Two Factors That Are Helping The Real Estate Sector Recover In Southern India

Green shoots have begun to emerge in the housing and real estate sectors, along with a rebound in the rural economy, since the coronavirus (Covid-19) pandemic struck India in March this year.

Reports say that the sales volume of residential properties has rebounded to 80 per cent of levels seen before the coronavirus pandemic struck.

In particular, the country’s top eight cities, including Chennai, Bengaluru, Hyderabad, Mumbai and Delhi, are witnessing sales doubling during the July-September quarter compared with the April-June quarter of the current fiscal.

According to PropEquity, there was a 16 per cent increase in launches of new residential projects during the just-ended quarter.

Real estate sources point out at two main reasons for the increase in sales in the sector.

One, properties are being offered at a discount. This is especially true of new launches where the rates offered are below the guideline values of lands issued by the respective state governments.

On the other hand, there are many projects that have been completed but have remained idle with no takers. With real estate owners coming forward to reduce the prices below the guideline value, these properties are now finding buyers.

This has resulted in some of the registration offices witnessing more number of people turning up, which is higher than the same time last year.

A real estate player in Chennai said that, for example, in the Redhills registration office, the number of properties listed for registration has topped 10,000 this year.

“The whole of last year, we did not see this number at all. But this year, in October itself we have registered so many,” the player, who did not wish to be identified, said.

Registration offices in Tamil Nadu have been asked to register not more than 10 transactions per hour due to Covid-19 restrictions. This would mean that the total real estate transactions per day will not be more than 50-55.

“We are seeing at least 150 requests every day for registrations,” the player said.

Buyers or those having cash are looking to invest for the future. That way, the price of properties being lower than the guidelines value is driving up sales.

For example, a property’s guideline value might be Rs 1 crore. Such properties are now being offered at anywhere between Rs 75 lakh and Rs 90 lakh.

If any individual has some cash on hand, say Rs 30 lakh, he or she opts to invest in these properties, making up the balance through bank loan or pledging jewellery.

According to a study done by real estate research firm Liases Foras, average prices of properties have dropped by 4 to 5 per cent since the onset of coronavirus. In Mumbai and the New Delhi Capital Region, the reduction is in the range of 8 to 9 per cent.

On the other hand, developers are offering discounts ranging between 5 and 10 per cent which includes a waiver of stamp duty, registration fees, booking offers etc.

In Chennai, some people have reported that they have been offered land on sale by some agencies at a very competitive cost. These agencies are offering to pay registration fees, stamp duty, fencing for the property and even help plant trees that can bear fruits.

Currently, the Tamil Nadu government collects 4 per cent registration fees and 7 per cent stamp duty on the property value. The registration fee was raised by the Edappadi K Palaniswami government from 1 per cent that existed during the late J Jayalalithaa’s regime.

Guideline values of properties were raised nearly 10 times during the 2006-2011 Dravida Munnetra Kazhagam regime when it reduced the stamp duty from 12 per cent to 8 per cent. Then, the registration fee was 1 per cent.

The decision was made as the real estate sector, then, was on a roll and then chief minister K Karunanidhi felt higher guideline value will make up for any revenue lost due to lowering of the stamp duty.

The other factor driving real estate sales is some of the governments, particularly Tamil Nadu, allowing agricultural lands that had been 'converted' for housing purposes, to be purchased by industrial houses.

“This is witnessing some major purchases by industrial units in suburban Chennai areas such as Redhills, Madhavaram, Thiruvallur, Sriperumbudur, Avadi etc,” said the real estate player.

Unverified reports also say that some industrialists who have units in the north are buying properties in southern India either to expand their business or for investment purpose.

With urban areas, too, showing signs of recovery, the real estate sector expects the trend to continue as long as discounts are in place.