Real Estate Trend
Chennai real estate price, after a long period of stagnation is finally witnessing an upward trend. Same time, a couple of years back the scenario was completely different. Land prices plunged or remained dormant mainly due to the uncertainty of Covid times and lack of concrete governmental decisions. . It seemed as if the zooming pace would never halt. But, the unexpected change is taking place. Chennai's real estate prices are finally seeing a rising trend. Apartment as well as land prices have gone up by 5- 15%. Can we understand the this trend as signs and symptoms of real estate bubble theory? Is the property bubble breaking in Chennai?
No dearth in demand for property
If you analyze the real estate scenario of Chennai, you can see some interesting trend - periodical rise and fall. Things like natural calamities, the government of the day, political situation in India and even acts of God as some insurance documents read.
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. East Coast Road or ECR has seen some radical changes in the last 10 years. Most south Chennai Car workshops have shifted to OMR/ECR for vast swaths of land. Chennai was considered once as a traditional conservative city. If you drive through the ECR, you will come to the conclusion that the idea of conservative Madras/Chennai is no longer valid. The broad facade of glass fronted massive shops, rows of neon lit name boards of upscale restaurants and posh high rise apartments would make you think that you have entered a first world country - USA.
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 Vandalur-Kelambakkam road- the initial quote of Rs.15 lakhs per ground rose to Rs. 30 lakhs per ground .
- Lands with little proximity to Padappai-Kancheepuram road- the initial quote was Rs. 4 lakhs and Rs. 15 lakhs
|Year 2010:: Rs. per sq. ft
|Year 2022:: Rs. per sq. ft
|Sriperembudur (per acre)
| 3 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).
The current DMK Government has promised that within 10 years, the GDP of Tamil Nadu will be raised to 2 trillion US dollars. The connectivity of international standard of roads, proximity of the Internet Backbone in the south Chennai and the general industrialized climate make Chennai as one of the sought after cities in India.
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 $85 billion in 2015 to $300 billion by 2025. 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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