Middle class dream goes flat in Kerala

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The middle class dream has always been to own a house. But with time it has nearly got out of reach for many as land prices have skyrocketed and independent houses no longer fit the budget of the middle and upper-middle classes in cities like Kochi, Kozhikode, Thiruvananthapuram and Thrissur.

The next best option are flats, but they too are getting steadily unaffordable. It’s hard to find a 900 to 1200 sq.ft flat costing less than Rs25 lakh in these prime cities. And if it happens to be a two-bedroom flat being marketed by a good builder, you could be asked to pay as much as Rs35 to Rs 40 lakhs for it.

The going price for a 3-bedroom 1,300 sq ft flat is around Rs55 lakh today, when a survey conducted by swapnakoodu.com recently found there is a huge market for flats costing less than Rs25 lakh in these cities where most people have an income below Rs50,000 a month.

Not surprisingly, the buyers’ market is drying up, leaving the real estate sector in a slump.

Today Kochi has only a handful of major building projects coming up with builders keeping a wary eye on the market.

Things were very different just a few years ago when the real estate market was booming in 2006-09 with investors flocking in and boosting prices to unthinkable levels. “But that was not a realistic rise and those investors are today finding it difficult to make a profit on their properties,” says Anish P R, CEO of swapnakoodu.com in Kochi.

“It’s a unique situation. While there are few buyers for flats, those in need of homes are not able to get affordable ones. Meanwhile some of the old investors, who are in desperate need of cash are disposing of their flats at a loss. An investor in Kakkanad sold a flat that he had bought for Rs 40 lakh in 2008, for Rs23 lakh recently,” he reveals.

President of the Confederation of Real Estate Developers’ Associations India, Kochi chapter, M.V. Antony, agrees that flats are getting beyond the reach of the middle and upper middle classes.

“The problem lies with the phenomenal price of land in Kerala. Even in a city like Chennai, land is available for Rs1 to 2 lakh per cent within five or six kilometers of the airport, but in Kerala land can’t be acquired for that amount even on the outskirts of Kochi. In the city proper, it costs upto Rs10 to Rs12 lakh per cent,” he says, pointing out that the cost of construction per sq.ft comes to another Rs2,000.

“The finance cost, approval cost and the different fees including for consultancy adds up to another Rs200. Couple this with the marketing and management costs and the total cost per sq. ft works out to betwen Rs4500 and Rs5000. So a 1,000 sq ft flat with amenities is priced at Rs45 lakh and more,” he adds.

There’s little hope of the prices coming down in the near future as builders say the cost of construction has only increased by Rs150 per sq ft over the past four months alone. “Only if land is available for Rs2 to 3 lakh per cent, can flats be made affordable for the middle and upper middle classes,” he believes.

Former district registrar and real estate analyst K.M. Baby says there are not many projects in cities due to shortage of property suitable for them.

“There has been a lull in the market since the Apple a Day property scam and after the laws were beefed up. Major builders like L&T have abandoned their plans for Kerala and others have slowed down their projects. But Kerala is on the threshold of witnessing a boom in ‘targeted flats’ pioneered by Godrej Properties in North India. These flats will conform to the buying capacity of different income groups,” he assures.

Roads, water all key factors

Even 15-20 per cent downward correction in retail prices of flats and residential units over a year has failed to spur the realty sector, say several professionals in the industry.

The concept of budget housing too will fail to take off, owing to the high land prices in the state, the experts say. A sizable number of flats already built in cities like Kochi and Trivandrum remain unoccupied, indicative of the current market trend.

According to the managing director of the BCG Group, Ms Rekha Babu, an 800 sqft house can be made available for around Rs 25 lakh. But finding space for a car porch makes prices shoot up again, and most of the people own vehicles.

Also, with little land available in cities the realty sector has begun moving to the outskirts, whereas people prefer to stay in the city due to proximity to workplace.

Housing projects of affordable Rs 25 lakh can be set up some 15 km from the city. But these can be attractive only with provisions of good roads, power, water and facilities for education, say the builders.