What changed in Bangalore real estate market in 25 years
Bangalore has grown from a city of a few million in 2000. It has become a sprawling metropolis of approximately 14 million in the last 25 years. The city’s per capita income is 3X the national average. The ideal weather, cosmopolitan population, and IT boom have contributed to an unprecedented real estate explosion.
Over 2,600 real estate projects across Karnataka – mainly in Bangalore have missed their scheduled completion deadlines. A recent report indicated that many of these projects are now facing indefinite delays. This Blog examines the issue. It also analyses how things have changed for the worse in the last 25 years despite RERA.
10X Appreciation in 25 years – 25 years back, you could have booked a nice 2000 Sft flat. The flat would be from a Tier 1 developer in Indiranagar or Koramangla. It would cost about 30 Lacs (~ 1500 Rs / Sft). Today the rates are Rs 15000 /Sft + and the location is not so prime. We are slowly inching towards the Mumbai / Gurgaon rates of 20 – 25,000 /sft.
Carpet / Super Built Up – The flat you booked in 2000 had a spacious carpet area of 75 – 80%. It included 3 balconies, and a 10 – 11 feet high ceiling. If you book a flat today, the carpet area is less than 60%. This means your usable space in the flat is reduced by 300 sft. You will most probably get only 1 balcony, and the ceiling height has shrunk to 9 feet. By reducing the ceiling height the developer just added one floor for every ten floor he constructs.
More flats in a 3 acre plot – In 2000 a 3 acre plot with 3 towers would have 7 – 8 floors. It would accommodate 100 – 125 flats. You had a lot more of undivided share of land allotted to you. Today a 3 acre plot will accommodate 350 – 500 flats and each tower will be 25 – 30 floors. So it’s a lot more congested, the common amenities, pool, gym etc are a lot more stretched. And wait. You should read the contract for your flat carefully today. You may find there is no mention of undivided share of land.
Car Park – When we booked a flat in 2001 the second car park was 1 Lac. Today it’s very difficult to get a second car park. If you do manage to get one, it is priced 5 – 7.5 L. You may say that’s only a 5X appreciation. However, most people have 2 cars now. It’s a necessity today, unlike in the past when 1 car was the norm.
Amenities & Facilities
Not much has changed in terms of your apartment in the last 25 years. Apartments built in the US in the 1970’s came with inbuilt microwave, refrigerator, carpets, kitchen shelves and wardrobes. They had a common washing machine room. There was also a disposable chute for waste. None of this exists in any apartment complex you will book in 2025. You will have the standard amenities. These include a pool, gym, and generator. Maybe the only new addition is a gas bank. There is metering for generator and water usage. Green sustainable designs are limited and solar / rain water harvesting are rare to find. The construction quality may have deteriorated – red bricks have been replaced with solid /hollow blocks.
Timely possession
Then developers were accessible, you could walk in to their office and meet the owner of the company. They were apologetic and sympathetic. Yes there were delays but it was minimal 3 – 6 months or maximum 1 year. Things have changed now – you will be lucky to get possession of your flat after 7 – 8 years even if the commitment while booking is 3 – 4 years.
Let’s dig a little deeper into this. We need to understand why this is happening. This is what RERA was supposed to fix. So, what went wrong?
How developers delay possession
Step – 1 : You book the flat
You liked the ad, visited the site, found the rates reasonably and decided to book your chosen flat. You pay 10% on booking and another 10% within a month on signing the contract. So 20% paid – nothing has happened in the barren site.
Step – 2 : Milestone based payments
If there are 5 towers in your complex the construction will start for 3 and move rapidly. Your payment is linked to floor completion and with latest technology a floor can be built in 2 weeks. In less than 18 months, the building rises rapidly from the basement to the 12th floor. It happens in the blink of an eye. And you have paid almost 75% of the amount due.
But the overall building is not even 30% complete. The remaining two towers are at foundation level. They are waiting for the equipment and workers from Tower 1 – 3 to be reallocated. The structure completion is only 50% of the work. Electricity, plumbing, interiors, tiling, doors, and windows are more time-consuming activities.
After 3 – 4 years, you realize that you have paid 75% of the money. The chances of you getting possession in time seem to be shrinking.
Step – 3 : The phase 2 whammy
This is when the Phase – 2 news hits you. The contract includes a line stating that the developer can build additional floors. This is an option as part of Phase – 2. You ignored it. While buying, the sales guy convinced you that phase 2 approval was a foregone conclusion. He assured you it would be obtained halfway through the project. He added that overall timelines would not be impacted. Phase 2 is the juicy part. Rates have shot up, and the approvers want their share of the pie.
Step – 4 : RERA Extension
As the battle for Phase – 2 approval continues in the background the developer quietly applies for a RERA extension. Now the buyer can’t fall back on the RERA timeline. He has paid 75 – 80% of the cost, with a RERA extension his delivery is delayed. If he files a complaint with RERA he may get a compensation for Phase – 1 delay. (Which most don’t since they find the process intimidating and they don’t want to antagonize the developer)
Can you get a refund or sell your property
If you look around Bangalore you will find many apartment complexes from big name developers pending handover after 10 years. Yes, the rates have increased. However, your money is stuck. The house you wanted to move into is still a mirage. The paper profit shrinks when you add your rent and mortgage interest you have been paying over the years. The biggest beneficiary is the builder who has got low cost finances upfront.
So can you sell and ask the developer to pay you back market rates? NO. The developer will ask you to find a buyer. You must pay the full amount due. Then, the developer facilitates a tripartite transfer agreement. This happens after collecting his transfer charges, which are as high as 3 – 5% and add the broker charges.
So what’s the solution
There is no easy solution. If you want a ready to move in property, the rates are steep. You don’t get the floor, location, or flat number you prefer. You have to compromise with the leftover units.
Developers are mega corporations
The top Developers are large publicly listed corporations. They have projects pan India. Some have even expanded to Dubai. Projects are not 100 – 200 flats complex but are so massive that they look like mini cities. The quarterly revenue & profit dictates their project management. They have ample resources and it’s very difficult for a common man to stand up against them.
Why is RERA disappointing
The expectation that RERA would lead to prompt completion of quality projects has been misleading. The onus is on the individual to seek redressal. CREDAI, RERA, Developer Lobby, and Government authorities form a complex web. The buyer feels helpless. The media is silent – they get full page ads from the developers.
So what do you do? – All you can do is pray and hope your dream flat is handed to you – eventually. The Supreme Court intervened and solved for the subvention scheme – which was another loophole to trap buyers with interest free loans during construction. But court intervention is rare.
Frustrated you finally move in to your complex which is awaiting approvals and Occupancy certificate. The wait has been too long and you decide enough is enough. Finally, the dust settles. In a year or two, the complex becomes a nice community. If you are lucky.
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