In any market, an oversupply of inventory should have brought down the prices. But, it is a complicated situation in the sector, where the builders can’t afford to sell it at a lower price, and are also stuck with the inventories. They are unwilling to bite the bullet and sell these at a loss, although holding unsold stock also translates into loss for them, as they continue to pay interest to banks on loan in the hope that the market will improve.
The need to make housing affordable
Demonetisation and the COVID crisis dealt a decisive blow to the real estate sector. The beginning of the Real Estate Regulation Act has also put an end to builders juggling money from new to old projects. A real-estate loans crisis can potentially trigger a US 2008-style economic crisis in India.
The ILFS default on the payments crisis of 2018 was managed with patchwork, but the threat of real estate loans defaulting is still a 40 billion dollar time bomb, yet to be defused. In the near future, the builders won’t bring the prices of the already built homes any lower, and will continue to build similarly unaffordable homes.
The bulk of the inventory available now is unaffordable to most of the population, which is the crux of the problem. A 2-BHK apartment costs on average Rs 40-50 lakh on the outskirts, meaning longer commute to the office or at least 60-80 lakh in areas closer to the commercial areas and workplaces in the cities. This makes house ownership possible only for those who earn at least 10 lakhs per annum, and makes owning an apartment possible only for the wealthiest 10% population in the city, defined as upper-middle class.
Number of floors permitted in Chennai is one of the lowest in the world
Have you ever wondered why most apartments have only four floors and one floor for parking in Chennai? Thanks to the government’s regulations limiting the number of floors and built-up area via a technical term called FSI or Floor Space Index.
FSI of 1 translates to 1000 sq ft of built-up area in a 1000 sq ft of land (either in the floor as 1000 sq ft, or 2 floors each 500 sq ft, etc). An FSI of 2 correspondingly means you are allowed to construct 2000 sq ft of built-up area in the same 1000 sq ft land (i.e., 2 floors each 1000, or 3 floors each 667).
Below is the maximum FSI for Indian and global cities; all Indian cities including Chennai are at the bottom lower end.
Comments
Post a Comment