Merrill Expects the Street to be positively surprised by a 10-15% price increase with sustained volume growth in Bangalore over the next 12 months. Key reasons for strong trends are: 1) expected high-income growth for IT employees (50-60% of demand) led by attrition and wage hikes, 2) falling inventory levels due to lower launches and strong sales, and 3) four fold increase in IT/ITeS employees who can afford houses in Bangalore in last four years. Residential real estate prices in the city are still 10-15% below the 2007 peak vs Mumbai/NCR at over 10-25%.
Residential prices in Bangalore have increased by 10-15% from the lows seen in 2009, but continue to be below the peaks seen in 2007 by 10-15% in most of the micro markets. In the next 12 months, we expect the developers to increase prices by another 10-15% to reach the peak levels. However, prices in most of the micro markets for mid-income housing would still be around Rs3,300-3,500/sq ft.
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