India Real Estate Analysis 1

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Chennai Real Estate : Ready For The Quantum Leap By DHRUVA JYOTI CHOWDHURY, KOLKATA, INDIA Chennai has several inherent advantages for real estate development and the city is poised for a quantum leap. 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. 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. 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 infrastructural 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. A section of people in the budget range of Rs. 25 - Rs. 30 lakh are 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 of Akshaya Homes. A significant development is that land values zoomed across the city. 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 below). "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 limited. 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 a high end apartment project on Greenways road, and a new project is under way in Boat club area.

Surge in Land prices -Table 1 Location

Price during January (Rs lakhs)

Price during October (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

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 projects, 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. Today home buyers 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. ==============

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