The Highs & Lows Southern Real-estate
Established in 2011, Citrus ventures Pvt. Ltd. is a Bengaluru based real-estate development firm. Shashidhar Pai, Managing Director, Citrus Ventures, talks about the scenario of realty market in South India.
The real-estate in South India has a strong underlying demand in the mid-income housing segment driven by the technology, automobile, manufacturing and services sector employees. Bangalore housing can be subdivided into plots, villas and apartments. We estimate that the market size of plots is approximately Rs.3,000 Crore, for villas approximately Rs.1,300 Crore and apartment’s market size is Rs.10,000 Crore. The commercial office space category in Bengaluru amounts to Rs.6,000 Crore with the five kilometer radius of outer ring road (ORR) being the fast growing location for commercial plug and play developed plots. This area is expected to have a very good velocity and high value share.
In terms of consumer profile, Bengaluru, Chennai, Hyderabad and Kochi are cosmopolitan cities with property buyers primarily in in their mid-30’s. The well-travelled, double income families with strong financial track record are well informed and demanding. Also, as their transactions are mostly mortgage backed with nominal cash component, the demonetization impact was minimal here, compared to the realty markets of cities like Delhi and Mumbai.
The current economic slowdown has impacted the employment growth and salary increments resulting in postponing of large investments including housing. Some of the recent guidelines issued by the National Green Tribunal have put another spanner in the works.
The reduced sales have led the developers to opt for refinancing their debt obligations mainly through NBFCs and PEs. The flip side of this development is the higher cost of funds and need for early exit. Therefore, the finances of real-estate developers continue to remain stretched due to elevated inventory and debt. It is estimated that debt levels of real-estate companies will further increase given the negative operating cash flows.
The requisite of urban affordable housing is space efficiency and basic lifestyle amenities. The developers need to design such functional products with relevant price point to attract buyers. For instance, all projects of Citrus Ventures including plots, apartment, town houses, studios and villas are preceded by market research and focus group surveys to guide the project design. We have completed more than one million square feet of saleable area and another four million square feet is under development.
The ‘Housing for All’ and ‘Smart Cities’ initiatives by the Central Government are expected to bring back the much needed momentum to the housing sector. We believe that the housing in the Rs.40 lakh price point will be highly sought after. Smart cities concept will however take 10-15 years to mature. Based on our learning from both these initiatives we are rolling out our first affordable smart township in Bangalore that will provide a sustainable, technology backed infrastructure on a competitive price.
In the same vein, RERA and regulatory agency will usher in a completely new experience for customers. From a developer’s perspective it calls for financial discipline. In short-term RERA will lead to contraction of the market and in reduction of number of players. In addition, given the need for higher financing and increased compliances, prices will also go up by 10%. Though, GST intends to bring down the net effective taxation by unifying different Central and State taxes under one umbrella, given the conditions for availing credit it may be inflationary in nature. Nevertheless, both the regulations will be beneficial in the long-run, making the end-user as the focus and key driver.