Post Polls: Chennai realty to be on growth path

The much-anticipated elections are over and we have a new government at the Centre. There have been a lot of anticipations and expectations from the new government on revival of the real estate sector, which have been in doldrums for more than few years now. Chennai real estate, the robust among its peers, has been treading on the growth trajectory albeit slowly, owing to weak economic sentiments prevailing across the nation. We have spoken to a few frontline builders in the city to know what is in store for the sector in Chennai post elections. Our esteemed panelists include: Colonel Achal Sridharan, Managing Director at Covai Property Centre; S.Stalinraja, Sr Manager - Sales & Marketing of Omshakthy Homes Private Limited; Sathish Kumar, Managing Director of Anandam Foundation.

1. Real estate growth in Chennai has been stagnant for the last few years. Do you see any hope of its revival post elections?
   

Col Sridharan: Real estate can’t be compared to stock market, which has daily high or low. Volatility is not sharp or sudden in property market. Prices of homes go up or come down depending on various parameters. More so, growth of real estate largely depends on economic revival. It can’t happen overnight. With the new government at Centre, it depends on the policy of the new set-up. People should wait for congenial environment to invest in properties.

S.Stalinraja: Yes, we have a hope of revival after the election. Today, not only real estate sector, the whole of Indian   economy is stagnant. Because of this, investors are hesitating to put money into real estate projects. On the other side, price hike in all the products and services in our country is forcing end users not go for big commitments like purchasing a property or investing in gold etc. So, if we get a good market sentiments owing to strong economy, we can see a boost in sales post elections. This is entirely depends on the new government and its policies towards reviving the economy. As construction industry is the second largest after agricultural, we hope the government will give priority to this industry.

Sathish Kumar: This is a hypothetical question. We have been waiting for the sector to see the light for the last more than three years. There have been a lot of bottlenecks the present government should face while reviving the economy and so, the sector. Real estate has been facing series of problems such as labour, rise in input costs and ground value, delay in getting necessary plan approvals etc. A good portion of our investment is getting wasted on these issues and so developers are forced to sell at a high price to protect their profit margin. So, we are not seeing any immediate revival of growth of real estate sector. Stable economy and rupee value and friendly lending regime would make the market breath easy. The prices too will come down for the benefit of customers.

2. What do you think the new government at the Centre should do to boost the growth real estate sector?

Col Sridharan: As I told earlier, it depends on the policy the government is going to adopt. As far as real estate growth is concerned, lot needs to be done to boost the growth of the sector. Instead of simply creating homes, the government should look at the infrastructure part first. Only in India, we develop homes and then look development around. We ask for water, sewage and electricity connection after making homes. We suffer due to lack of connectivity and proper roads and look at the mercy of the government agencies. Instead, the government should identify places for development and give full facilities and amenities such as shops, banks, markets, play area, schools etc to the residents. If all these facilities are available, the cost of construction would automatically come down and so the property prices. We, developers, have to run from pillar to post to get all required approvals for building multi-storey complexes. We have to provide adequate water, sewage disposal system, streetlights etc and these costs reflect on the prices of the property we sell to our customers. So, the government should make the approvals system simple. Instead of waiting for six months to one year for getting all approvals, the time period should be lessened to one month. This will also reduce the property prices. It will in turn boost the growth of the sector.

S.Stalinraja: Real estate sector is one of the revenue earning sectors in our country. The forthcoming government should keep this in mind while devising policies, which should help boost the growth of real estate across the country. Some of the key issues like infrastructure development in tier II and III cities will help the builders to do projects in these areas. Since the infrastructure and other development are already in place, developers don’t need to spend money unnecessarily on developmental activities such as water, sewage, road or power. This will also cut down the construction cost and benefit the end users. The government should work on service tax policies for real estate sectors. Now days, customer are paying 20-30 per cent as tax and other government levy in the total cost of the property. This is significant considering the basic cost of the dwelling they buy. For example for a flat costing Rs 20 lakh, customers are ending up paying Rs 4-6 lakh more in the form of taxes.

Sathish Kumar: One of the major problems we face is due to delay in getting government approvals for our projects. Whether it is environment clearance given by central agencies or getting local approvals, we have to struggle a lot to get these things done after spending a lot of time and money. This translates into selling property at a higher rate to protect our margin. The government should also pass the Real Estate Regulatory Bill. This will regulate the sector and also stop the fly-by-night people to make quick money by cheating the gullible customers.

3. Post elections, do you expect further price correction or surging of home prices in Chennai? Why?

Col Sridharan: There will not be a sudden plunge or surge of property prices as being speculated in a section of the media after the new government takes over. Any price upheaval will largely depend on economic situation. If we have strong economy after six months and competitive interest regime, we shall see prices going up considerably. Also, developers would like to clear all pending inventory rather than launching new projects. Only after clearing the unsold homes, they would launch new homes and these homes will be sold as per the prevailing market condition. In Tamil Nadu, we have about 50,000 surplus homes which need to be sold first. So, I am not seeing any drastic fall or up in property prices post polls in Chennai or the whole of Tamil Nadu.

S.Stalinraja: There will be a price correction but not immediately. We have huge piling of unsold housing stocks to be offloaded in the market. Any price rise will affect the sale of these ready-to-move-in houses. However, we developers have to bear the brunt of other eventualities such as sudden increase in input costs such as rise in steel, cement or sand prices. We can’t help but to pass it on to the customers. There will be rise in property prices in the coming days, but it will be a gradual one and not immediate as we witness in stock markets.

Sathish Kumar: As we all read in a section of the press, the real estate sector in India is not fragile as being portrayed. In Chennai, I don’t see any price correction as of now as the market is end-user-driven one compared to Delhi or Mumbai. Prices also don’t go up suddenly like its peers in north or western cities. Prices in Chennai have been steady for the last three years and we expect the economy to stabilise before the end of current fiscal. There should be a revival of economy and we hope that the new government at the Centre will take corrective measures.

Compiled by K Ramanathan