Bangalore is one of the top-performing Residential markets in India. It has also been taken a big hit in the segment due to the Covid-19 impact. With steady growth registered over the past decade, the industry might see negative growth this year and the trend may continue further. The city was just before Mumbai in the total sales of homes with an inventory of 48k+ in 2019. However, there are some more factors that are contributing to the slowdown.
The calendar year 2020 started positively for the Silicon Valley of India; however, a black swan event in the form of the COVID-19 outbreak has caused a few paradigm shifts that have deterred residential growth in Bangalore. Having said that, the outbreak and its resultant effects on commercial reality are not the only factors slowing down housing growth in the city.
The work-from-home policy
This policy was adopted on a widespread scale across the country as a business continuity tool amid the government-mandated lockdown regulations. An increasing number of companies are extending the remote-work policy, with only some essential workers being called back to offices.
The workforce of Bangalore is made up of locals and migrant working professionals (people from all across the country and expatriates). Owing to the remote work policy being at play for extended periods, many locals are preferring to move farther away from employment hubs where they can find larger sized properties for the same or lower rent.
The migrant working professionals have also taken the remote-working policy as an opportunity to move back to their hometowns. Waqar Ahmed, Owner, Ahmed Realty, Bangalore, explains, “During the initial onset of the lockdown and the subsequent advent of remote working, everybody thought it was only for a short period. However, the pandemic did not show signs of slowing down, and large corporates went on and extended the duration of remote working. Resultantly, Bangalore-based migrant workers wanted to move back and save rental costs.”
For instance, Ahmed continues, a tech professional who was paying around Rs 30,000 – 40,000 per month in rent, electricity, food, and travel expenses saw the chance to cut short such costs by moving back to their family home in their respective hometowns. By April-May, the industry started to forecast that the current way of working was going to last for some time and workers grasped the chance to shift back home for nearly six to eight months or even longer, depending on their company’s policy. This shift has affected the demand from investors who purchase properties in or near commercial hubs, be it the Outer Ring Road (along Hebbal, Sarjapur Road, Marathahalli), or the Central Business District (MG Road, Cunningham Road, Infantry Road, among others), to earn stable rental income.
There have been many cases of job losses and pay cuts in Bangalore owing to the pandemic. Amid the economic slowdown, there have been forecasts of over 40 percent of the city’s start-ups (there are nearly 8,000 start-ups in Bangalore) winding up operations. This can lead to a significant number of job losses. There have also been reports of hiring freezes by medium and larger-sized corporates. With the pandemic still raging, and the economy still staggering to get back up on its feet, fresh residential leasing and average rental demands have taken a hit. As per the data available with 99acres, average rental ‘asks’ in few key commercial localities of Indira Nagar and HSR Layout have decreased by 2-3 percent, each, Jul-Sep 2020. Even prime commercial hubs such as Whitefield and Hebbal have failed to report an upsurge in average rentals during this period.
The home buyer community is also not immune to the general economic effects of the slowdown, and many are looking to postpone home-buying decisions until some financial stability takes effect. A class of home buyers are utilizing this period to look for great deals since the resale market is bountiful of price reductions, and the primary market is abundant with attractive discount packages and flexible payment plans. However, real estate developers have project costs to cover (with the cost of raw materials rising) and salaries to pay and thus cannot reduce the price below a certain threshold, thus, leading to an impasse between many buyers and sellers and, restricting the number of property transactions.
Inadequate civic and transport infrastructure
The city’s civic and transport infrastructure was already under significant pressure, even before the pandemic struck. Many roads across Bangalore, both internal and arterial, have damages and potholes, leading to traffic snarls on these almost-saturated roads. During the monsoons, the pothole issue gains prominence again with waterlogging exasperating the problem. Water supply and garbage collection woes are other issues reported from certain areas.
Delays in big-ticket infrastructural projects, such as in the 65.5 km Peripheral Ring Road (PRR), owing to it being stuck in litigation over its environmental clearance, and the various new extensions of the Namma Metro under Phase 2 missing their deadlines several times also reduce the confidence of end-users on the ability of State authorities to resolve civic issues on a timely basis. All of these factors play hugely on the liveability index of Bangalore and the minds of potential end-user home buyers, thus hampering the residential segment from achieving its full potential.
Still, the State government has been taking steps to improve the civic situation. BS Yediyurappa, Chief Minister, Karnataka, has already announced that the most of the metro corridors under Phase 2 of Namma Metro (consisting of the extension of four existing metro lines and construction of three new lines) will become operational by 2022, while the remaining would be ready by mid-2024. The Namma Metro Phase 2 project, while being delayed, is expected to provide a fillip to the city’s residential realty and vastly improve its liveability. The Rs 5,500 crore Cauvery Water Supply Scheme Stage 5 project is also in the works to supply water to areas in Dasarahalli, Mahadevapura, Bommanahalli, Rajarajeshwari Nagar, and Byataranyanapura, besides improving supply in all other parts of the city. The project has a March 2023 deadline.
Nevertheless, as consumption levels increase with people getting used to conducting business amid the pandemic, companies get back to operating at full capacity, and the overall state of the economy improving, it is probable that the residential segment of the city could see some improvement.