A positive sentiment has seeped into the Chennai real estate
The Chennai real estate sector is slowly bouncing back after a negative spell. There is a spirit of optimism especially after the new government took over the reigns at the centre. “August and September have been very good and we managed to do our numbers during this period. The sentiments are positive,“ says Ajit Chordia, chairman, Credai Tamil Nadu chapter.
Unlike other cities Chennai has always been an end user’s market. With hardly any speculative buying the real estate scenario has witnessed less volatility. Price fluctuations are minimal in the city which works to the benefit of the buyer.
“The residential real estate segment passed through challenging times over last year, with sales velocity slowing down, unsold inventory rising and buyer sentiment largely negative. Post Budget 2014, there has been a perceptible improvement in price-sensitive Chennai and most other southern cities. Increasing the taxable limit from Rs 2 lakh to2.5 lakhs, enhancing the benefits in Section 80C from Rs 1 lakh to Rs 1.5 lakhs and raising the exemption limit on interest payments on housing loans from Rs 1.5 to Rs 2 lakhs per annum will eventually leave more money in the hands of the tax payers,“ says Sanjay Chugh, Head, Residential Services (Chennai) JLL India.
“Compared to the last six months the mood in the market is really positive. The signs are all there. The new government t the Centre has been giving out positive signals, enquiries are up. But decisions are delayed as customers have too many choices,“ says Suresh Jain, managing director, Vijay Shanthi Builders, a well-known construction group in the city .
“The positive impact on business sentiments can be witnessed in the commercial office sector where enquiries from corporate occupiers, mainly in IT-ITeS and media sectors have been healthy since April this year,“ says N Hariharan, Head Commercial Agency , South, Cushman & Wakefield. “But in the residential sector, the ground realities are very different as buyer sentiments are yet to bounce back and the effect of the Centre’s policies on the residential market is yet to be witnessed,“ he adds.
Prime Minister Narendra Modi’s vision of housing for all by 2020 has brought back the focus on affordable houses and a start has been made by offering some sops in the budget. “Projects committing at least 30 percent of their total project costs for affordable housing will now be exempted from minimum built-up area and capitalisation re quirements. These provisions will further accelerate the supply of affordable housing segment in Chennai,“ says Chugh.
But, according to Chordia, Chennai is yet to see any big builder group getting into this segment. “Land costs are so high in Chennai that it becomes difficult for developers to get into this segment. The government has to take the first initiative. The cut in home loan rates has hardly had an impact on Chennai but the good news is that people in the Rs 20,000 to 30,000 income brackets are also now confident of buying a house.“
Jain feels that it is early days and it will take at least a year for the plans to translate into action. But the Rs 10 to 30 lakh segment is likely to get a boost especially with big groups such as Mahindra getting into this sector. Infrastructure along the outskirts of the city is likely to see a spurt, he says. “I would say this is the best time to buy as by 2015 good growth and sustainability of industry will start reflecting in the prices,“ he adds.
In 2012-’13 and into 2014, residential property prices in Chennai have certainly shown a year-on-year increase. However, the rate of appreciation differs according to location and market segments. This is an important factor for property pricing, because Chennai offers options across the luxury, premium and affordable categories in and around the growing suburban corridors of OMR, ECR, GST and Poonamallee, says Chugh.
While this may be true, the state’s economy does have a bearing on the real estate sector. Unfortunately , Tamil Nadu has not been focusing on the IT sector, says Chordia. “Look at the how Bangalore and Hyderabad are aggressively wooing this sector. With SEZ activity also coming to an end here I am afraid we may not see the kind of growth in the real estate sector that we hoped for. The change in the leadership in the state is a concern,“ says Chordia. But the silver lining is the Outer Ring Road (ORR) with social infrastructure such as schools, colleges, hospitals and other facilities coming up along the stretch that is going to be place of action in the future, he adds.
There definitely are visible signs of a recovery with various stakeholders working to overcome the hurdles. To address the demand from a majority of the first-time home buyers looking to buy homes out of their saving, limited exposure to debt and EMIs, developers have ventured out of the city and created new residential areas in the periphery and suburban areas of Chennai. These areas include Perumbakkam, Medavakkam, Kovillambakkam, Vannagaram, Mangadu, Kundratur, Ambattur, Avadi, Chembrambakkam and Oragadam, says Chugh.
“It is especially in these locations that we will now see significantly enhanced demand. Residential supply will also improve noticeably to cater to this demand. By relaxing the minimum area prescribed for getting FDI from 50,000 sq metres to 20,000 sq metres and the minimum capitalisation from $10 million to $5 million, the budget has ensured that midsized developers have access to funding and FDI participation,“ he adds.
“The Central Government is committed to boosting the overall business environment.They are especially focused on industrialization and housing. Hence, developers can expect the market conditions to improve in the short to medium term. However, the recent events concerning the State Government can have an adverse impact on local conditions as one is not sure if governance will take a beating until events unfold,“ says Hariharan.
Jain is positive that the entire game is set to change in the next five years. The real estate sector hopes to benefit from the projected gross domestic product (GDP) of 7 to 8 percent next year. Foreign investments are coming in. the Bangalore-Chennai corridor will ensure development of the entire stretch, companies such as Amazon and Flipkart have announced setting up of businesses here. Even the city corporation is getting its act together setting up Metro water and sewage lines and constructing concrete roads. With the corporation extending its limits more areas will come under the development focus, he says.
Source: Times Property, The Times of India, Chennai