Latest data indicates that sales have dropped due to high prices of properties in India’s IT capital
The real-estate sales in the south Indian city of Bengaluru have dropped during the fourth quarter (ended March 2010) because high property prices have made apartments unaffordable to most people.
Besides high prices, the city is dependent on the continued growth of the information technology (IT) market, which is a key element of the real-estate market in Bengaluru.
The IT industry has still not recovered from the global economic slowdown and until this industry shows some sign of accelerated growth and recruitment, it will be difficult for Bengaluru's realty market to boom again.
According to Ressex data (the Real-Estate Sensitivity Index) released by Liases Foras (a real-estate research firm), the sales index dropped in the fourth quarter ended March 2010 compared to the third quarter (ended December 2009). The sales index fell to 8 in the fourth quarter from 10 in the third quarter.
The drop in sales was due to the rise in property prices. Easy finance has allowed developers to increase property prices without worrying about inventories. Already, growth was stagnant in the second quarter ending September 2009 and inventories had begun to pile up.
The situation remained the same in the next quarter ending December 2009 and there was very minimal movement in inventories during the fourth quarter, ended March 2010.
The inventory index decreased from 86 in the third quarter to 83 in the fourth quarter in the last fiscal.
"The Bengaluru market has still not recovered fully from the slowdown. The IT industry has to stabilise to show positive signs of recovery of the real-estate market as the realty market mostly depends on the IT industry there," said Pankaj Kapoor, founder, Liases Foras.
According to reports, the slowdown in property purchase is also reflected in the decline in demand for housing loans. This is not restricted to Bengaluru. For instance, despite the Reserve Bank of India's hike in repo rates, banks have not responded by increasing interest on home loans, because of poor demand.
Curiously though, Indian developers continue to focus on the super-luxury apartment segment where prices range from Rs4 crore-Rs30 crore. There was a slight shift away from this segment-which also requires large spending on advertising and promotion-after the 2008 panic. However, it is back in the reckoning. Most developers are planning projects to cater to the super-rich and have no interest in the 'affordable segment' which was the mantra after the 2008-2009 slowdown."
One new project in the big-ticket segment is that of Skyline Constructions, a Bengaluru-based real-estate developer who plans to launch six exclusive apartments during this financial year. The apartment sizes will range between 6,000 sq ft-10,000 sq ft and will be priced in the range between Rs4crore-Rs23crore.
Sources say that high-priced properties help developers earn more profits. However, the situation clearly cannot continue for long. As Moneylife has repeatedly reported, the first sign of prices crumbling is evident in the discounts and freebies being thrown in by builders. They range from interest concessions, free parking, payment of a couple of EMIs (Equated Monthly Installments) for the buyer or stamp-duty waivers.
However, the trend in interest rates will probably decide whether developers can hold their high prices for long.
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Indian auto sales are moving at a fast clip, but what is really behind this amazing growth?
Percentages and statistics are funny animals. They have a very old habit of twisting themselves around to let people see what they want to show. However, there is no way anybody can in any way say that the numbers for automobile production and sales in India, domestic as well as export, for the first half of 2010, are in any way less than spectacular (see: http://www.moneylife.in/article/8/6764.html). Hats off to an industry which just about over a decade ago was given up for lost, and reviled by selective vested interests as a manufacturer of shoddy products which would survive only in a protected domestic market.
From my vantage point as an ex-seafarer, vindication is also the stream of pure car carrier ships heading into Chennai and Mundra ports to lift thousands of cars, trucks and two-wheelers for export, and that in itself is a very quiet little high-technology industry over which other Indians at sea have proved their mastery over the past few decades.
Quick aside: how many, and which, of the international automobile manufacturers were hesitant or unwilling to manufacture motor vehicles in India, as recently as 6-10 years ago, because they put forward the proposition that their product quality and brand image would suffer as a result of the problems in manufacturing vehicles in India? Answer—look around, and check out which are the companies-come-lately now desperately trying to establish footholds in India.
So there are two questions which come up:
1) What really is behind this amazing growth?
2) How sustainable is it going to be?
Right off the bat, more vehicles does not automatically translate into more kilometres per vehicle on the road for private vehicles. Raw data from contacts in the after-sales and service groups at an assortment of manufacturers corroborates the perception that an increasingly larger number of people are buying private vehicles, but not using them as much as they would in the past, choosing often to either flaunt the newest and the costliest, as well as have separate vehicles for separate functional usages.
One explanation states that it is almost as though there is a lemming rush—buy yet another costlier car or bike simply because you can—a symbol of “enjoying”, especially since monthly lease, rental or EMI numbers for costlier cars are often the same as a couple of air-tickets or an expensive meal for four. That’s true, certainly, but not the complete truth. This is a limited segment, growing rapidly, but still not able to account for the massive growth. Most buyers are sensible people, you and me, and need different reasons to buy new vehicles.
At the same time, there is no doubt that vast new segments of Indians in India are also moving into the motorised vehicle owning segment—for example, every newspaper delivery vendor or milkman now has a two-wheeler or even a four-wheeler, which functions in multiple roles in the course of the day—and in Delhi, with a 33% subsidy, just incidentally, these are often battery operated too.
Likewise, the food home delivery segment has moved from bicycle to scooter to motorcycle and now to Tata Nano—in less than a couple of decades. And the State, in its infinite wisdom, kindly winks at the practice of this segment of Indians using private vehicles for multiple roles, including commercial purposes.
On the other hand, other friends in the after-sales and service business tell me that they observe a huge jump in the usage patterns of commercial vehicles, especially in some trades—like mining, agriculture, defence support, long-distance buses and trucks, taxis, and commercial vehicles used for specific trades, like car carriers and sea-port/airport vehicles. New generation city taxis are reportedly crossing 3,00,000 kilometres in two years, and then being phased out into secondary roles, or simply scrapped, presented to loyal and hard-working drivers as reward for good work. Trucks in the mining industry are considered old in their second year, and by the third year, are moved out, with very few buyers for these over-used tippers. Luxury buses on long-distance routes do over 1,000 kilometres a day easily, often more, often with multiple drivers, and manufacturers are now aiming at mean time between overhauls within Indian conditions of a million kilometres in under three years, after which the bus moves into secondary routes.
All this, and more, requires a constant churn of new vehicles, with the dividing line between private and commercial going hazy at times—especially for cars and bikes.
Data on scrapping or removal of motor vehicles from RTO registers is almost unheard of. Barring a small segment of people, new motor vehicles are bought with a three-eight year time window in mind, after which it is simply more economically feasible to cannibalise them for usable scrap, components and parts.
And on this important aspect, of vehicles simply vanishing without a trace, there is often no data because there is no foolproof method as yet to “cancel” most motor vehicles—especially private vehicles.
So while spice and all that's nice is certainly one major reason behind this amazing growth, the increasingly shorter life of modern day motor vehicles is also important in itself.
The other reason which is more sustainable is that there is certainly a lot more that the commercial and quasi-commercial vehicles are doing on our roads. A whole new segment called “small commercial vehicle” has sprung up almost from nowhere, kick-started by the Tata Ace, and replicated by a splurge of new manufacturers—especially from China—un-noticed till you take a closer look at the front of the increasingly visible but non-spectacular SCVs. The quasi-stage carriage or mini-bus is often a seven-eight seater which has been expanded to take more—and when the demand grows, then stacking 30-40 people on a Tata-407 equivalent chassis is not unknown, too.
So, to answer the second part—yes, the growth is certainly sustainable—but with a rider or three. No longer will the “market” accept shoddy products, and newer vehicles will have increasingly shorter life-cycles on our roads. And what’s behind this growth is a rapidly growing need for moving people and products around, especially in what is known as the two-six hour radius driving time from base. The said radius, incidentally, has exploded exponentially in terms of distance feasible.
But that's another article.