A recent report by PropUrban finds that no new projects have entered Chennai’s residential market in 2017. Projects that were launched in 2016 have been officially relaunched this year and about 95% of this under supply is ready to be sold in the coming months.
Factors for delay
While reasons behind the delay are many, the 2015 floods had the biggest impact. Since then, many buyers decided to wait and watch. Just when things began to pick up, demonetisation came into force. Other reasons behind the slowdown include the mid-year election and the plan to introduce the Real Estate Regulatory Authority (RERA). “Buyers anticipated a drop in prices and preferred to wait again. With the after-effects of the policy easing out, buyers are now coming forward to buy,” says Mir Jaffer Ali, Founder and CEO, PropUrban. Most developers say the time taken to obtain approvals added to the delay. Due to uncertainty in regulations, developers were cautious and chose to complete their under-construction projects rather than launch new ones. But, now the government has undertaken a slew of policy measures to improve transparency and cut down delays. Arun Kumar, MD, Casa Grande, says, “Better buyer sentiments and liberalisation of FDI are factors that can improve the scenario.”
The impact
Cost escalations due to project delays force developers to cover external and internal development charges, licence costs and charges for land use and raw materials. As far as buyers are concerned, these delays severely affect their financial planning. The buyer ends up losing tax benefits and other advantages on the loan. Delay in projects can sometime lead to home buyers paying heavy interest on their home loans.
To overcome the slow sales volumes over the last couple of years, developers are now concentrating on completing earlier projects. This is a positive move for those buyers who have already invested in these. Moreover, prices have been more or less stable, another added advantage for buyers who have been waiting. The primary market definitely hasn’t seen any price fall, as was anticipated by buyers, says Ali.
Project categories
So far, the projects launched this year have been a mix across segments—in the ₹32 lakh to ₹1 crore range. Projects launched in the city are mainly in the luxury segment priced between ₹1 crore and ₹5 crore (which were priced above ₹5 crore earlier). Projects launched 20 km and further from city limits are primarily affordable and mid-segment ones in the ₹18 lakh to ₹50 lakh range.
While properties in the mid-segment have a clear dominance, it is interesting to see that the affordable segment is also picking up consistently. As per PropUrban data, of the total projects launched from July 2016 till date, nearly 51% catered to the mid-segment (between ₹40 and ₹80 lakh), followed by 24% in the affordable segment (within ₹40 lakh) and 21% in the luxury segment (₹80 lakh to ₹1.5 cr). A. Shankar, National Director, JLL India, says, “Residential projects are now getting upgraded in terms of design, fast and green construction technology, more green space, high quality specifications, and smart home features to cater to present-day buyers.”
Area wise
Premium projects are located in Nungambakkam, Egmore, Anna Nagar, Nandanam, Mandaveli, RA Puram and locations in ECR such as Muttukadu, Uthandi, and Injambakkam. Low and mid-segment projects are coming up at Perumbakkam, Ottiyambakkam, Thalambur, Mevalurkuppam, Avadi, Padappai, Mogappair, Thirumazhisai, Navalur, Manapakkam, Padur, Kelambakkam, Thaiyur, and Velappanchavadi. Micro-markets such as Perambur, Pallavaram Road, Ponneri, Madhavaram, Vadapalani, Tambaram, Poonamallee and Kolathur have a healthy supply of under-construction projects too. Considering the present market scenario, Chennai too is likely to see ample new supply in the affordable category with prices ranging between ₹2,500 and ₹3,800 per sq.ft. The mid-segment, which predominantly dominated the market, will also see ample supply with prices ranging between ₹3,895 and ₹5,500 per sq.ft.
2017 forecast
Shankar expects the affordable segment to be in demand. Middle-income families who can afford to spend ₹30-50 lakh will boost the segment and peripheral locations will see a number of launches. Developers and buyers will focus on these to get subsidy benefits under Pradhan Mantri Awas Yojana (PMAY). Micro-markets in South and West Chennai are most likely to remain preferred destinations due to the presence of IT/ITeS companies as well as sound social and physical infrastructure.
Chennai’s market will most likely pick up momentum from Q4 2017, says Ali. “Buyer sentiments are improving in anticipation of the sector becoming more transparent and organised. Our Consumer Outlook Survey reveals that nearly 48% respondents are planning to invest in real estate in H2 2017.”
RERA’s impact
Improved market sentiments might be encouraging buyers now, but they need to be aware that costs will most likely go up because of RERA and GST, warns Dr. R. Kumar, Managing Director, Navin’s. “RERA is pushing sales right now, but we will know the full impact once it comes into force. Projects that will come under RERA will be more expensive as the cost of production will increase tremendously. This is because developers are already incurring stamp duty, registration costs, and RERA is now compelling the registration of construction agreement, declaration of land, other fees payable. If a buyer makes a purchase before RERA is implemented, he/ she will avoid these escalations.”
But investment expert Sonal Sachdev is of the opinion that while the decision to buy a home is often driven by several factors and while the new real estate regulations promise to bring about a sea change in the sector, its coming into force shouldn’t solely drive your purchase decision. “It is not that people haven’t bought houses all these years across the country. The same precautions taken earlier should be taken now. In fact, as developers are aware of the upcoming regulatory regime, they have already started aligning themselves to it. So, if you find your dream home and your legal advisors and home financier gives you the green signal, go ahead and buy it. Opportunity doesn’t always knock twice,” he says.
