Hi, I am an average chennaite trying to find an afforable house/flat in Chennai. Thanks to our real estate friends and our so-called REAL ESTATE EXPERTS, I am unable to find even a decent flat even despite the fact that I have been looking at farway suburbs like Potheri.. (situated near GST ROAD) I was surprised to see that the homes in the locality were priced around 28-38 lakhs per flat (Flats ranged only around 670-970 square feet). The most alarming fact was that these projects have not even commenced construction.

When I asked the concerned real estate broker on why the houses were priced at such high rates (Around 3000 rupees per square feet), he gave me a sarcastic look and told me that IT is booming (The standard excuse) and IT folks were very eager to buy "Cheap and Luxurious homes".
I am tired of real estate developers repeating the same lame excuses for hiking their rates. I wish to project a sample scenario to explain why IT folks or others cannot afford the homes in Chennai.

Let's take a typical example of an IT couple.
Considering the cut off salaries of 6 lakhs per annum for an average IT associate, I am safely placing the average salary of a couple at around 1lakhs (50k from husband + 50k from wife). Remember this is the highest aggregate at executive level (People with 4-5 years of experience in IT).

Total salary after taxes and other deductions such as PF, Gratuity, PPF etc: 1,00,000 - 15,000 = 85,000

Considering that companies have an average variable pay for each employee, let's deduct 15-20k as variable pay (This is a minimum amount and may exceed 10k depending on companies) 7.5+7.5k = 15,000

Total salary after deducting PF, Variables, and other deductions = 1,00,000 - 15,000 (PF + DA) - 15000 (minimum variable pay for IT couple) = 70,000 INR

As every IT home has Airconditioner, Fans, Fancy Television sets, Computers, Washing Machines, and other gadgets, the electricity bill per month would amount to 4000.

Also, as IT people eat out most often and travel together, they will spend a minimum of 6000 in their expenses (Check the fancy eateries like Pizza Huts, Mcdonalds, KFCs, and Subways in your area and you will see what I mean).

Every IT Home has a maid with salaries ranging from 1500-2000, also Groceries and other stuff are a mandatory expenses.

After these deductions (70,000 - (4000 + 6000 + 2000)), salary comes to around
Total Salary after expenses = 58000

Now, since most IT folks have a car. And most often, they have taken a car loan to buy the car, consider the EMI to around 6000 to 8000 depending on the car value.

Plus, you have petrol expenses too - 2000 rupees for an average couple (This estimate is true for most couples).

Total salary after Car EMI + Petrol Expenses (58000 - (6000 (Minimum EMI amount) + 2000 )) = 50000

Now, considering the fact that the IT couple have a new member in the family (Child) - Medical expenses per month would be 2000-3000 (I have included this as per month expense as delivery expenses are one-time expenses, but cost around 30,000 - 60000 depending on the hospital. So, keeping 30000 as the minimum, 30,000/12 = 2500 rupees per month)

Total salary after deducting hospital expenses = 50000 -2500 = 47500

Now, if the couple plan to buy a decent 1000 square feet flat in Chennai, they need to shell out an average amount of 40-45 lakhs (Conservative estimate) within the city, or 35-40 lakhs, if the property is in the suburbs.

So, minimum RMI ranges from 40000 - 45000 as per the loan amount.

Fixing 38000 as the minimum loan amount, total salary after Home Loan EMI will be = (47500 - 38000) = 9500.

I have included only the mandatory expenses for an average IT couple. THere are other expenses involved such as Medical expenses for elder persons in the family, school fees for the child when he/she grows up, inflation etc.... Considering this, an IT couple will end up with barely 2k if they are lucky.

Now, finally, I ask my question?

Is Chennai realty really afforable? Do IT people really have the power to purchase homes and complete their loans till the last EMI?

What is the guarantee that another recession wont come?

What is the guarantee that your salary will go from tens of thousands to lakhs to crores? Till 2000, a person took 20 years to get a salary of 10000-15000. Today, the starting salary for a fresher is greater than 10000. However, the average salary of an IT professional still hovers around 70000-80000 even after 10 years of IT growth. Infact, it has depreciated after the companies faced recession.

What is the guarantee that your realty prices will appreciate further. Come one, already lands are going at prices well over crores of rupees. An average house in Chennai costs around 1 crore (More than 4500 per square feet). The average income of a Chennaite has still not exceeded 25000 (Please folks, when I say average Chennaite, I mean people outside of IT.)

Even despite excluding lower classes and lower-middle class, the other salaries classes still earn only around an average of 40,000 - 50000 per month. Whereas the average EMI for a 40 lakh loan amount comes equivalent to the salary of the average chennaite.

Please think and reply.

Kindly do not come back with the IT Salaries will increase bullshit. FYI, I work in a highly reputed MNC. Salaries here only increase around 5-10% per year....... And morever, IT PEOPLE ONLY FORM 10-20% of the whole Chennai Population.
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  • parents or in laws and old saving they pay atleast 50% of the flat cost and rest is loaned.
  • Following reasons that I thought through ....

    1) after 1 - 2 years 10 -15 % of the IT friends are onsite.
    2) Savings from parent and in laws.
    3) IT friends working in Blore/Hyd are investing in chennai.. 5 - 10 %
    4) NRI from Dubai, Australia, Muscat, Europe, US investing it in chennai - 5 -10 %
    5) Non other IT people like bank manager , Govt officers .. started purchasing flats - 5 -10 %
    6) Couple of friends before marriage who used to live in shared accommodation and the minimal spending in terms of rent/ commute / entertainment started purchasing flats for the TAX benefits
  • @SNT2011: Nice reply buddy, but for your information, not many people have savings worth lakhs of rupees and not all parents have saved for theur children. In a population of 20 Lakhs, atleast 15 lakhs struggle to meet their budget, so in this case, I donno how they can shell out lakhs of rupees for buying a house when they can't buy materials for their daily use.

    And for your information, I have a relative, who owns a house in Koyambedu, he has been trying to sell his property for 60 lakhs (1600 square feet of land with 650 square feet built), althought the property has no legal hassles, there is no buyer till date.

    If one has to search for a buyer, that too for 60 lakhs, I donno how promoters seem to sell properties worth crores of rupees.
  • @Anurag: Good assumption buddy, but this falls way out of the mark. You see, even in lucrative IT, not everyperson goes onsite. Among a workforce of 1000 employees, only 15-20 people manage to go onsite every time. Even if they do, the maximum amount they can save amounts to rupee 8 lakhs for 2 years. So, even if these lucky people manage to pool out 8 lakhs, they are still short of the remaining money; 32 lakhs or more to buy a decent house at today's rate.

    As for the parents savings part, not all parents save enough money for their children. Even if there are instances of parents owning houses, they are a minority. Since, I am speaking about the whole of Chennai, I have to consider afforability for 85% of the population and not 15% of the population.

    So, considering this perspective, I can safely say Chennai Realty is really a bubble. it's quite unfortunate that there are still buyers out there, who are willing to buy despite the huge risks.

    Please find my answers in-line-

    Savings from parent and in laws. -True, but these sort of people constitute hardly 5% of the house buyers in chennai.

    3) IT friends working in Blore/Hyd are investing in chennai.. 5 - 10 % - Yes, IT folks do work onsite and buy houses, for them, anything is afforable. But you have to consider that even in IT, only 10-15% people go onsite. So, even considering IT as a industry, there are still 85%, who cannot save such amount of money to buy flats.

    4) NRI from Dubai, Australia, Muscat, Europe, US investing it in chennai - 5 -10 %
    True, few of them are still investing. But recently, they have realised their follies. You see a land in Chennai city costs anywhere between 2-3 crores today. One NRI friend of mine came and saw property and said that at this rate, he can buy a house in San Fransico or New Jersey with all the facilities. If you don't believe me, ask a few NRIs or google the rates in USA> You will find that the rates are either almost equal or less than Chennai realty. Please note houses in US have much better facilities.

    5) Non other IT people like bank manager , Govt officers .. started purchasing flats - 5 -10 %

    Yes, but can you say, how many people like these have started to buy.

    6) Couple of friends before marriage who used to live in shared accommodation and the minimal spending in terms of rent/ commute / entertainment started purchasing flats for the TAX benefits.

    Agreed. That situation was true 2 years ago when flats were less costlier (Priced around 25-30 lakhs). Today the minimum price of a 700 square feet flat in Chennai costs more than 32-35 lakhs. Also, remember, that tax savings of Home Loans is a myth.

    No matter how many thousands you pay as EMI, Income Tax Department only considers the following as tax free income:

    1) The prinicipal amount in the EMI will be included as Savings. (The 100000 amount slab granted to all employees. Since all your PF, PPF, ULIPs, Mutual Funds etc come here, you will hardly get any tax benefits.)
    For example: If you pay an EMI of 20000 out of which 2000 is the principal. 2000 x 12 months = 24000 is the income for which tax will not be charged.

    2) You are allowed only 1.6 lakhs of tax free income for interest.
    For example: If you pay an EMI of 20000 out of which 18000 is the interest for the first year. 18000 x 12 = 2,16,000

    Out of this 2,16,000 - You have tax exemption for only 160000. You have to still pay tax for the remaining 51600. :)

    Please check with your tax advisor. While I agree buying houses will allow you to get tax exemption, buying a costly house will only increase your expenditure in the long run.
  • I completely agree with you Aswin!!. Even I too feel the same heat on real estate like you!!. It will be very difficult/not possible to buy a property in chennai in another 1 to 2 years down the line. Really absurd!!!!
  • Well...chennai RE is absolutely unaffordable for nromal IT folks and salaried professionals. Only business ppl and black money holders cud afford this scenario.
  • the question is simple. The government wants you to take loans which enables the fractional banking system. Without middle class taking loans and spending the cash the government cannot subsidize the lower class and poor. One cannot compare India of the early 90's to today. Check out house prices in Warsaw, poland one of the last bastions of the soviet empire. Prices there rival to those in the USA. Indian metro cities like Chennai will draw huge investment inspite of broken infrastructure. There is no respite for the Indian middle class. In the 90's I had a salary of 5000 pm and my apartment in Mumbai was worth 20L. In 2012 someone starting will make 40k a month in my profession and the same apartment is worth 1.2CR.
    In buying a house, one has to ensure that he can afford the payment of the house regardless of the market. If the market goes bad, you will get better value. As long as you dont have to be foreclosed nothing matters.
  • U know what is the salary of post graduate school teacher couple in a village. ??? 50000 rupees each and their monthly expense is hardly 6000. All the money is pumped to their children. I know many guys living abroad at the age of 30 owning 3 flats in chennai. I think we should get some rules like one should not have more than 2 properties or something like that. Above all the real estate funds of FII is pumped in to lands making the real estate market unreachable for common man
  • @rameshyahoo: Buddy, i can understand the fact that flats in Mumbai were 20 lakhs when you earned 5000. But you are taking into account one of the costliest cities in the world. Remember Mumbai is the COMMERCIAL CAPITAL OF INDIA, home to India's Stock Exchange, and the place where money from business flows like rain. Mumbai real estate has always been prosperous, save for the odd year or two.

    Comparing Mumbai to Chennai is like comparing a Maruthi Alto to a Honda City.... The comparison seems fair today because Chennai is home to many of the big IT companies like Infosys, WIPRO, TCS, CTS, Polaris, HP, IBM, and so on... But the main reason why Chennai attracted investment was its AFFORDABILITY, which is today slowly going away thanks to the astronomical prices......

    The best example is the area called Duraipakkam. IN 2001, my uncle bought a house (1200 square feet) for 6 lakhs, Today, the same house is being priced around 45-55 lakhs.... All this despite the fact that the house is located in an area with poor water facilities and roads.. So much for the exorbitant prices.

    Your logic is like saying "It is ok to pay high EMIs because you get paid XXXX thousands of INR". What is the use of earning 1 Lakh, if you are gonna pay 80000 as EMI???
  • Brother, I understand your anguish. But let me correct you by stating that not all Government school teachers earn 50,000 K. The average salaries as per the Sixth Pay commission still hover around the 25000 mark for senior teachers. Perhaps you were referring to the teachers, who have exemplary qualifications and umpteen number of years of service :)

    As for the rule of a person not owning more than 2 properties, I perfectly agree with you. The government must make a law to ensure that the poor and lower middle class get a chance to buy a home. But at the moment, it is like expecting rain in a desert :(
  • ashwin_kini:
    You are spot on when you make your arguments. However you cannot fight the RBI which is flooding the country with cheap rupees and the US Fed which is flooding the US with cheap dollars, some of which makes it to India. The price of gold has gone up 8 times over the past 10 years. Look at Silver, oil, copper.

    The value of rupee/dollar has been eroded and hard assets have appreciated. Chennai is no mean city in India. The US moved stuff to bangalore when Bangalore land prices were 100 rs per sq/ft, now those prices are 2000 per sq/ft. Same thing has happened to chennai.

    The flat world has made it easy for everyone to exploit. The sixth pay commission is a fact and I know many people who retired years ago making more now then when there were working. Imagine the situation when the pension 20 years later is 30,000.

    In fact you should be thankful that you are in Chennai where prices in absolute terms are still affordable to someone who works in Corporate. If you come to Mumbai people have been driven to outskirts where apts cost 5000 per sq/ft without any businesses.
    In fact GST and OMR are the best thing to happen to Chennai. As a disclaimer I have some plots in GST which have seen nice appreciation over the past 5 years. I expect to hold them for some more time before building a house or selling it. In fact I posted a link of Artha property who has launched tiny houses in villas for 35L on GST. Check out that property on the weekend and post your response. I would like to hear you opinion on that
  • Well said buddy, thanks for the info regarding the flats in GST road, will check and let you know.
    Unfortunately, I am just eligible for a home loan of 30 lakhs and not more.... :)

    I have to see what is in store for Chennai realty. I was really looking at a decent correction during 2008-09, alas it never happened. I will wait for at least 24 months before taking a decision. Afterall, irrespective of the land rates, I cannot buy any of them even now.

    I am prepared to leave the realty bus because this one seems to be going nowhere.

    I pray that my fellow forum mates get a better deal soon and make their dream home a reality.

    Cheers :)
  • hi

    u can get property for 30 lac in medavakkam or pallikaranai , y r u going to GST
  • aswin_kini,

    Just read this forum and I totally understand your point of view as mine is almost the same.. Being NRI for last 3.5 yrs I find it difficult to afford a decent home in a decent area, so I know the pain. I sometimes wonder the blind confidence of the chennai ppl taking loans of 30-40 lakhs without even having any guarantee of the job that they have now.. well I know what they all think.. its not just me going down,its everyone else :D. Can you see what I am saying? that drives the market here.. Literally seeing ppl got fired abroad I was so scared to go for any major loan till date.. hey guess what if I havent gone abroad I wudnt care abt those anyway..

    What makes my feeling worse is the ppl who arent qualified or not deserved taking advantage of all the literates and having a great asset... at end of the day we are all the loosers.. if we loose job or take 10 yrs to complete the loan without any major savings.. meanwhile those lucky ones will be flying in bmw or audi.. have u seen so many audis or bmw lately? wow.. I havent seen this many value branded cars before I was going abroad.

    So what do you think can happen if slowly ppl loose jobs? no has any idea. can you tell me what anyone will do? sell their parents house to keep this? but by the time market is down u cant do that too.. so we sell the gold? wud that be enough? give me some ideas..
  • The fact is these high price units are selling, and in fact many are selling like hot cakes (Just read the Appaswamy Greenville thread)! So the question is not 'are houses in Chennai really affordable??' It's 'How do people afford to buy these houses??" rather.

    My 2cents: the trigger for rise was set initially by NRIs and IT companies(I know what you'd say, but no denying that they triggered the escalation, with the perception that IT guys have the moolah!). This is unlike Mumbai where the decade old escalation was due completely to indigenous reasons. Once prices started going north the real chennai'ites had only two options - i) some how or the other join the run and buy a property somewhere at what ever prices, or ii) keep debating how can anyone afford these houses!