‘Prices will move up 15-20% in the next one year’

When it comes to prices, Neville M Vaswani, managing director of Vasvani Group, sees Bangalore’s real estate market as being a laggard when compared to NCR and Mumbai. But he tells DNA the city is set to witness an upward price correction in the next one year. 

What makes Bangalore an attractive real estate destination?
Well, for one, the IT industry is bounced back in a big way. It is rebounding, job creation is back, and commercial leasing has come back in a big way. IT employees have a lot more confidence in their jobs, so that is giving a boost to the residential side of the business.

There was a time when customers preferred to buy completed projects rather than put in money in projects under construction. Is this consumer mindset changing?
I think that trend is clearly changing. It was the case in 2009 when the market was in the grip of recession. Consumers had more or less lost confidence in their own ability to keep a job or on the developer to complete the project. So at that time it was a scenario where nobody wanted to take the risk. People just wanted to buy something that was ready. But over the last 8-9 months we’ve seen that trend changing. Clients are a lot more confident. New projects have started to be launched in the last six months. That allows customers to pay over a period of time but at the same time enjoy the price appreciation because they can lock in at an early point plus they're paying in interest free installments.

Many developers are now holding stock until completion as it brings in more revenues...
We typically don’t do that. I would say developers are hedging because commodity prices are going up, steel and cement prices, input costs are going up drastically. Inflation is very high and that has a direct effect on commodity costs. In the past, some developers in the past have made the mistake of selling off entire projects at launch and when the costs went up and they suffered huge losses. So I think a lot of developers now are selling over time. At Vaswani, we do have quarterly targets that we meet, but we make sure that sales are in sync with construction. But eventually you will always end up with some space which will typically go for some premium because then all the marketing risk is taken out.

Going forward what are the areas to watch out for?
We’re looking at all areas that are growth areas - Bangalore CBD, Hebbal-Jakkur-Yelahanka belt, the Whitefield belt and the Sarjapur-Outer Ringroad. We like to be in areas which are close to work places. All these areas are even getting good social infrastructure as well.

What’s your take on the current cement cartel issue? How does that affect prices?
It definitely puts a lot of pressure on margins and input costs. We are now approaching a slight slack period, because in the monsoons cement prices are stagnant. We hope that atleast between now and august prices would continue to be stable. But then again it’s a case of demand and supply. So if the economy has to grow at the rate that it is then cement and steel are a very important part of it. Eventually the costs wherever possible can be passed along to the customer but all the costs can’t be passed down.

What will be the trend in the real estate industry going forward?
Bangalore will see robust growth in the next 2-3 because the industrial sector is doing well. That is creating a lot of demand for commercial space which in turn is driving the residential, retail and hospitality verticals. The good thing about Bangalore is that the prices didn’t go up to the extend it went up in Mumbai and Delhi.

Do you see that happening anytime soon? How much is it expected to shoot up by?
I see that Bangalore is a bit of a laggard but now it is definitely catching up. I think Bangalore developers showed a lot of maturity over the last six months by not going ballistic with their prices as opposed to what happened in national capital region (NCR) and Mumbai. However, going forward, I definitely see prices going up with strong demand. I’d say conservatively prices will move up by about 15-20% over one year. I think that is inevitable.

There was a phase when there weren’t many new projects being launched, what would you attribute that to?
I think developers were busy completing old projects, getting rid of old inventory, and busy paying off old debts and construction finance they had taken for their earlier projects. At the same time, they were playing the wait and watch game.

What is your outlook for the real estate sector in Bangalore?
On the residential side you will see many new launches, commercial demand has picked up and absorption is very high. In fact, in the last three quarters the kind of commercial leasing that has happened in Whitefield, Hebbal, and Sarjapur areas has been much higher than the leasing during the same period last year. It is a sustained recovery. This is the time to buy or lease. That window of opportunity has opened now.