Post Budget: Affordable housing gets fillip in Chennai

The recent announcements in the budget by the Finance Minister have been very 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 untold numbers prospective buyers abstaining from investment into ownership homes because of the slow economy, job insecurity and rising inflation, Sanjay Chugh, Head - Residential Services (Chennai) JLL India.

Post Budget 2014, there has been a perceptible improvement in positive sentiment in price-sensitive Chennai and most other Southern cities. Increasing the taxable limit from Rs. 2 lakh to Rs.2.5 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.

While the resultant savings may not be very significant for extremely costly cities like Mumbai and Delhi, they do make a difference in Chennai. This city’s residential market is and will continue to be an end-user driven one, which means that speculator activity is very low.

As a result, residential property prices in Chennai do not fluctuate and the market is not volatile, unlike in cities where investors and speculators influence the pricing mechanism. This fact has consistently worked in favour of the pricing for homes in most of Chennai’s micro-markets, keeping rates within affordable limits. In such a city, even marginal increases in surplus income can and does tip the scales in favour of purchase decisions. 

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.

To address the demand from 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, etc.

It is especially in these locations that we will now see significantly enhanced demand after the favourable Budget 2014 announcements. 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 mid-sized developers have access to funding and FDI participation.

Also, projects committing at least 30% of their total project costs for affordable housing will now be exempted from minimum built-up area and capitalisation requirements. These provisions will further accelerate the supply of affordable housing segment in Chennai.

For Chennai realty, South grows while North wanes

It is ‘South-Side Ho’ as far as Chennai real estate is concerned. Unprecedented one may call it, but the city is growing at a phenomenal pace, albeit unevenly. There is a clear north-south divide as southern localities have been growing at a faster rate with newer locations frequenting on the realty map almost every month, while north city has been left to fend for itself.

Shocking it may be, but some of the localities in North such as Madhavaram, Puzal, Tiruvottiur, Avadi, Manali or Meenjur, which are within Chennai Corporation limits, do not even have basic facilities like tar roads, sewage and drinking water connection and streetlights, leave alone other amenities like parks and recreational facilities that their southern counterparts are endowed with.

The alleged step-motherly treatment to northern localities has indeed affected the real estate growth and investors and realtors seldom look for investing or launching new projects there, due to locational disadvantages coupled with poor infrastructure and lukewarm demand. 

 Static growth

According to a recent report, almost 90 per cent of the projects are presently concentrated on South and North Chennai localities, with more than 60 per cent of them are under various stages of development in peripheral areas.

“I bought a flat in Thiruvottiur four years back for Rs 15 lakh and when I tried to book profit, I was quoted somewhere around Rs 17 lakh citing ‘not much growth’ and lack of basic facilities. Had I invested this money in a property at any of the southern Chennai localities somewhere on GST Road, OMR, or even in Sriperumbudur, which is one the fast growing areas in Western corridor, I could have got atleast 40-50 per cent appreciation in capital value,” rued Sadagopan, a realty investor from Ambattur, who is now planning to shift his focus to OMR, ECR or GST Road locations.

Denying that there is any such divide, N Nandakumar, Managing Director, Devinarayan Housing and Property Developments, said, “As North Chennai developed to an industry-centric area much before South, the dominance of blue-collared community had paved way for the growth of residential, basic and social infrastructure to suit people’s necessities and affluence. However, unfortunately, one may call it, the presence of industries has failed to transform, modernise or upgrade North Chennai to a formidable region as the focus of development of the city had shifted to South and its peripherals areas for various reasons.”

 Key drivers of South

Explaining that the disparity in realty development between north and South was due to the key drivers the latter was enjoying such as employment, physical infrastructure, connectivity to important locations, access to social infrastructure, planned development, proximity to premium office spaces, accessibility to southern districts and vast land availability, WS Habib, Managing Director, Ramky Wavoo Developers and Treasurer of CREDAI Chennai, said, the IT/ITeS, manufacturing and automobile sectors are going to be the major driving force for overall growth in Chennai.

Over the next five years, 21 million sq ft of additional office space will be absorbed in Chennai with southern areas alone accounting for 18 million sq ft. This would further trigger the housing demand in this part of city, he explained.

Agreeing that IT boom has made all the difference for South Chennai, Nandakumar, who is also the Chairman of CREDAI, Tamil Nadu, said, “Dominated by white-collar segments’ affluence and IT boom, South Chennai has seen phenomenal development in tandem with the urban agglomeration. Having said so, in recent times, North Chennai too has started attracting developers as large land parcels are being transformed into residential and related social infrastructure development.” However, north has a long way to go to catch up with south, feel realty experts.

Change in sight

Arguing that physical and social infrastructure in North Chennai did not keep pace with growth in South Chennai leading to a widening of gap in preference of South over North among homebuyers, Sanjay Chugh, Head of Chennai, Residential Services, Jones Lang LaSalle (JLL) India, a leading real estate research firm, said, “North Chennai was the first commercial hub and home to traders and wholesalers who had established their business right from the British era. The area around the commercial hub also gradually developed residentially due the captive demand from the community that had their business interest in North Chennai. However, post 1960’s there was a gradual move towards Central and South Chennai and these areas witnessed development of social and physical infrastructure. With the IT boom in the 90’s there was a quantum jump in demand for commercial, residential and retail space in the Southern parts of the city and property prices saw a healthy appreciation.”

However, the gap between the North and South areas of Chennai is showing some reduction, thanks to the shifting of focus of some of the leading builders towards several areas of North and North West Chennai for the last 2-3 years.

Sanjay added, “Over the last few years prominent developers from Chennai like Prince Foundations, VGN, Arihant, TVH, Landmark, Chaitanya, Ganga Foundations and Navin’s have ventured into North Chennai in a bid to create quality living spaces. Metro Rail connectivity to North Chennai is expected to further stimulate growth prospects.”

Blaming the mindset and overall poor infrastructure for its current status, Habib said, ‘Even after several years, people still reminisce rickety buses, narrow by-lanes, overflowing sewers and mechanics and hawkers doing business on footpaths in north Chennai. Much of North Chennai is industrial land and has traditionally been the hub for industrial and warehousing facilities due to its proximity to the port. The residents are largely from labour and fishing communities. The purchasing power of these people is comparatively very less for a premium development.”

The traditional perception of north Chennai having high crime rates is also hitting the realty development, he pointed out.

On the other hand, South Chennai with its proximity to the IT parks is seeing high development due to employment opportunity, which drives the overall growth of the real estate sector here. “However, in the recent times, the purchasing power of lower and middle income groups in North Chennai has increased manifold. The second and third generations to those who worked in railways, industries here are moving up in the economic ladder. The increased purchasing power is changing the skyline with a number of large-scale properties setting up base there,” he reasoned.

About having even growth throughout the city, Habib added, “If IT zones and other industrial zones are notified in various parts of the city, rather than in one particular location, development would be evenly distributed.”

 Perceptions matter

Pitching his view on the uneven development in Chennai, Dr R Kumar, MD of Navin Housing and properties, said, “Actually, it is the chicken and egg question, and we cannot say that it is because of Governments’ intervention/inaction or it is because of the elite's preference, but the fact is, the combination of these two factors virtually created north-south divide. You can see parallels in the Hoogly and Calcutta divide as also the old Delhi and New Delhi divide, where it is more pronounced.”

“In addition, I also think there is a certain amount of cultural difference, in perceptions and in lifestyle, between North and south Chennai. I think, we have a responsibility to change these perceptions and lifestyle differences by physical intervention, by developing well-planned townships in North as well. At Navin's we are trying to do our bit by developing a integrated project, with all modern amenities, a project, which even South Chennai would be proud of!,” he added.

Price factor

Irony one would say, the distance from Chennai Central Railway Station to IT hub Siruseri on OMR and Katankulathur on GST Road is around 35 km and 43 km, respectively, while, the distance between the Central to Thiruvottiur and Manali is about 11 km. However, the real estate prices in the south locations are far higher than the two mentioned northern localities. While one could purchase a home for about Rs 2000 to 2500 per sq ft in Thiruvottiur and Manali areas, the price is more than double in areas near Siruseri and Katankulathur. However, people who buy a home in some of the northern Chennai localities have to face problems due to lack of sewage and water connection, frequent power outage, darker streets, uneven roads and lack of shopping facility. This tells the ambiguity of real estate development in Chennai.

Since the transport connectivity is awfully inadequate, people from northern localities are finding it difficult to travel to their work place situated in south and other areas.

Though North Chennai areas are being consistently ignored and overlooked for many years, there is hardly any move from the government’s side to develop these localities at par with their southern counterparts. To break the ice, a few builders have recently launched residential projects in and around Ambattur (which is well connected to fledgling Annanagar), however, not many projects are in the offing to trigger realty growth there.  Sad, one may call it.

Land buying becomes the latest fad in Chennai

True to the saying that ‘the best investment on earth is earth’, Chennaiites are now more inclined towards investing in land notwithstanding the strained economic condition and stagnancy the real estate sector has been witnessing for the last few years, says K Ramanathan.

With buying homes becoming increasingly difficult for lower and middle class segments, people who could invest as low as Rs one lakh to 10 lakh are increasingly looking for land on the outskirts of Chennai for investment purposes and what more, land promoters are jumping into the fray to tap the God sent opportunity offering land in newer locations around the southern metropolis at affordable prices.

However, real estate experts warn that the overwhelming rush towards buying land would encourage fly-by-night promoters to cheat the gullible land seekers.

“The city has been dotted with posters of various sizes informing people about the availability of land in various places like Redhills, Chengelpet, Oragadam, Avadi, Periapalayam, Sriperumbudur, Madurandagam, Melmaruvattur etc from prices ranging between Rs one lakh to Rs 10 lakh. Some even offer DTCP approved plots of 600 to 1200 sq ft for as low as Rs 6 lakh. People have a good chance to invest in properties at low price as land has less chance of depreciation unlike homes,” says Sathish Kumar, Managing Director of Anandam Foundation.

Though investment in land properties would be ideal considering the present slowdown, care should be exercised in choosing the property under one’s budget. 

What made people to go after land in Chennai? S Stalinraja, Senior Manager, Sales and Marketing of Omshakthy Homes Private Limited, says, ‘The present market condition guarantees more value appreciation for land properties compared to flats. For the last few years, some of the areas of Chennai have witnessed depreciation in capital value for flats whereas prices of land have been increasing steadily.’

S Stalinraja

Agrees Mayank, a property investor from South Chennai. ‘I bought a DTCP approved plot measuring 2400 sq ft in Madurandagam for Rs 6 lakh in 2012. It was sold to me at Rs 250 per sq ft. Presently, developers are offering land at Rs 450 per sq ft in the same area, almost 100 per cent appreciation one can say in one year,’ he says.

In the recent years the state government has been focusing on the infrastructure of Chennai and the surrounding suburbs. Adding to market growth, south Chennai suburbs are experiencing heightened activity as multi crore companies are changing the skyline.

Chennai City has grown and expanded exponentially, embracing what was once known as the outskirts, Guduvanchery, Singaperumal Koil and Oragadam, now becoming the hot hubs of Chennai with multi national companies investing in crores. With industries booming and the demand for real estate escalating, areas of south Chennai will continue to grow, no doubt the investment on land property will double in few years from now, says Sathish.

Of the promising investment hotspots for land around Chennai, Chengalpet on GST Road remains on top, offering varied investment options for middle class and upper middle class people. The reasons for those choosing Chengalpet for property investment are many with some of them being, close proximity to manufacturing & IT hubs and Mahindra World City, the business township of TIDCO.

Being the southern gateway to Chennai city, Chengalpet has been one of the fastest developing municipalities in recent times and situated just 30 km from the city center. Apparently termed as ‘New Chennai’, it is the metro’s first integrated business city and India’s first operational Special Economic Zone.

Air, road and rail networks have been expanded to provide handhold service to the public in South Chennai. New master plans have been proposed by Chennai Metropolitan Development Authority (CMDA) in terms of rail route that includes laying of the second lane between Chengalpet and Arakonam, which is about 60 km from Chennai. According to some front-line developers, Chengalpet will become a well-equipped metropolitan city in the next four years.

Chengalpet also has both quality education and medical facility under its belt. The district is equally endowed with top autonomous and affiliated educational institutions in the state.

“Apart from Chengalpet, which provides short-term gain for investors, other places which offer quick appreciation of land value are Oragadam, Sriperumbudur, Singaperumal Koil, Poonamalle, Madurandagam and up to Thiruvallur. One should also look for transport, educational, medical, employment facilities before choosing a land for either investment or residential purposes,” feels Badal Yagnik, Managing Director – Chennai and Coimbatore, Jones Lang LaSalle India, a leading real estate research firm.

Making a pitch on southern and western outskirts of Chennai to get fast and consistent appreciation of land value, Bala however, cautions against buying land in northern and north eastern localities such as Redhills, Periyapalayam, etc, which he feels, have less chances of appreciation in short term. ‘Even for long term also, compared to southern parts, these areas will have less appreciable values. So, one must be very careful from the road-side advertisers offering plots in these areas at affordable prices with hosts of freebies such as free patta, registration, EC, gold coins, scooty etc,” says Badal.

On the percentage of appreciation, southern Chennai areas can appreciate between 30 per cent to more than 100 per cent depending upon the location with in 3-5 years, people who are investing in other areas can expect appreciation between 30-50 per cent in the span of 5-10 years.

The price also varies depending upon the appreciable values, which depend on the infrastructure facilities available and future prospects in the area. For example, a person having a budget of Rs one lakh can look for a land at far off places near Thiruvallur or Arakkonam and can wait for ten years to get a decent appreciation, where as those who look for a fast appreciation of their money can buy a land measuring 1200 sq ft for Rs 10 lakh at places like Oragadam or Sriperumbudur and book profit within three to five years, says Stalinraja.

Legal side

Though there has been a landslide rush towards buying land, legal experts believe that buying land through reputed promoters would save them from being cheated.

“Though lands bought through prominent and reputed developers would be little costlier, these properties would have less chance of having title deed-related problems. One should not blindly believe builders or developers as properties to be purchased should be thoroughly checked for legal problems through a competent authority,” says S Ramaswamy, senior advocate, Madras High Court.

While purchasing land, one should see for appropriate approvals from local panchayat, DTCP or CMDA authorities for using the piece of land for residential or commercial purpose. Encumbrance certificate would give details about the details of liabilities, if any, on the property to be purchased. Transition of legal heir/s should be thoroughly screened for any anomalies in subsequent property sales. One should also demand for Patta, chitta, adigal, copies of necessary approvals and legal opinion.

Lack of awareness drive people to buy land from unscrupulous developers without checking the documents. ‘Most of them do not even ask for a copy of documents such as parent documents, patta, EC, approvals, etc. They simply pay the advance money and give the rest at the time of registration. If any problems arise after few years, at the time of building home in the land, landowners seldom find those who sold the property to them. So it is better to check the documents before registering a land, say legal experts.

“A genuine developer would handover all these copies to the prospective buyer after a token advance which is refundable in case of any legal problem, found later by the client’s lawyer,” says the advocate.

Places to ponder

Areas for short term gain (3-5 years)	Areas for long term (5-10 years)
Oragadam, Sriperumbudur, Singaperumal Koil, Poonamalle, Madurandagam, Kanchipuram, Thiruporur, Sholinganallur, Chengalpet, Padappai, Mahabalipuram, Guduvanchery, Chungavarchathram, Melmaruvathur, Walajabad, Karapakkam	Dindivanam,  Marakkanam, Periapalayam, Redhills, Paruthipattu, Tiruvottiyur, Thiruvallur, Kalpakkam, Uthiramerur, Putlur, Minjur, Athipattu, Thirumazhisai,