Prohibitive land costs hurt B'lore real estate

The prohibitive land costs is turning out to be a major concern for the real estate sector in Bangalore. Developers are facing an extreme shortage of quality land and land prices have been spiralling to unreal levels.

"At such unreal rates, there could soon be questions raised on the feasibility of a project in an infrastructure-starved city like Bangalore vis-a-vis other upcoming locations like Hyderabad," said CB Richard Ellis' first quarter 'India Office Market Brief'.

There is also a clear gravitation towards the northern part of Bangalore. Lured by large land parcels, good roads and open possibilities, companies, equity funds and developers alike are queuing up in the Hebbal-Devanahalli stretch along the Bellary Road, the report added.

Corporates and developers alike have been keenly following the creation of special economic zones (SEZs). Many corporates are indicating that they would like to consolidate in an SEZ and many developers are considering conversion of their projects into SEZs.

An SEZ is a specifically delineated duty-free enclave and will be deemed to be foreign territory for the trade operations, duties and tariffs; the main objective of an SEZ being promotion of exports and foreign exchange earnings.

"Although the benefits offered to occupiers in an SEZ look very attractive, it remains to be seen if the benefits of software technology park (STP) already being provided to software companies will cease to exist after fiscal 2009-10," said Ram Chandnani, head - south, CB Richard Ellis South Asia.

The rental values in the first quarter have remained more or less stable across the micro markets. However, capital values have continued their upward march, and with growing paucity of quality land parcels in coveted locations, prices are scaling unheard of peaks.

This inexorable increase in the land prices presents an intriguing trend. Land prices are rising in micromarkets like the Outer Ring Road where vacancy is low (and office space demand is high) as well as in a micromarket like Whitefield where there is clearly waning demand for office space and high vacancy.

Clearly, the strongest current in the Bangalore real estate market is the crumbling infrastructure and unfulfilled promises of the administration fuels the frustrations of corporates and citizens.

The government needs to take action so that the charm of the city is not lost on the choked roads and inadequate civic amenities, the report pointed out.