Plan to buy a house? Head for Bangalore

It seems the Bangalore real estate bubble has burst.

The city, which saw some unrealistic rise in property prices in the past few years, has witnessed a sharp drop this year. A survey conducted by a real estate firm corroborates this.

Real estate company Asipac states that property prices in the city have dropped by at least 10 to 20 per cent in the past one year. In areas like Sarjapur, where the concentration of IT firms is heavy, prices have come down by 20 per cent, while in posh localities like Jayanagar and JP Nagar, there has been a 15 per cent fall. 

Such a drop seems strange, especially when prices in Mumbai, New Delhi and indeed many other Tier1 and Tier-2 cities are wintessing a phenomenal increase. 

So what has led to a dent in property prices in the IT capital of India?

Experts hold that property in Bangalore always had a 'fake' -- or inflated -- price. It soared because of the hype around the IT boom in the city. Prestige Group chairman and managing director Irfan Razack feels that property prices in Bangalore were at an unrealistic high so far. That led to a demand-supply mismatch as a result of which at least 5,000 apartments lie vacant today. Dealers, who used to sell at least 60 flats in a quarter, can now sell just six.

One can compare the Bangalore scenario to that of Mangalore as it was a couple of years back when the Mangalore Refineries and Petrochemicals was set up. Big money was being paid to the the refinery employees then and taking cue from this, realtors hiked property prices.

As a result, a house which would be available for Rs 500 on rent at the time was available for no less than Rs 1,500. However that situation did not last for long and prices came crashing down in a few years.

The case of Bangalore is no different. The advent of IT industry to the city led to a huge rise in realty prices. Sky high prices started getting quoted just because IT personnel could afford it. Result: non-IT people too had to cough up these higher rates. 

Inflated prices in turn generated a false realty market in the city, wherein people not even remotely connected with the construction industry started building apartments. Thus, a city, which had just 40 apartment buildings till 15 years ago, has over a 1,000 today. And a majority of them are lying vacant.

Builders in Bangalore find it difficult to dispose of the apartments these days and hence are incurring huge losses. They are, therefore, reducing the prices to draw customers.

Take the case of Sarjapur. Prior to the IT invasion, this area was hardly visible on the Bangalore map. Today, there are nearly 40 different apartment blocks, but very few takers.

The prices that used to be quoted earlier for houses in this area were very similar to those quoted for apartments in the heart of the city. An investor, however, thought twice before investing in a property in this area because of its remoteness. (Although Sarjapur and White Field have very good apartments, commuting from these places isn't too convenient). Hence apartments worth Rs 50 lakh (Rs 5 million) and above in the area mostly lie unoccupied at present.

High property prices in the best planned areas of the city -- like Jayanagar and J P Nagar  -- forced prospective buyers to opt for less expensive areas, like R T Nagar, Sultanpalya and Kamanhalli. It is said that the demand for land or a house in Jayanagar and J P Nagar went down by at least 40 per cent. Realtors in the area, were in turn compelled  to reduce prices.

According to the builders of Bangalore, realtors are to blame for the price debacle. After a building is constructed, the builder sells it to the realtor, who in turn disposes of the property at a price of his choice. The realtors, who have their own network (a very strong one), are the ones who decide the price.

To sum up, there cannot be a better time to invest in Bangalore. 

"It is the best time to buy a property in Bangalore. You never know what the future holds in store. Once the vacant apartments are disposed of, prices could rise again," says builder Ajith Pai.