Real Estate Trend
Chennai real estate price, after a long period of steady acceleration is finally witnessing a downward trend. Same time, a year back the scenario was completely different. Land prices reached dizzy heights. It seemed as if the zooming pace would never halt. But, the unexpected change is taking place. Chennai's real estate prices are finally slackening. Apartment as well as land prices have come down by 15%. Can we understand the slowing down as signs and symptoms of real estate bubble theory? Is the property bubble breaking in Chennai?
No dearth in demand for property
Post tsunami in 2004, land prices of areas close to the sea front slumped. This was a temporary dip; the real estate prices on Chennai's coastal areas soon picked up. The demand for and supply of commercial as well as residential property in Chennai and its specific neighboring areas continue to experience a rapid escalation. Apart from office space and housing, there is a demand for shopping malls and hotels, preferably within a radius of 50 to 80 kms around Chennai. Old Mahabalipuram Road (OMR), Taramani has remained the center of real estate commercial activity soon after the Government declared the stretch as the IT corridor of Chennai. Sriperumbudur Taluk, 40 kms from Chennai is now home to top multinationals like Nokia, Ford, Hyundai, BMW and Flexitr. Even lands far from mainstream areas, like sleepy suburbs fetch good prices for sellers.
- Lands on Vandalum-Kelambakkam road- the initial quote of Rs.8 to 9 lakhs per ground rose to Rs. 15 lakhs per ground in 4 weeks time.
- Lands with little proximity to Padappai-Kancheepuram road- the initial quote was Rs. 4 lakhs and Rs. 15 lakhs
||2003 Rs. per sq. ft ||2007 Rs. per sq. ft
|T. Nagar ||4000||10000|
|OMR (per acre) ||30 lakhs ||10 crores |
|Sriperembudur (per acre) ||1 lakh ||50 lakhs - 1 crore|
Chennai finds place among the top ten preferred destinations in the world for IT and BPO companies across the world. This is a predominant factor for Chennai's real estate boom. Apart from proliferation of IT and ITES business, Chennai is fast emerging as a major manufacturing hub for auto components and electronic and electrical industries. Chennai as compared to other metropolitan cities in India has a distinct cost advantage, positive investment atmosphere, better infrastructure, young qualified workforce, lower attrition levels, English language skills which attract many domestic and multinational companies to set up business centers in Chennai. The Government has initiated plans to set SEZs (special economic zones).
World majors pitch for space in TIDEL Park and SIPCOT Park. On the whole, the demand is lead by IT-ITES sector, which contributes about 90% of the total demand for office space in Chennai closely followed by financial service industry. Yet another segment consists of the NRIs or the Non Resident Indians eyeing high value properties in Chennai.
India's property market
The property market appears upbeat in a number of Indian Cities. India is all poised to witness fastest growth in retailing and real estate. A recent market analysis conducted by a Financial Institution predicts real estate development in India would grow from $12 billion in 2005 to $90 billion by 2015. Mumbai, Delhi, Chennai, Hyderabad, Bangalore, Kolkata and Pune are considered to be the most potential destinations. All these cities offer great scope for real estate development; extensive infrastructural projects of various kinds are already in progress.
The bubble theory
A real estate bubble is characterized by unhealthy spurt in housing prices instead of a gradual rise, which should ideally keep pace with the rate of inflation or the rise in median incomes. If we are to believe the theory, Chennai's real estate market values have reached unsustainable levels- a fully blown bubble that is ready to burst. When the bubble bursts, the real estate prices will tumble, leading to a collapse in real estate market. The market correction takes place only after the cycle completes its course. Gradually, the prices are expected to settle down to more realistic levels.
Chennai boasts of large availability of lands on the city outskirts. Hence, the increased price levels are not because of lack of supply or stringent land use regulations or any development controls. On the other hand, the real estate market in Chennai has evolved into a speculative market. Consumers find investing in properties a viable investment option. Therefore, it's time to wait and watch whether the meteoric rise in Chennai's real estate price is a gold mine or just quick sand.
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