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.