Hike in land prices in Chennai

The prolific growth of Chennai in all three directions has impacted land price to a considerable extent. Lack of adequate housing development and high cost of housing are attributed to the steep hike in land prices. There is no scientific rationale to value the land price and on most occasions, it is the demand-supply mismatch that tilts the price.

According to industry sources, property developers are unable to get access to the land owners and will have to deal with the power of attorney holders. The due diligence exercise involving whether the power has been revoked or not is again a time consuming affair and unless the location justifies, developmental efforts were in vain.

Revenue records are still not updated, even though computerisation process started as early as in 1986 and unscientific land use has restricted urban development area. The process of verification even today involves travelling several miles which again is a time consuming process especially when the developer is entering the Chennai for maiden development. Recently some of the records have been shifted to Tiruvannamalai. The agony and the associated hardship for property developers need not be overstressed in such a scenario.

Yet another factor inhibiting housing development is the archaic rules and the inability of the related government departments to agree on vexatious issues. For instance when DTCP finds there is a proposed road admeasuring 60 ft, FSI at 2.5 is sanctioned whereas CMDA does not agree with the view unless there is a road already laid and the developer ultimately lands in reduced FSI. All the additional cost is ultimately passed on to the buyer. The industry sources have already voiced concerns that because of the delay in approval process alone, a consumer has to fork out Rs 233 per sqft as additional cost while buying an apartment in Chennai.

This is apart from the government levies which is considered 33% of the unit cost. However, the CMDA has recently introduced several measures to reduce the delay including green channel option.

Source: http://content.magicbricks.com/hike-in-land-prices-in-chennai

Retail gains momentum in Chennai

Demand from retailers and influx of quality supply in the near term augur well for Chennai’s retail scenario. Construction activity in Chennai’s retail segment picked up pace in the second half of last year due to increase in demand from retailers both in CBD and Off CBD locations.

A majority of the developers and large scale land owners are coming up with larger floor plates while few land owners are willing to go ahead with BTS (Built-to-suit) options in order to cater to enhanced demand levels from retailers.

During the last six months, most of the construction activity was limited to high street locations such as Nelson Manickam Road, Poonamallee High Road, Adyar, TTK Road, North Usman Road and Velachery.

Approximately 300,000 sq ft of retail space was released during the last six months in this micro market. Chennai retail market is expected to witness the completion of almost 2.6 million sq ft of mall space by the end of second half of this year, according to CB Richard Ellis survey.

Rental values on high street locations of Nungambakkam High Road, T Nagar and Anna Nagar remained stable, while those in Adyar and Velachery depreciated by almost 20% and 11% respectively. On the other hand, Alwarpet observed a rental increment of 12-13% during the review period, largely attributed to an increase in demand for large retail spaces, ready fit out options and built to suit proposals in the upcoming projects.

Rental values witnessed pressures in retail mall properties, with a decline of almost 30% in Spencer Plaza (Anna Salai) and around 5-10% in Chennai Citi Center, Ampa Skywalk Mall and Express Avenue. A key reason for drop in mall rentals has been the reducing sales and declining footfalls, largely attributed to an unfavorable tenant mix and poor infrastructure facilities in these malls.

The retail real estate market in the city is expected to maintain an optimistic trend over the next few months. This is largely due to increase in demand from retailers and release of quality supply in the near term. Rental values are expected to witness an increase in select developments in the CBD / Off CBD micro markets, while remaining stable elsewhere.

Source: http://content.magicbricks.com/retail-gains-momentum-in-chennai

Chennai rentals inching high

Restricted supplies, inordinate delay in processing planning permission and land acquisition delays have curtailed the overall housing supply in Chennai. The influx of skilled professionals and the twin key sectors that drive growth in the city like IT and automobile are boosting the housing demand across all micro markets.

The state housing board owns land in the city but attempts to develop on PPP model with the private sector have not yielded any tangible result for over five years now. The low and mid-segment housing sector is the worst hit in the city. As a result housing supplies will have to be predominantly met by the private developers. The growth corridors and the proliferation of industries have put further pressure on housing demand in the city.

Due to housing shortage, rentals across all micro markets are up by 20-30 per cent, according to industry sources. With the result people are shifting to suburbs and peripherals areas in search of cheaper accommodation. Even in suburbs and peripheral areas property prices range from Rs 3,000 to Rs 3,500 per sqft. In a related development, home loan lending rate and dip in affordability levels have necessitated people to postpone their homebuying and instead opt for rental housing. This has put further pressure on rental market across all micro markets.

The worst hit are the economically weaker sections for whom the supply level could be seen only in peripheral areas where connectivity levels are yet to improve and lack of entertainment centres is a major deterrent. The government has just announced a massive housing scheme in Thirumazhisai but it will take 3-5 years for implementation.

The influx of expatriates and overriding preference for accommodation in city areas like Alwarpet, Abhiramapuram and Raja Annamalaipuram have also pushed the rentals up in city areas. At the same time very high rentals are also a major deterrent in getting the right tenant in city areas, say realtors. Incidentally residential rental units in the price range of Rs 1 lakh and above are difficult to get tenants in the current market scenario which in turn takes disproportionate time, according to estate agents monitoring the rental market in city areas.

Corporates are cutting costs including perks on housing with the result executives are shifting to suburbs where they are able to get better amenities but at a higher rental.

Source: http://content.magicbricks.com/chennai-rentals-inching-high

Hindustan Construction Plans to Sell Part of Stake in Real Estate, Infra Units

NEW DELHI – India’s Hindustan Construction Company Ltd. plans to sell part of its real estate and infrastructure units, as well as aggressively chase outstanding payments with state-run companies to reduce its debt, a senior executive said.

Chief Financial Officer Praveen Sood said the company is looking to raise up to 5 billion rupees through the stake sales.

Friday, the company said it swung to a consolidated net loss of 1.30 billion rupees in the quarter ended Dec. 31, compared with a net profit of 79.4 million rupees a year earlier.

Source: http://blogs.wsj.com/dealjournalindia/2012/01/23/hindustan-construction-plans-to-sell-part-of-stake-in-real-estate-infra-units/

Private equity investments in real estate grew 69% in 2011: Venture Intelligence

NEW DELHI: Investments by private equity funds in Indian real estate grew 69% in 2011, said research firm Venture Intelligence, which tracks PE and VC investment activity in India.

Of the 69 transactions that happened during the year, 53 had an announced value of $2,679 million compared to $1,582 million across 63 investments in 2010. The year 2011 saw increased private equity activity in the sector as real estate developers faced a cash crunch. This was because of a drop in home sales as well as banks reducing their exposure to real estate companies.

Residential projects accounted for 57% of the investments (by volume) during 2011, followed by commercial projects with a 19% share of the pie.

In 2011, Warburg Pincus invested over $318 million in its residential segment focused joint venture with portfolio company Lemon Tree Hotels and Blackstone invested $200 million in Bangalore's Manyata Embassy Business Park.

In the year 2011, real estate private equity funds made 19 exits compared to just 8 in 2010. About 14 of the exits announced in 2011 had a deal value of $603 million, according to Venture Intelligence. Kotak Realty Fund sold its stake in an IT Park in Mumbai's Goregaon area for $86 million to Tata Realty Initiatives Fund.

Source: http://economictimes.indiatimes.com/markets/real-estate/realty-trends/private-equity-investments-in-real-estate-grew-69-in-2011-venture-intelligence/articleshow/11461159.cms

Will property prices come down now?

The residential real estate sector is set to decelerate, according to a report by Nirmal Bang Institutional Equities.

One of the main reasons is that the inventory level is expected to go up over the next one year because of declining sales amid increased launches of new projects.

The consequent weakness in transaction volumes will exert pressure on developers in servicing their debt.

This could lead to a softening of prices as banks could force realtors to cut their inventory levels to repay the debt. Here are some excerpts from the report: 

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