About a month ago, Abhijith Rao, a techie, bought a house in Banashankari's 3rd stage in Bengaluru. Like most homebuyers in Bengaluru these days, he was extremely cautious about the safety of his investment.
“Today, with most big developers defaulting on their deliveries, I decided to go for a mid-segment developer because I felt my investment will be safe,” he said. Additionally, the decision helped his budget, he added.
Bengaluru had 26,030 delayed or stalled housing units worth Rs 28,000 crore as of May 2022, according to ANAROCK Research. The backlog, coupled with severe delays by the state’s real estate regulator in passing orders – often up to three years – altered the preferences of homebuyers in the city, investors said.
Experts said the delayed projects in Bengaluru opened up opportunities for medium-segment developers in the city.
“What we are seeing is homebuyers in the city want to secure their investments,” said Satish Kumar, managing partner of the local unit of US real estate consultant Coldwell Banker. “Before COVID, we already saw several projects delayed for a couple of years and still remain stuck.”
Changing preferences
Homebuyers find smaller units affordable and easy to move into, he added.
Realtors said the real estate sector in Bengaluru is different from elsewhere in the country in terms of getting completion and occupancy certificates. For smaller projects with a maximum of two towers, it is easier for a builder to get plan approvals and inspections for occupation and completion certificates than it is for larger projects.
“Smaller developers find it easy to acquire these and thus have started to deliver projects efficiently,” Satish Kumar said.
Raghavendra Rao from IndiaAssetz, a company that deals in real estate investment banking and wealth management, agreed that as the city’s real estate sector consolidates, mid-scale developers are on the rise.
“The transparency they offer has started attracting homebuyers in the city. Several mid-scale developers have started investing in smaller luxury apartments, quickly selling them before moving onto the next project,” he said.
Nisus Finance’s Amit Goenka said in prime areas like Manyata Tech Park, prices have shot up from Rs 2,000-3,000 per square foot to Rs 7,000-8,000 per sq. ft. over the past three to four years.
“People who can afford it will definitely select a bigger project. However, the cost hike has favoured the medium-scale developers,” he added.
Pradeep Yadav, a developer in Bengaluru, said builders are classified as category A, B, or C depending on the number of units they deliver.
“Mid-scale or category B developers were ousted from the market post-COVID and implementation of the Real Estate (Regulation and Development) Act, 2016, in the state due to a severe cash crunch. However, recently, with 30-40 percent more demand for inventories in the city, they are gradually making a comeback,” Yadav said.
Goenka added that there is still space for medium-sized developers in Bengaluru.
“Bengaluru's positive real estate market has mushroomed everyone up. However, the majority of the market is still held by the bigger players,” he said.
According to Goenka, about 25 percent of the real estate sector in the city was held by category A developers two years ago, and this widened to 35 percent now and may go up to 50 percent.
“However, at the same time, the share of medium-scale developers has increased from 15 percent to 25 percent,” he added.
More appealing
Developers and investors said most medium-scale developers such as Nisarga Builders, Adarsh Properties, MAIA Estates and Concorde Group are active in the northern and southern parts of Bengaluru including Sarjapura, Electronic City, and Devanahalli. While parts of Richmond Town, Jayanagar, and Sadashiv Nagar continue to see a rise in small-scale inventories.
Yadav added that medium-scale developers can deliver a project within Rs 70 lakhs in the city centre and larger developers will quote Rs 90 lakh at least.
“The only difference is that the mid-scale projects will have less open space than the larger projects, which are mostly high-rises. Affordability does play an important role to homebuyers,” he said.
Goenka said short delivery periods of three years or less as compared to five years for bigger projects, discounted rates, and, more importantly, smaller developments, have made it appealing to homebuyers.
ANAROCK Research indicates that of 383 projects launched in Bengaluru between from 2021 to 2022, as many as 253 projects, or 66 percent, were small-sized, equal to or less than 200 units in each project. This was followed by 97 mid-size projects with 201-500 units, followed by 33 large-size projects with more than 500 units in each project.
Smaller projects are normally located in the heart of the city, in areas that are already developed and land parcels within city limits are often very hard to come by, Brigade Group spokesperson Viswa Prathap Desu said. However, Brigade Group confirmed its plans to launch smaller projects (less than 1 million square feet in aggregate) in Bengaluru.
Experts said it is unclear if medium-scale developers will be able to sustain themselves in the market in the long run given the challenge of raising funds, especially through internal accruals.
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