Budget 2014 - 15: A Boon To Affordable Housing In Chennai..

by Mr. Sanjay Chugh, JLL India

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.

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.

 

Sanjay Chugh,
 JLL India

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.

About the author

Mr. Sanjay Chugh is Head (Residential Services (Chennai)) at JLL India

For Media Contact

Arun Chitnis

Head – Corporate Communications & Media Relations

JLL India

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