Outskirts of Hyderabad might see jump in construction activity

Source: ET Realty, Dt: 2.2.2017

With affordable housing being the catchphrase of Budget 2017, the focus could well shift from core areas of Hyderabad to its cheaper peripheries, said market analysts post Arun Jaitley's close to two-hour-long speech on Wednesday. The bouquet of incentives that the finance minister showered on this segment, however, left industry biggies disappointed.

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"Though a lot of people think Hyderabad does not have the potential to grow in the affordable housing segment, I feel otherwise. The city's outskirts, where land rates are cheaper, are perfect destinations for such ventures that have so far not been economically viable," said Sandip Patnaik, managing director (Hyderabad) of global real estate services firm Jones Lang LaSalle. He felt the benefits extended to this segment were very encouraging.

Apart from an increased carpet area, affordable housing was also awarded the 'infrastructure status'. This will result in bigger homes for buyers and lower interest rates for developers. The average projected cost of these homes is Rs 15– Rs 20 lakh.

"This will push more local players to take up small projects that they shied away from until now. Currently, the city has just about two or three firms that build homes under 900 square feet," said S Ram Reddy, president, Confederation of Real Estate Developers' Association of India (CREDAI – Hyderabad). He said, "Increased activity in this segment will also enhance sales among customers, primarily from the lower middle class."

That the government has eased the burden of capital gains tax on land owners – part of joint development agreements – will further ensure that the cost of these properties does not shoot northwards, experts said. "Until now, land owners had to pay a hefty capital gains tax – anywhere between Rs 200 and Rs 300 per sft of the land owner's share -- the moment they signed a deal with a developer. Now, they can pay this only once the project is completed. This will give them a breather and also make land transactions smooth," Reddy said.

Another high point of the Budget, according to the industry is the reduction in holding period for capital gains tax on immovable properties from three to two years. This means that a customer can now sell his or her house within two years of buying it, without having to pay this tax. The ceiling was three years until now.

"This might attract investors to the Hyderabad market, which is largely end-user driven. If investors can exit a project within two years, they would be more willing to park their money in the city," said Veera Babu, managing director (Hyderabad) of Cushman & Wakefield, another leading real estate service provider.

But while the construction and sale of cheaper homes might see increased in activity soon, major developers in the city say there's no hope for mid-sized or big-ticket projects. "We are extremely disappointed. Neither have we been awarded industry status (which would reduce lending rates for builders) and nor have individual tax-payers (those who comprise our prospective client base) been given much relief. So there's unlikely to be any jump in construction activity or sale of homes in these segments," said D S Prasad, director, Aparna Constructions.