With more than 84,000 unsold units, Bangalore, an end user driven market, has surpassed Mumbai in the number of unsold housing units, during the quarter ending June 2015. Increasing number of new launches by builders and lack of buyer support appear to be the reason.
New project launches coupled with poor buyer sentiment have resulted in an increase in unsold inventory to more than 84,000 units in Bengaluru during April-June period, says a survey by Jone Lang LaSalle (JLL).
Bengaluru has surpassed Mumbai in terms of unsold stock to take the position of the second-highest residential real estate inventory overhang, the survey said, adding that NCR, however, continued to top the list during the period.
“Bengaluru’s residential property inventory overhang now stands at 32 months. With more than 84,000 unsold housing units by the end of Q2 2015, the city has surpassed Mumbai in this respect for the first time,” JLL India Chairman and Country Head Anuj Puri said.
According to the report, developers launched new projects even as the buyers preferred to postpone their decisions.
“Given the rising land costs and expected cash flow issues, developers have been launching new projects in the last few quarters. The situation, however, does not reflect a disconnect between developers and buyers. Though enquiries are happening, buyer sentiment has been affected by macro-economic conditions, causing them to put their buying decision on hold,” he said.
Though the overhang is higher due to launches, developers are willing to wait until their projects sell off, he said.
“The primary reason behind their confidence is the fact that Bengaluru remains a very end-user driven market, quite unlike Mumbai and NCR, which have traditionally been speculative, investor-driven markets. The key characteristic of being a stable market still exists in Bengaluru,” Puri said.
The study pointed out that units in the price range of Rs 35-80 lakh sell off quickly in Bengaluru, while those with ticket sizes of Rs 1 crore and above take longer to sell.
Presently, ticket sizes for most projects in the city range from Rs 75 lakh to Rs 1 crore. Also, sales are slow only in relatively less popular locations like western part of Bengaluru, Mysore Road, Tumkur Road, the report stated.
On the other hand, good and stable demand is observed in areas like Sarjapur Road, Bellary Road, Kanakpura Road and Varthur (in Whitefield) mainly due to the accessibility from IT parks that these locations enjoy.
“The developers should have waited longer before launching so many projects in the last few quarters. Though they may be confident of the situation changing for the better due to the latent demand in the market, sales and buyer sentiment are both likely to remain slow for some more time,” Puri opined.
Going forward, developers will have to launch projects after fully understanding the prevailing market conditions.
“It is important to balance out the existing demand-supply mismatch mainly to ensure that it does not start affecting price dynamics and the market does not move from stable to stagnant mode in terms of pricing due to the increased overhang,” Puri added.