Builders skip big projects, go for budget housing in Chennai

Chennai

As apartments sales in the middle and high income segments are showing no signs of improvement, many builders are seriously scouting for small parcels of land to promote budget housing units in the sub – 20 lakh segment.

This is a segment which most builders have ignored, but those who have ventured into it say they have nothing to complain. “Identifying developable land at the right price in the right place is the key to success of a budget housing project,” said a builder looking for land for a new project.

All developers doing big projects in the suburbs are stuck owing to poor sales and they are looking at alternatives to sustain the business, said Rajesh Babu, partner, Recs Group, a Chennai-based realty firm.

Going by the experience of developers who promote budget housing projects, they are by and large cash-surplus projects as long as the promoter sticks to medium sized developments in the range of 2-3 acres. International realty consultant Jones Lang LaSalle MD Sarita Hunt said many new entrants may be getting attracted by this cash flow.

“You can raise funds from the market (customers) and do projects. As long as the budget housing segment is treated as a separate entity and the money collected for it is used for the same project, it will work. But if the money is diverted to service bad loans or to complete other stuck projects, then things will miserably go wrong,” she said.

Most builders have not shown interest in the affordable housing segment for years as margins are low in such projects. Hence, high volumes are required to make a significant profit, comparable with projects of higher capital values and larger unit sizes. Builders have gone wrong in the past by jacking up prices abnormally and keeping apartment sizes unwieldy, said Hunt.

Slow pace of employment generation in the IT sector and retrenchment of several thousand people in the manufacturing sector, especially in the Sriperumbudur belt, have badly affected Chennai realty. A city-based builder said, “Chennai was the first market to turn around after the 2008 fall. But the current slump may have a longer effect because the investment climate in the state is pretty bad.”

Source: The Times of India, Chennai