Wednesday, May 30, 2007

Centre Plans 1% Penalty Per Month for Builder project delay

Times reports

Bangalore: S Kamath, Balasubramanyam and A Pattar are among a group of 18 individuals who have just served a legal notice on a major Bangalore-based property developer for not completing a project near Hebbal which should have been ready by March.
In fact, only the foundation layer has been done. Even if the work takes off now, it will be at least another year before their block is up. Most have already paid Rs 6-9 lakh to the builder, with a good part from bank loans. Sampath, who booked his flat in early 2005, says he is paying a pre-EMI of Rs 4,000 every month. Their mental agony is unbelievable. “We do not even get a proper response from the builder on the project delay,’’ says Balasubramanyam.
The Bangalore property boom is increasingly showing up its downsides. Many projects are delayed — some by as long as nine months to a year or more. Builders and real estate observers attribute the delays partly to the shortage of manpower, material and construction equipment, given the mammoth property development happening across the country.
The Centre is said to be now proposing to mandate payment of a penalty at the rate of 1% of the value of the property for every month of delay. A Balakrishna Hegde, president of Karnataka Ownership Apartments Promoters Association (KOAPA), welcomes the move, though he thinks 1% may be a little too high.

“Delays also occur because builders try to build a bank of captive customers,” says an observer. Customers are sold properties in land under litigation in the belief that the disputes would be resolved soon; in the green belt, in the belief that the new Comprehensive Development Plan (CDP) for Bangalore would lift the restrictions in those areas; and often without getting all permissions. “By this, they prevent buyers from moving to rival builders. Invariably, they go wrong in their calculations about the time it takes to get all clearances,” says the observer. Nilima Malhotra of Cooke Town and Dr Murthy P S, both of whom booked villas off the Outer Ring Road near Marathahalli, have harrowing stories to tell. Murthy believes the builder didn’t get all the permissions when he sold the villa due to which the project was inordinately delayed.
Most major builders incorporate clauses in agreements that lay down penalties for every month of delay. But, as Sushil Mantri, MD, Mantri Developers, says, “Many builders find excuses not to pay up those obligatory amounts.’’ Besides, even when paid, they hardly compensate for the loss of rental income or the mental agony.
Till the time the Centre’s proposal is legislated, and maybe even after that, keep a close eye on what you buy and who you buy from.

SC: Building sanction can be withdrawn

New Delhi: Permission for construction of buildings can be cancelled in public interest even after they are sanctioned, the Supreme Court has held. “Rules framed for the purpose of protecting the heritage and ecology are fully justified as such regulations are framed in public interest which must override the private interest,” a Bench of Justices S B Sinha and Markandeya Katju said.

Monday, May 28, 2007

Cushman Wakefield survey of Bangalore office space

They mention Whitefield has excess capacity and better connectivity. I wonder what has changed w.r.t the access roads to Whitefield. I have a friend who is renting out his Brookefield apartment and living in another rental apartment closer to the city, since the 14km commute to his workplace on Richmond road takes him 2+ hours. So much for better connectivity. It seems to be a pump-up job to create a positive buzz for Whitefield.

Sustained demand for office space

Demand continues to outstrip supply in most micro markets

This Office Snapshot of Bangalore from Cushman & Wakefield, International Real Estate Consultants, is for the first quarter of 2007.
Demand

The city continues to witness sustained demand, primarily from IT and ITES sectors. Approximately 1.5 million sq. ft of office space absorption was recorded in Quarter 1, 2007. Peripheral locations like Whitefield, Outer Ring Road and Electronic City accounted for approximately 90 per cent of the total absorption.

Micro markets like Koramangala, C.V. Raman Nagar, Bannerghatta Road and also locations on the Outer Ring Road (South-East and North Bangalore) continue to be active office space destinations.

Across the city leasing activity is considerably marked by transaction sizes’ varying from 150,000 sq. ft. to 450,000 sq. ft. and this robust trend is expected to continue through the year.
Supply

Demand continues to outstrip supply in most of the micro markets, except Whitefield, resulting in very limited availability. Of the projected 14.6 million sq. ft in 2007, the ready supply at the end of Quarter 1 is estimated at 2.7 million sq. ft., majority being in Whitefield.

Across Bangalore, about 1.2 million sq. ft. is expected to be completed by Quarter 2.
Vacancy rates

The average estimated vacancy rate across all micro markets is less than 5 per cent with the exception of Whitefield where vacancy is 15-20 per cent. Minimal stock infusion and sustained demand have led to the vacancy rate in CBD, Off CBD and suburban locations being below 3 per cent.

In peripheral locations such as Electronic city (South), Hosur Road and Outer Ring Road (South East), vacancy levels are approximately 6 per cent.
Rentals

Given the excess supply of approximately 2.5 million sq. ft. in Whitefield, lease rentals have been stable for the last two quarters.

CBD/ Off CBD and suburban locations have witnessed rental escalations of about 7-10 per cent over the last quarter due to lack of quality real estate and limited availability of land parcels for construction.
Outlook

Sustained demand is expected to cause upward pressure on the rentals in the suburban and peripheral locations.

Whilst the rental and capital values may increase marginally over the next quarter, it is expected that these would stabilise by the end of this year.

Peripheral location of ORR is expected to continue drawing corporate interest and witness price escalations in the short term.

In line with our earlier prognosis, Whitefield is expected to witness active leasing over the next quarters.

This area is being evaluated by corporates for their IT/ ITES and R&D operations owing to low costs and improved traffic accessibility, as it is the only location in the country today that can offer ample ready office space.