NCR, Mumbai record decline.
At a time when home sales are falling across major metros, Bangalore is still seeing a steady absorption of residential units, according to a new report.
The Karnataka capital is seeing six million square feet of residential apartments being bought by buyers every month for the past year, says SBI Cap Securities.
On the other hand, absorptions have been steadily declining at the National Capital Region and Mumbai, the country’s largest realty markets. The absorption of houses has come down from 15 to 20 million sq ft a month to 10 million sq ft now in the NCR, while the western metropolis is seeing absorption of six million sq ft, a 25-month low.
| BRICK BY BRICK Bangalore economy is supporting this kind of absorption as most of the buyers are salaried class | ||||
| City | Absorption | New launches | Inventory | Inventory in months of sales |
| NCR | 10 | 8 | 132 | 12 |
| Mumbai | 6 | 5 | 99 | 16 |
| Bangalore | 6 | 4 | 80 | 15 |
| Pune | 3 | 2 | 48 | 15 |
| Chennai | 3 | 1 | 32 | 12 |
| * All figures are million sq ft except the inventory in months of sales Source: PropEquity, SSL | ||||
So, why the spurt? Normally, information technology (IT) companies give salary rises and bonuses during the March-April quarter, and employees start planning their purchases, notes Akshit Shah, real estate analyst with SBI Cap Securities. “Besides this, the festive demand has also helped the home sales,” he adds.
Azure Capital thinks the Bangalore economy is supporting this kind of absorption as most of the buyers are salaried class. “IT biggies such as Infosys, Wipro, TCS are hiring 10,000 to 15,000 staff, giving boost to new home purchases,” points out K Madhusudan, co-chief investment officer of the Bangalore-based realty fund manager.
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While absorption is steady, the number of new launches in the City of Gardens has come down sharply from monthlty average of seven million sq ft to four million sq ft a month now. This has helped it to keep inventory levels under check, the report says. SBI Cap’s Shah says that absorption at ongoing rate and slower pace of new launches can stabilise the prices or even help them to rise. All the same, “a weak quarter in terms of absorption can push the inventory level higher and result in price correction”, he adds.
Due to lower absorption, the inventory levels in Mumbai have touched 99 million sq ft and in terms of inventory in months of sales (or months taken to clear inventory) stands at 16, compared to eight months in 2010. This is one of the highest levels in the country.
“In case the approval process in Mumbai fastens,” the report says, “there will be a sudden rise in the inventory, which will push the developers to reduce the property prices. The saviour is considerable improvement in absorption, which seems unlikely at the current property price levels.”
NCR has a inventory level of 132 million sq ft. This is higher than other cities, but it has come down from a peak of 150 million sq ft in 2010, courtesy lower pace of newer launches. Inventory in months of sales at 12 is higher than two years average of 9, it adds.