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.

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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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An Interview with Sundaramurthy Vadivelu, Analyst for The India Street

India and the Indian stock market is on everyone's mind. From the United States, to China, Europe, and on the Internet, people are looking for more than just facts. Whether you're a devotee of CNBC or prefer your news straight from the bull's mouth, what you don't know can hurt you. There's a lot of information out there. The problem becomes interpretation, although it's sometimes concealed in terms only a financial analyst can understand. So what can investors do?

Sundaramurthy's background is Chemical Engineering. He received B.Tech. degree from Alagappa College of Technlogy, Anna University, India but he's best known for his serious financial analysis delivered in terms beginners can understand. He combines data from analysts, news wires and other sources and adds a lot of his own insight.

TheIndiaSreet: The India stock market has been on a roll for a long time. Do you think this bull market will continue?

Sundaramurthy: Yes. I always feel positive about Indian markets. As an analyst, I will certainly wait for a technical confirmation before I conclude that the bull market is over.

TheIndiaSreet: What are the key trends in India that make an unprecedented economic boom inevitable in the next decade?

Sundaramurthy: Better infrastructure, quality of education, excellent industrial growth, human resources availability and finally inflow of foreign funds towards services, direct investment and financial markets.

TheIndiaSreet: A crisis in Asia has made the U.S. market fall in the past. Do you expect it to affect the India market in the short or long term, or is it completely taken care of now?

Sundaramurthy: Well, just compare it with Indian rupee appreciating against dollar. Some people will certainly get benefitted by this whereas some others may not. In financial markets ups and downs are always going to be there, though the regulators attempt their very best to control it. But in case some abnormal movement occurs, even they can’t help investors. It is a risk. Any crisis, be it in Asia, US or wherever – is unlikely to affect the markets, but using the name ‘crisis’ few people will get benefited.

TheIndiaStreet: How do you think interest rates or margin concerns will derail growth or earnings visibility for the India real estate sector?

Sundaramurthy: I think the demand in the real estate industry will ultimately decide its future. When the interest rates were as high as 18% people were still getting loans from banks and other institutions. Now with reduced interest rates of 10% also still they apply for loans. So who bothers much about interest rates!

TheIndiaStreet: Where do you see politics in the midst of all of India’s capital markets during the next couple of years? - does it worry you?

Sundaramurthy: Sorry, I am not a politician. But from the past history I can tell you it has nothing to do with capital markets. During BJP regime markets went upto 2015 on NSE and before UPA government assumed Office, on May 17, 2004 we had the worst ever fall. The very next day the markets were up. Today the index has more than doubled. So I don’t think politics has much to do with markets. It is the false hype that is created among the public.

TheIndiaStreet: What Capital Market reforms need to take place in order to keep the bull market running?

Sundaramurthy: I think the reforms are already in place. The market regulators have kept a vigil on all activities that are happening in the market. They will surely add or amend the regulations if a need arises. One real worry is the increasing number of web sites offering investment and trading advice to public.

TheIndiaStreet: Would you be surprised if the India Stock Market Index went on to break 16,000 this year?

Sundaramurthy: No, certainly not. When 4000 can become 14000, why not another 2000?

TheIndiaStreet: Which India industry sectors do you like the most for investing today?

Sundaramurthy: First choice would be real estate. Given the amount of scope for the growth, we can ideally invest in real estate sector in case the stocks get corrected. Others would be construction, textile and metal stocks since technically some are underpriced and others have more upward targets. The time is probably not right to enter sugar stocks. But it is wise to be stock specific rather than sector specific.

Falling home prices in Mumbai hits builders

from CNN-IBN A brief video report on the falling prices in Mumbai. This situtation is mostly related to residential projects in India's Northern cities. The India Street sees very little price depreciation in South India or East India.