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INTERNATIONAL INSIGHT BANGALORE 04.2015
Bangalore S P O T L I G H T O N
THE ECONOMY
CONSTRUCTION MARKET OUTLOOK
INFLATION
SECTORS OF ACTIVITY
PROCUREMENT AND CONTRACTS
RESOURCES
SUMMARY
GLEEDS CONTACTS
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Bangalore S P O T L I G H T O N
INTERNATIONAL INSIGHT BANGALORE 04.2015
CONTENTS
THE ECONOMY
Bangalore S P O T L I G H T O N
Over the last few years, Bangalore has seen rapid economic development and consequently has become a global commercial centre.
Bangalore has very much become a business centre for the IT and financial industries and IT exports account for one third of India’s total annual exports. Many multinational organisations have operations in Bangalore and significant business investment has taken place.
The economy of Bangalore contributes significantly to the economy of India as a whole. According to Bangalore Circle (Bangalore information portal), Bangalore has:
• Annual economic growth of circa 10%
• A Net District Income of approximately USD$11bn
• India’s fourth largest fast moving consumer goods market
• The third largest area in India for high net worth individuals
CONSTRUCTION MARKET OUTLOOK
There continues to be an increasing demand for quality buildings driven by the expanding industry; Bangalore has one of India’s fastest growing real estate markets. 2014 was a positive year for Bangalore’s property and construction market and Gleeds considers the outlook to be optimistic for 2015. The number of completed developments is at an all-time high, but property prices do not seem to be falling.
Property investors are playing an important role in reviving construction activity in Bangalore, by picking up work on a large number of delayed, postponed or semi-completed projects.
Structural reforms on Real Estate Investment Trusts (REITs) are also to be implemented, and this is expected to attract further significant investment to the area.
In addition, there appears to be firm commitment and determination from the new Government to reform and re-ignite growth through their ambitious ‘Make in India’ campaign. Through this, Foreign Direct Investment (FDI) policies have been revised to encourage investment. The Government is considered to generally have made a concerted effort to ease policies relating to development.
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Bangalore S P O T L I G H T O N
SECTORS OF ACTIVITY
The infrastructure, commercial and residential sectors are predicted to see the largest growth in terms of construction in the near term.
INFRASTRUCTURE
Reduced private Indian investment in infrastructure schemes means that foreign investment is actively encouraged to financially support infrastructure works. The ‘Make in India’ initiative is actively promoting this.
The recent relocation of Bangalore Airport from the centre of the city to the far north (approximately 40km away) has created a corridor for re-development within the old airport site. The new airport is considered to be in a better location, serving a larger catchment area.
COMMERCIAL
Gleeds is seeing strong levels of growth in the commercial sector, anticipated to continue with the creation of office space primarily for IT firms. Opportunities for new development are prompted by new firms looking to set up a base in Bangalore plus existing organisations looking to expand to new premises.
Supply is meeting demand requirements and Gleeds’ forecast is for this to continue throughout 2015 (provided schemes under construction are delivered as planned). Rental values do not appear to be overly sensitive to supply and demand pressures and are only marginally increasing.
RESIDENTIAL
Gleeds is currently seeing a high level of investment in residential projects. Bangalore’s residential market is strong and continues to grow. With the city developing to support business growth, there is a strong attraction from both Indian and non-Indian buyers to purchase residential property in the area – the two sectors are very closely linked.
The majority of projects under construction are multi-storey apartment buildings. Many of the developments, although primarily residential, contain an element of mixed use (retail, commercial and leisure space). There is client demand for residential developments to offer a ‘lifestyle’ which includes additional facilities, such as gymnasiums, spa facilities, shops and office space.
INFLATION
According to Trading Economics, consumer price inflation was recorded at 5.37% in the year to February 2015.
Gleeds prediction for tender price inflation for the next 12 months is circa 5%.
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Bangalore S P O T L I G H T O N
PROCUREMENT AND CONTRACTS
There are a multitude of tender opportunities coming through for projects in Bangalore. It is common to see clients sourcing competitive tenders from 6-8+ consultants/contractors at a time.
The most common procurement routes for construction projects include:
• Item Rate
• Traditional
• Cost Plus Contracting
• Design and Build
Clients operating in the Infrastructure and Industrial sectors tend to opt for Traditional or Design and Build routes.
The most commonly used forms of contract include:
• FIDIC (The International Federation of Consulting Engineers)
• Indian Institute of Architects (IIA)
• Central Public Works Department (CPWD)
• Bespoke
Public sector clients tend to adopt the CPWD form of contract whereas international investing clients opt for FIDIC or a bespoke contract form.
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10% OF INDIA’S GDP IS BASED ON
CONSTRUCTION ACTIVITY
Bangalore S P O T L I G H T O N
The cost of labour in Bangalore is significantly lower than the UK. The availability of labour within the market frequently fluctuates and shortages of labour are experienced regularly. Gleeds anticipates a labour shortage across most trades over the next 12 months.
Gleeds understands that the average cost of labour in Bangalore currently sits around 350rs per day (£3.50 per day). More experienced labour can earn up to 1,000rs per day (£10 per day).
Similarly, Gleeds forecasts an increase in materials prices over the next 12 months, likely to effect:
• Cement
• Steel
• Copper
Gleeds also forecasts a rise in transportation costs over the same period.
No materials shortages are anticipated over the next year.
RESOURCES SUMMARY
The construction market in Bangalore is positive and strong. Continued growth in the residential, commercial and infrastructure sectors is anticipated, particularly through increased FDI.
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GLEEDS BANGALORE CONTACTS
Legal disclaimer: This paper was prepared by Gleeds Corporate Research and Development. It is for general information only and neither Gleeds nor any of their partners, employees or other persons acting on their behalf makes any warranty, express or implied and assumes any liability with respect to the use of the information or methods contained in this report to any person or party.
This document is subject to copyright and may not be reproduced without permission from Gleeds Research and Development, email: [email protected]
Ben HuskissonDirectorGleeds BangaloreT: +91 804 262 3000 E: [email protected]
Kousik Ghosh Associate DirectorCost ManagementProject Management T: +91 988 691 6546E: [email protected]
Vishal Shah Associate DirectorCost Management T: +91 982 026 0169 E: [email protected]
Darshan TeredesaiAssociate DirectorCost ManagementProject ManagementT: +91 983 360 9718E: [email protected]
Jyoti Gandhi Associate DirectorBusiness DevelopmentT: +91 953 809 2957E: [email protected]
Siva Senathipathy Associate DirectorCost ManagementProject ManagementT: +91 991 613 9326E: [email protected]