BBMP Budget 2016-17: Analysis and impact for Bengaluru real estate

What is the big deal about a municipal corporation’s budget, for real estate advisors like us to be writing about it? Well, if the municipal corporation in question happens to be Bruhat Bengaluru Mahanagara Palike (BBMP), the body that governs the city of Bengaluru – the Tech Capital of India, and a major global IT hub – it is indeed of unique significance.

BBMP presented its budget for the financial year 2016-17 a couple of days back. Much deliberation and consultation had already gone into it. What has eventually come forth is remarkable. The budget allocated about INR 8,991 crores (approx. US$ 1352 million), almost double of its previous year’s budget. While this is encouraging, it is even more enthusing to note that the allocation for special infrastructure projects is at INR 2,158 crores (approximately US$ 324.4 million).

It is no one’s guess whether Bengaluru needs to invest in infrastructure or not. The City of Gardens, the (almost forgotten) City of Lakes, and lately the Silicon Valley of India, has been creaking under pressure with its surface transport coming under tremendous stress. Its lakes have been disappearing with only about 200-odd left from what used to be a thousand lakes. Water supply has become an omnipresent problem in several parts of the city. The city badly needs to up the ante on developing its roads – given that it is one those metros of India which keeps adding new peripheral markets every couple of years. At the moment, it is expanding, north, south, southeast and towards west too. Peenya, an established industrial corridor is about to shape up in the near future.

A city like Bengaluru absorbs nearly 13-14 million sq ft of high-grade commercial office space every year. With every such 100 sq ft of additional office space, it must be able to accommodate at least 1.5 – 2 households within the city precincts. Cities operating good ratios of household to office spaces, usually start unravelling once they miss this critical ratio. The money allocated, if used prudently, will accelerate the much needed metro project, upgrading of city roads, and above all, its water conservation needs. Bengaluru has usually not missed its staple annual rains, but with the city now housing nearly 12 million people, it is highly risky to rely only on the rain-gods to deliver. So, it cannot be debated whether the government has done a good forward thinking or not! I believe they have come up with a fine solution, and shown good thinking.

What are the pitfalls though? It is reported that the audit of accounts is still pending and Bengaluru has traditionally been overestimating its budget in the last few years. However, the pain point could come from the fact that the budget proposes to tax the citizens more by way of property taxes (up by 70%), building plan fees (up by 36%) and town planning fees (up by 35%). With the proposed increase in taxation, it might create a pressure on pricing. Bengaluru can ill-afford a rise in prices at the moment. Also, it needs its affordable housing stock to be increased by a significant volume. As discussed earlier, with emergence of new commercial mirco markets, developing residential locations like Anekal (close to the Electronic City) must be able to house people who want to purchase houses in the moderate-budget segment, i.e. in sub-INR 40 lakhs category. Bengaluru also needs to urgently work on digitisation of land and other records – a fast moving city, cannot work without proper e-governance in the real estate sphere.

It is also important to not waste critical resources and energies on projects that are not feasible. While we have heard various voices advocating BRTS, an educated viewpoint is that the city is currently not ready for the experiment of BRTS. Neither the road-widths in most of Bengaluru, nor the quality of buses, is fit for the BRTS experiment.

Whether the ambitious and bold current budget will meet all that it proposes to do, will only be known after a couple of quarters. However, it must be said that a right step has been taken, and if taken forward with the same resolve, Bengaluru will only benefit in the short as well as medium term.

About the author

Arvind Nandan (MRICS) is Director-South Asia (Valuation and Advisory Services) with Colliers International and has an elaborate experience in leading businesses and practices for some of the largest global companies and celebrated start-ups. He has a gleaming record of streamlining the revenues and standardising the practices across markets. His cross-industry client experience includes banking & financial services, government and public sector, developers and landlords, corporations, retailers, industrial set-ups, infrastructure and airports, hospitality sector as well as knowledge and technology sector, in India as well as overseas.

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