The Hindu Business Line : Bangalore eyes resale market

With prices in the primary market in Bangalore reaching never-seen-before rates, genuine home-buyers are seriously looking at the secondary, or resale market, for that dream home.

The secondary residential sales market in the city has witnessed an increase in transactions in recent months due to a host of factors. In the light of rising interest rates, coupled with developers announcing a hike in sale prices, the primary market conditions are becoming less attractive for the end-user, feel industry experts.

“Simultaneously, the rental market has stabilised, with a few micro-markets such as the east and south-east regions witnessing a correction. The segment that has benefited from this scenario is the secondary sales market (essentially driven by investors), where the buyer can avail of discounts on capital values,” says Mr Sandeep Trivedi, National Head - Development Consulting, Cushman & Wakefield, real-estate services firm.

Moreover, the primary market has been moving relatively slowly in terms of project completion and “that, coupled with the ready-to-move-in option offered by a secondary sale property, has boosted the demand for the latter from an end-user perspective,” he adds.

According to him, new projects are priced relatively higher and project completion is seldom within timelines as per current market trend. For investors too, the ready-to-move-in option offers immediate returns, he feels.

Till the property in a primary market is handed over, there is uncertainty on every issue related to value appreciation, rental revenue, quality of construction, maintenance issues, etc, whereas in the secondary market, the buyer can enter into the deal after ensuring the quality of construction, maintenance process, rental trend, and value appreciation, says Mr R. Balaji, CEO, Propmart, an end-to-end on-line and off-line property solutions provider.

Strong demand

In some areas such as the Central Business District (CBD), the demand for resale properties is strong, as there is a short supply. So, people looking for properties in that area have little or no option left but to look at existing old buildings. “And in the case of the peripheral areas, those who bought property earlier are selling at prices lower than what builders quote for their developments in the same locality. This is because they bought at lower pre-launch prices. Now, with the costs of construction going up, builders have hiked prices between Rs 300 and Rs 700 per sq.ft. Investors who bought earlier are cashing in on this opportunity in the secondary market,” says Mr Farook Mahmood, Managing Director, Silverline Realty.

Explaining the nature of the secondary market, Mr Balaji says that two types of properties come up for resale — the existing properties and new ones, some of which are still under construction. “The demand for existing properties is high. One of the reasons is that the cost of first supply has increased,” he adds. Many times, resale of apartments happens even before the construction of a new property is complete. “This is done by small individual investors who are looking for short-term gains,” he says.

Besides, the buyer opting for a bank loan for a primary market property would have to make pre-EMI interest payment along with the rental for existing dwelling, while EMI on a loan for a resale property would include basic cost, car park, deposit on statutory bodies, maintenance, wood work, and fittings and fixtures, says Mr Balaji.

Supporting factors

Mr Trivedi agrees that the high price points of the primary market have certainly boosted the number of re-sales in recent months. “Unlike the primary market, the secondary market has witnessed a price drop of approximately 10-15 per cent, which has led the consumer towards resale purchase,” he says.

It all depends on the property, says Mr Mahmood. Factors that make a difference when it comes to pricing for resale properties include location, quality of construction and the track record of the developer from whom the property was bought. He, however, feels that prices have not come down significantly in the secondary market. “The target segment here is very different and this market does not have a strong correlation with the primary market. The difference between primary and secondary markets in some developments is between 5-10 per cent,” he says.

Attractive areas

According to him, transactions have decreased in number. “The demand for houses has come down with the increase in home loan interest rates,” he says. The reason for this decline is probably because it is mostly the end-users who are looking to buy property, and not investors. The drop in demand is more pronounced in peripheral areas than the core city areas, he adds.

Mr Trivedi identifies areas such as Whitefield, Bannerghatta Road, Outer Ring Road, Sarjapur Road, Hebbal and North Bangalore among the front runners in the secondary property market.

Mr Mahmood says that while all central areas and localities such as Indiranagar, Koramangala, Palace Orchards, Jayamahal, Frazer Town, Richmond Town, Malleswaram, and parts of north and south Bangalore command high premiums, suburban Whitefield has gone through a correction phase because of excess supply. Parts of Kanakapura Road, J.P. Nagar and Mysore Road are also in the grip of a correction phase, he adds. According to him, there is very little supply in the central areas and moderate supply in the peripheral areas.

Most of the projects that were launched in 2004-06 are only now ready for possession, says Mr Trivedi. “Property owners/investors (second and third flat owners) who are unable to derive good rents or who are feeling the pressure of the increased EMIs are the people who are essentially willing to sell their property,” he adds.