Budget 2016 will boost demand for affordable homes

Homes up to 30 sq metres in metro cities and 60 sq metres in other cities which fall in the affordable segment make up for 90% of the demand for houses in India. Several announcements in the Budget 2016 are likely to stimulate growth in demand for affordable housing.

Real estate experts say the exemption for affordable housing would bring in a 15-20 per cent upside on profits after paying the MAT tax for a developer constructing such a project, making it easier for the developer to attract foreign and domestic investment for housing projects.

“100 per cent deduction for profits to an undertaking in housing project for flats up to 30 sq. metres in four metro cities and 60 sq. metres in other cities approved during June 2016 to March 2019 and completed in three years.  MAT to apply,” finance minister Arun Jaitley announced in the budget, adding that “construction of affordable houses up to 60 square metres under any scheme of the Central or State Government including PPP Schemes will be exempt from service tax.”

First time home buyers will get deduction for additional interest of Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned in 2016-17, where the cost of the property does not exceed Rs 50 lakh. This will encourage developers to reorganize funds into building more houses in the affordable segment.

Further, Jaitley has addressed one of the painpoints of the real estate industry by extending excise duty exemption, presently available to concrete mix manufactured at site for use in construction work, to ready mix concrete as well.

Shishir Baijal, managing director of property consultancy Knight Frank India says the realty sector will get a push from both supply and demand side. The FM has announced steps to address concerns from the supply side in housing to spur construction activity and employment connected to it.

To provide relief to persons living in rented homes, this budget has increased the limit of deduction of rent paid under section 80GG from Rs 24,000 per annum to Rs 60,000.

Namma Bengaluru

Property Consultant JLL India and Royal Institute of Chartered Surveyors (RICS) have forecasted that Indian realty market will see a revival in 2016. Bengaluru, witnessing a real increase in realty, has emerged as the second most preferred destination for investors after Mumbai.

Mainly driven by private equity (PE) players, the demand for real estate is especially coming from the commercial real estate segment. Juggy Marwaha, Managing Director, South, JLL India says, “PE investors are attracted to Bengaluru, as it is a highly corporatised market with good quality tenancies. The IT firms pay decent rents, the lease terms are good and it’s a stabilised market where demand and supply has always been kept neck-to-neck.”

The increase in demand for commercial real estate doesn’t mean that there is a lack of opportunities for retail investors. Affordable commercial units in North Bengaluru can become potential good investments because of the large demand emanating from eCommerce businesses and startups in the area. Endorsing the prospects of North Bengaluru, Satish B.N., Executive Director, South India, Knight Frank India says, “North Bengaluru (Thanisandra and Hebbal) has better prospects than East Bengaluru (Whitefield and Brookfield), owing to better infrastructure and metro connectivity,”.

Over the last three years, the average price growth in Bengaluru’s residential areas, has been approximately around 23%, higher than the average price growth in other important real estate hubs such as Delhi NCR (18%), Mumbai (22%) and Pune (17%). A case for example would be Hebbal, which saw a 67% growth with average property prices rising from Rs 4,250 per sq. ft in 2012 to Rs 7,100 per sq. ft in 2015.

While the growth in residential properties is expected to be subdued in the long run, mid-range residential projects might become a positive exception. The price appreciation in the mid-range segment (Rs 3,500-5,000 per sq. ft) is high because of the demand and availability of customers in the market. Says Marwaha, “Owing to the new set of people joining the city’s IT brigade, the midrange segment is doing better than other project and investors can also looking at renting out the properties after purchase,”. Stating the potential growth of upcoming areas such as Thanisandra and Yelahanka in North Bengaluru, Marwaha added, “You can expect up to 35% price escalation in Thanisandra and up to 30% in Yelahanka, if you buy now and can hold for next 4-5 years. Other areas in the North such as Nagwara, Hoskote, Kanakpura are also good areas to invest in.”

Majiwada Thane Property Price Boom

According to an industry report, if the transport infrastructure projects announced by the Maharashtra Government in certain areas meet stated timelines, neighborhoods of Mumbai such as Madh-Marve, Majiwada-Kasarvadavali and Ulwe are likely to get costlier.

The report by real estate research & consultancy Knight Frank India highlights that properties in Majiwada-Kasarvadavali may get expensive by about 11.2 per cent due to the proposed construction of a Metro rail corridor from Wadala to Kasarvadavali over the next five years. Similarly, prices in the sea-front Madh-Marve are expected to increase by approximately 14.2 per cent on the back of a projected Versova-Madh sea bridge, and the Nariman Point-Kandivli coastal freeway. Further, in anticipation of the proposed Navi Mumbai International Airport and the much-delayed Sewri-Navi Mumbai Trans Harbour Link, The report estimates Ulwe to continue to see an uptick in price at 9.7 per cent rate per year, which has already inflated over the past few years.

Madh-Marve is the costliest of the three regions where Knight Frank has forecast a growth with an average rate of Rs 13,500 per square feet. While a Property at Majiwada-Kasarvadavali presently costs an average of Rs 8,000 per square feet, prices in Ulwe are floating around an average Rs 6,000 per square feet.

Pankaj Kapoor, Managing Director at Liases Foras, a Mumbai-based real estate research firm, said the low-profile areas of Mumbai are now benefiting because of the sky-rocketing prices in the high-end ones.

Andheri’s Hotel – Aura Grande

Deal space in the hospitality sector is picking up in 2015 with alleviation of valuations and improved market conditions drawing buyers back to the bazaar after nearly two years.

In the most recent development, MRG Hospitality and Infrastructure, the owner of a chain of boutique hotels under the ‘Goldfinch’ brand, has acquired Aura Grande, a four-star business hotel for Rs 100 crore. The 94-room hotel is located in Andheri, a suburb of Mumbai. K Prakash Shetty, chairman and managing director, MRG Group confirmed that his company has acquired 100% stake in Mumbai-based Annakoot Properties which owns the Aura Grande hotel.

“We have funded this acquisition through a mix of debt and equity.” MRG will invest additional Rs 10 crore in revamping the seven-year old property. We wanted a presence in northern and southern part of Mumbai and this acquisition will launch our presence in the northern part,” said Shetty. “We are also exploring opportunities in Navi Mumbai,” he added.

“It’s encouraging to see that deals are back in the market and investors with long-term view for play in the hospitality industry are getting active in the market,” said Abhijit Umathe, associate director for hospitality and leisure,  Knight Frank India.

MRG Group which is currently operating four boutique hotels in Bangaluru and Mangalore under the brand name ‘Goldfinch’ and 15 restaurants, is looking to expand its portfolio to 12 properties with around 2,300 rooms in the next three years. The company which has interests ranging from real estate to hospitality has entered into contracts with international chain Hilton Worldwide and Marriot for developing their hotel properties in Goa & Bangaluru respectively. “We wish to grow the ‘Goldfinch’ brand to markets like Puducherry, Coorg, Chikmanglur and Udupi where we have already acquired land parcels for hotel projects,” Shetty stated.