), while the individual units, with built-up areas of 4,000 square feet, are priced at a Rs22.5 million. The developer is looking at a completion date 18 months from now.

"The Bangalore residential market is recording a gradual increase in investor interest, and this directly feeds off the recovery in property values within the city in recent months," said Nimish Kamdar, managing director of AXR Properties.

"The downturn of the Indian real estate sector in 2008 and early-to-mid 2009 is distant history."

Much of that sheen was lost when values took a dive from late 2008 and into the first half of 2009. Projects were shelved and selling prices cut on those that had made headway.

But at no point did it reach the kind of decline recorded in Mumbai, where in the residential category, the drop was by as much as 30 to 40 per cent, and by an average of 50 per cent in commercial.

But a recovery in Bangalore started to manifest itself from the third quarter of last year and the current values are at levels where both the developer and potential buyer can be comfortable with. Which also explains why developers are willing to face the market with new offerings now.

"Property values have been stable for some time now, and in the last three months, a 40 per cent increase has been recorded in registration values with the civic authorities, which indicates that buyers are returning in strength back into real estate," said Kamdar. "As a city, Bangalore at 840 square kilometres offers a much wider scope than, say, a Mumbai, to build on. "This, in turn, ensures that new development activity can be mounted as soon as the market returns to normalcy or in growth mode."

For the Zeus development, AXR plans to launch construction shortly. Its prospects are certainly helped by as many as 15 banks in the city aligning with it to offer mortgage packages.

AXR has two other projects in Bangalore under the banner of a group company, one of which is in Electronic City and the other on Outer Ring Road. Apartments in the former are priced at Rs3.3 to Rs3.5 million for a two-bedroom, while a three-bedroom in the second is upwards of Rs12.5 million.

"The Indian economy has not gone through the recession that afflicted the rest of the world," said Kamdar. "This ensured that the correction in real estate values was not as severe as elsewhere and the turnaround has been quicker because of that."

Rents

Relief for corporates

The recent upturn in the residential space is mirrored in Bangalore's commercial real estate sector as well. This was led by strong hiring activity among businesses based in the city during the period, and office locations in both the central and secondary business districts were able to reap the benefits.

Helping the corporate tenants' cause was the continued stability in lease terms.

"The rents have remained stable for the last three quarters as the high supply in pipeline kept them under pressure," said a recent report by Jones Lang LaSalle Meghraj, the consultancy. "Over the same period, investment yields in the CBD [central business district] and SBD [secondary business district] remained unchanged as rental values and capital values remained stable."

During the second quarter, average rentals for offices in the CBD and the SBD were at Rs74 (Dh5.8) and Rs38 a square foot. "The improving economic indicators suggest that demand for office space will increase over the next 12 months in Bangalore," the report added.

"However, supply is expected to exceed demand, thus keeping an upward pressure on vacancy. As the rental values have already declined significantly since the onset of the downturn in mid 2008 and the demand is improving, any further rental correction seems unlikely."