Realty slowdown hits Bengaluru, Chennai markets

Markets such as Bengaluru and Chennai, which had managed to escape the impact of real estate slowdown so far, appear to be giving in now.

A quick look at numbers reveal that absorption (sale of houses) in these cities during July-September of this year has reduced to half of that in the corresponding quarter of 2014.

The absorption has been falling over the last couple of quarters, says data collated by PropEquity, a real estate research firm. But, real estate prices are holding up, defying economic logic.

According to Macquarie, launches have fallen significantly from an average of 11,500 units per quarter to 7,100 units in the third quarter of the calendar year 2015.

The inventory level inched up marginally from 10 quarters of sales (in 2Q) to 11 quarters of sales (in 3Q).

Sunil Rohokale, managing director and CEO of ASK Investment Holdings, a fund manager, says the fact that not enough high paying jobs are getting created in the infotech sector has impacted the residential sales in cities such as Bengaluru.

"IT companies are not hiring in large numbers and the Rs 15,000 to Rs 20,000 per month jobs created by e-commerce and retail are not supporting sales of apartments which are a high ticket item," says Rohokale.

He adds that even the delay in recovery in manufacturing sector has impacted property sales in cities such as Chennai. Juggy Marwah of JLL, an international consultancy, says the recovery in office property market and improved leasing is yet to translate into big residential sales.

Realty slowdown hits Bengaluru, Chennai markets "Office spaces are getting absorbed very fast but move-ins are yet to happen.

There is no ready space," Marwah says. He says the overall sentiment is down.

"Prices have to come down and developers have to blink a little bit." Experts say sales are happening in the Rs 40 to 60 lakh category and there are single digit sales in Rs 60 lakh to Rs 1 crore category.

Realty players in south India such as Sobha Developers, however, argue that they have not seen any drop in residential sales.

JC Sharma, vice-chairman of Sobha, says the company has sold 1.3 million sq ft of residential space in Bengaluru in the first half of this year against 1.1 million sq ft in the same period last year.

In Chennai, Sobha has sold 182,000 sq ft of residential space in the first half of this year against 85,000 sq ft in the first half of last year.