Chennai realty market on the rise

Chennai

After the downturn in 2009 that had spelt doom for the economy, though for a short while, property prices are on an upward spiral and the realty sector is now witnessing a boom reminiscent of the pre-recession days.

The demand for property in Chennai continues to remain high and recovery has been better than other major cities in the south such as Bangalore and Hyderabad. The many projects that have been launched in the suburbs in the last few months are a pointer to this fact.

The nature of investors in the Chennai market has a lot to do with its growth story. “The rise in property prices in Chennai has, perhaps, not been as steep as in other cities such as Mumbai and Bangalore. In cities like Mumbai, a lot of speculators work are at work in the market,” says Prakash Challa, National Vice President, CREDAI. “During the downturn, there was a drop in prices of about 15- 20% and postrecession, the pent-up demand was partly responsible for the quick recovery of the market in the city,” he says.

In the last decade, there has been a huge growth in the manufacturing and the service sectors in the city. While OMR (Old Mahabalipuram Road) has become a favourite destination for the new-age IT employees, old manufacturing centres on the outskirts of the city are finding new takers. “Most buyers in these areas are from the working class. Employees of the IT and manufacturing sectors consist of a huge chunk of buyers in these areas. They have the means and buying property here gives them proximity to their workplace,” says Wilson Mathews, Director, Sales and Marketing, True Value Homes, explaining the rising popularity of places like Mogappair, Ambattur and GST (Grand Southern Trunk Road).

Last month, Daimler India, the subsidiary of Stuttgart-based Daimler AG announced a new assembly line at their manufacturing facility in Oragandam. Perhaps, developments like these have given investors a reason to believe that these areas too will develop in a big way in the future. Mukesh Kumar Kothari, a city based businessman, has bought land on the outskirts hoping to capitalise on the growth in these areas. “It is difficult to buy property within the city. Hence I have bought a plot on the outskirts because I feel in the coming years, the price will increase and there will be more development in these areas,” he says.

The price rise in the city is being ascribed to the increased price of land. The recent hike in the guideline value has only added to the cost. “In 2005, the cost of land in Sholinganallur was Rs 1.5 crore per acre. By 2008, it suddenly rose to Rs 20 crore per acre,” says Prakash, who feels that the cost of construction has gone up adding to the cost of land. “In 2005-06, the cost of construction was Rs 1000 per sq ft, while it has now increased to Rs 1600 per sq ft. The steel price has drastically increased, so much so that there has been a jump of over 50% in the last three months. The mining sector is riddled with scams and there is some kind of cartelisation in the cement and steel industry. The cetheir ment manufacturers capacity \ in the have last doubled three years, though the production is only one-fourth of the capacity,” he says.

The increase in the cost of construction might be indicative of some kind of artificial shortage in the steel and cement industry, though Alex Jacob, a citybased Structural Designer feels that the price hike is a result of increased construction activities. “So much construction is happening and even with higher prices, people are buying,” he says.

While all this might give consumers some reason to buy, it has not gone down well with everyone. With political instability, property prices in places like Hyderabad have not seen a major hike and many are looking towards Hyderabad as well.

Srinath Narayanan, a citybased Chartered Accountant, feels that places like Coimbatore and Hyderabad might be a better bet. “Chennai market is not accessible for all investors anymore. With the available resources, it is simply not possible to invest in areas like Kodambakkam or Mylapore,” he says.

But investors are hopeful of development on the outskirts as well. “Though I belong to Chennai and definitely plan to live here, I might buy property elsewhere for investment purpose, but what I buy in Chennai, is for my residential purpose,” says Varadharajan, a city-based banker, who has bought a flat in Chrompet.

“The place was considered to be quite far from the city initially. But now, with the city limits expanding, these areas are also well equipped with necessary infrastructure,” he says.

It is a well-known fact that the Chennai real estate is predominantly an end-user’s market. “This very fact gives the realty scene in the city some stability. People are buying in spite of high prices because they know that if they don’t decide now, the prices will increase even further. Infrastructure is shaping up well, with the metro rail work and other development activities. NRIs, originally from Chennai, are now hopeful of the potential that the city holds,” says Wilson. The investors might also agree.

Written by Arjun Narayanan

Source: Times Property, The Times of India, Chennai