Chennai’s residential property scenario

Chennai property prices zoom

There has been an unprecedented growth in demand for real estate across all markets
making the exercise dearer. This is attributed in no small measure to the vibrant
economy, robust growth and the resultant housing demand exceeding supply, surveys V
Nagarajan.

As the Detroit of India, Chennai has been luring several industries to its fold due to its
strategic location, availability of skilled manpower, better infrastructure and
cosmopolitan outlook. The IT sector’s prolific growth has triggered real estate demand to
a new high now. And the declaration of old Mahabalipuram road by the state
government as IT corridor and laying of world-class infrastructure facility under way has
seen a virtual exodus of property developers to garner land for development.

Chennai has several inherent advantages for real estate development and the city is
poised for a quantum leap, feels Sunil T Mehta, director, Citilights Properties Pvt Ltd.
The all-round development has enthused even property developers from other cities like
Bangalore, Hyderabad, Mumbai, Pune and New Delhi to enter Chennai and test the
waters. Mumbai developer Hiranandani Constructions has already acquired nearly 100
acres on IT corridor opposite Siruseri Park. While some builders have finalised a few
deals, others are in the process of clinching deals. It has been a Herculean task for a
majority of the builders to get hassle free title to the property.

The 100 per cent foreign direct investment (FDI) under automatic route in real estate
development is a virtual boon for major global players to enter Indian cities. A number
of trade delegations have visited the city for preliminary survey to consider investment in
large scale projects. Not a day passes without an investor group surveying the IT corridor
for suitable areas for development. While Singapore Realty is yet to officially launch
their maiden township project in Siruseri Park, a number of township projects are under
active consideration in select areas.

With the thrust given to infrastructure development, there has been a perceptible in the
mindset of people about commuting to city areas. “People are nowadays prepared to shift
to suburbs if integrated township project is available with built-in facilities”, feels V
Krishnaprasadh, managing director of Heritage Property Development Company Limited.
A section of people in the budget range of Rs 25 – Rs 30 lakh is keen to own independent
homes even if it involves travelling 20 km outside the city. But it should be equipped
with a complete range of facilities, he added.

The residential property market has been witnessing an unprecedented growth across all
markets. There are homebuyers who are location-specific and prepared to wait as and
when a suitable project is undertaken for development in the locality. “We have a
waiting list of over 100 buyers for specific locations and what is more clients are keen to
commit whenever a project is launched in that particular location”, says T Chitty Babu,
managing director, Akshaya Homes, which celebrated its 10th anniversary recently with
131 projects.

A significant development is that land values zoomed across the city (see table 1).
Realtors say that this trend can be attributed to upsurge in demand for city properties.
The spillover effect is felt in suburbs as well with property developers garnering more
areas for residential property development. Yet another trend is that developers are
shying away from city areas due to steep increase in land values and unviable operation
to develop real estate. It is this sudden development that triggered apartment price
increase in posh areas across the city (see table 2). “It is becoming virtually unviable to
acquire land at the exorbitant rate and develop large areas of residential property in the
city”, feels V Suresh, managing director, Real Value Promoters Pvt Ltd. Obviously, with
a number of people chasing too few a stock in prime areas, apartment prices zoomed at
select areas across the city, he added.
While apartment prices are up by 25-30 per cent in the last six months alone, it was
mainly due to sudden spurt in land prices in specific locations, feels P V Sanmugam,
managing director, KGEYES Residency Private Limited, which has recently built high
end apartment project on Greenways road and a new project, is under way in Boat club
area.

Surge in Land prices - January-October 2005 – Table 1

Location Price during January Price during October
(Rs lakhs)
(Rs lakhs)
Alwarpet 65 – 80 100 - 150
Adyar 65 – 70 80 - 100
Besant Nagar 60 – 65 70
Boat Club Road 85 – 100 185 - 200
Chamiers road 75 – 80 75 – 100
Koyambedu 40 55
Mylapore 60 70 – 130
Poes gardens 100 150
Saidapet 30 - 35 40 – 55
Sri Nagar colony 40 50
T Nagar 70 – 100 80 – 125
Villivakkam 12 – 15 25

Apartment prices - Table 2

Location Year 2004 (Rs) Year 2005 (Rs)
Abhiramapuram 2600 – 3000 4500
Adyar 2400 – 2600 2800 - 3200
Boat Club Road 3500 8250
Chamiers road 3000 4000
Kalakshetra colony 3000 3200
K K Nagar 1600 – 1700 2300 – 2450
MRC nagar 2625 – 3200 3000 – 4750
Nungambakkam 2100 – 3325 2900 – 4800
T. Nagar 2750 – 3000 3000 – 4250
Valmiki nagar 2000 – 2350 2600 – 2700

Is there a solution to the vexatious question of consistent increase in property prices?

What the government gave by way of fiscal sops was nullified by imposition of service
tax, input cost increase and now steep land values. Today homebuyers are in a precarious
situation though several housing finance companies and banks provide flexible lending
norms and all time low lending rates to invest in housing.

Factors behind tardy progress:

Property developers complain that development control rules are to be partly blamed for
the steep increase in property prices. With acute land shortage, a city like Chennai has to
grow only vertically and to that extent, the government should have liberalised the floor
space index (FSI). It is futile to extend such incentives only to IT buildings when there is
no proportionate supply to match housing demand due to entry of migrants from other
cities. Moreover, the government should consider granting multistoried apartments
outside corporation limit, realtors say. This is important especially in view of the fact
that 50 out of the 80 IT parks coming all over the city are under various stages of
implementation on the IT corridor alone. Second, inordinate delay in granting building
permission leads to cost overrun of project which is ultimately passed on to the buyer.
Approvals invariably take more than six months especially at a time when other cities are
introducing single window clearance and fast track clearance schemes, say realtors.