Investing in Bangalore real estate - pessimistic view ...

I covered the optimistic view in the last post - had to give good news before giving the bad news! Now it is time for the pessimistic view.
Why both optimistic and pessimistic views?  That is the nature of the beast! The old saying of 'risk versus reward' can't go wrong and this is definitely a 'time will tell' type of story.

As a R2I hopeful, you might be quite familiar with what happened in the Western world in the real estate scenario in the last few years - lets revisit that a bit. There was so much hype that even office cleaners bought homes(not a made up one, this is a real story and I have seen this) - since homes can be bought literally for 'free' - loans were available with no down payment and pretty much 0% interest. No background checks were done for income or eligibility. Needless to say, all of got foreclosed when their 'free' term ended and they couldn't afford to even do the interest payments. Now, that was greed working its way and taught some tough lessons that 'nothing is free'.

So, what is the take away for Bangalore real estate from this story? There are few for sure and this is where the pessimistic view comes into picture. Let me list few downside points and leave you to think about those...

• There is a huge demand for apartments in Bangalore and there is no statistics to show how much of these are investment properties versus how many of these are bought for occupation. There is a good demand for rental housing as of now and is expected to stay but at the current rate of new building, there could be an oversupply when constructions are completed - needless to say there are so many new mega size projects which are in-progress as of now.
• Adding to this factor is that - there is very minimal control on how much can be built. Many of the apartment complexes are very large and can house anywhere from 300 to 1000 families. BBMP, one of the worst run entity is not worried about any of the factors like road infrastructure, water - anything is possible by 'you know what' and 'you know who' factors. It is the golden time for real estate in Bangalore and so many things can be developed in-terms of infrastructure with the taxes that are pouring in but unfortunately the funds are pouring in to leaking pots! That can spell doom to the real estate future of Bangalore.
• Infrastructure: As I said above, the density of occupation is not measured against available infrastructure and building happens without any regard to such factors. You would be surprised to see  that for a apartment of the size of 300-500 families, there would be 5-6 visitor parking slots! That is the kind of planning and approvals that go along with these buildings. The approach roads are so small  hardly one car can pass thru' but that is not a factor when building permissions are given.
• Water availability: You might already be aware of the 'Kaveri' war! Unfortunately, there isn't sufficient natural water supply closer to Bangalore. With the indescriminate digging of borewells, there is more water extraction than preservation. Rain water harvesting is a must for new development but nobody checks whether they are really maintained after homes are built. As one saying goes 'water scarcity has made cities to vanish'. Water scarcity can impact Bangalore real estate scene in a major way. Unfortunately, our politicians are busy holding on to their seats and filling up their pockets than any of these real issues.
• Tech industry dependence: Unlike other cities, the apartments and high end real estate is driven only by tech sector in Bangalore. We do see other industries like pharma etc coming in but at much slower rate. If the cost keeps going up and it is not economical anymore for multi nationals to come here, that could impact this sector in major way as well.

Anyway, these are my opinions - pls feel free to sound off your thoughts ...