The recent announcements in the budget have been positive for the housing sector. The residential real estate segment has been passing through challenging times over the last year, with sales velocity slowing down and unsold inventory rising every quarter. Buyer sentiment had been largely negative, with several prospective buyers withholding investment in homes because of the slow economy, job insecurity and rising inflation.
After the Budget, there has been a perceptible improvement in positive sentiment in price-sensitive Chennai and many southern cities. Increasing the taxable limit from Rs. 2 lakh to Rs. 2.5 lakh, enhancing the benefits in Section 80C from Rs. 1 lakh to Rs. 1.5 lakh and raising the exemption limit on interest payments on housing loans from Rs. 1.5 to Rs. 2 lakh per annum will eventually leave more money in the hands of the tax payers.
While the resultant savings may not be very significant for extremely costly cities such as Mumbai or Delhi, they could make a difference in Chennai. The city’s residential market continues to be an end-user driven one, which means that speculator activity is low. As a result, residential property prices in Chennai do not fluctuate much, unlike other cities where investors and speculators influence the pricing.
Therefore, even a marginal increase in surplus income could tip the scales in favour of purchase decisions.
In 2012-13 and coming into 2014, residential property prices in Chennai have certainly shown a year-on-year increase. However, the rate of appreciation has differed according to location and market segments. Chennai offers options across luxury, premium and affordable categories in and around the growing suburban corridors of OMR, ECR, GST and Poonamallee.
To address the demand from majority of the first-time home buyers looking to buy homes, 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, Oragadam, etc.
It is expected that these locations will see enhanced demand after the Budget announcements. 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, mid-sized developers could get greater access to funding and FDI participation.
Also, projects committing at least 30 per cent of their total project costs for affordable housing will now be exempted from minimum built-up area and capitalisation requirements. These provisions are expected to accelerate the supply of affordable housing in Chennai.
The writer is Head - Residential Services (Chennai) JLL India
