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Real Estate Growth in Chennai long with the growth
of the City as major IT outsourcing Center of India

Real Estate Growth in Southern Port City Chennai of Tamilnadu


The revolutionary policy shift in favour of an opened economy by the Indian Government in 1991 brought tremendous growth to all sectors on the wheel of Indian economy; especially the importance was stressed on developing infrastructure in the country. The main obstacle for India?s development was once attributed to be lack of infrastructure and pathetic policy of negligence by administration in this sector as well as housing problems. The situation changed with the policy shift and lot of attention and investment were diverted in developing road network, housing, water supply schemes, eAdministration and education.

Development of road infrastructure ultimately resulted in developing and connecting small cities and villages with major cities and influx of manpower to major cities as well as creation and development of many suburban areas in Bangalore, Chennai which includes places like Mamanddur, Chengalpet in the southern end which is 78 kms from chennai city and on the Bangalore highway the growth has extended upto Sri perumbudur, Cochin in the State of Kerala, Hyderabad (called Cyberabad), Mumbai, Delhi NCT, Noida, Ghaziabad, Faridabad, Gurgaon and many places. Development of these places have necessitated creation of more housing and offices for the Corporate houses who have plans to settle down in these cities and a forecast by a well known financial consultant has indicated that the Indian real estate sector can grow from the current $12 billion to $90 billion by 2015 and India is the most promising real estate market in Asia.

Among the four metropolitan cities in India, the port city of Chennai has a distinct advantage of a major corridor to Southern India and the finest English language pronunciation and vast population of literates. Also, it has a distinct advantage in terms of residential rental and capital values. While Mumbai and Delhi are commercially important, their rental and capital values are much higher than Chennai. Lower operational cost, availability of land and low cost of accommodation has been the major attracting factors for many domestic and multinational companies to settle their operations from Chennai.

On the advent of many multinational corporate houses other than IT and BPOs, like BMW, Nokia, Hyundai, and St Gobain setting up their state of the art production units, real estate business in this Southern Metropolis is on record growth and apartments which were available at the rate of Rs.75 Lakhs per flat in 2003 has touched the Rs.1 crore level within the last two years period, despite all odds of lack of infrastructure and all time scarcity in supply of potable water and electricity. The Tsunami effect brought the prices a bit lower for sometime but it has again started rocketing up in sea-front areas like Mylapore and have seen a remarkable increase in bookings and the cost of a flat at rate of Rs.50 lakh and above depends on the facilities offered.

The Government of Tamil Nadu brought out the ITeS policy of the government of Tamil Nadu in 2003 with their intention to make Chennai the ITeS hub of the entire country and going to ensure greater focus on other industry segments such as BFSI, healthcare, education and design and engineering. Already, Chennai has a major chunk of 15% to 20% of the total software export business in India and now the ITeS sector is on the move and this would bring a further growth on the already heated up Real Estate market in the city.

In Geological terms, Chennai is considered to be in a ?less dangerous? zone and other than the recent Tsunami calamities there were no major reported incidents of seismic impacts in the past few decades. Also, Chennai has a good record in reported crimes compared to other cities in India. All these facts have invigorated the confidence of business and investor community in India and abroad to look towards Chennai as a good investment destination.

Places like T. Nagar, Mylapore, Abhiramapuram, Adayar are the most attracted places by the investors for housing since they have good proximity to schools, hospitals and industrial areas. Also, establishment of more IT Companies, higher education institutions and hospitals have brought out tremendous developmental scope to suburban areas such as Old Mahabalipuram Road, where unlike other places in Chennai have good availability of water and land area and unpolluted surroundings. But pollution and other infrastructural crunches have affected the central Chennai area where it has become very difficult to obtain the environmental clearance from the Central Government for projects exceeding Rs.50 crores and above. In the residential market, Chennai witnessed a steep price increase in 2004 with an average of 10% increase in capital and rental values. Residential land and Apartment prices have surged with prices in the city ranging from Rs.3,000 ? Rs.8,000 per Sq.ft. and areas like Boat Club have even higher prices. Also, the NRI investment also saw considerable improvement in the last 4-5 years. Apartments in range between 8 to 20 lakhs were in good demand and more and more developers engaged in the construction of luxury apartment business due to higher demands from the relocating executives and other professionals. Residential plot sale and steep increase in prices expected even in city outskirts like Kulathur, Teachers? Colony, Britania Nagar, and Vinayaka Puram where prices were at the rate of Rs.65 per sq.ft to Rs.100 per sq.ft. in 2000 have surged up to Rs.250 or more per sq.ft. It is expected to further increase due to the establishment of a large number of educational institutions like the one from the famous Velammal Educational Society Engineering College and schools as well as churches and unpolluted atmosphere attracting people to these areas.

In the retail market segment there are at least 10 major investments in shopping malls coming up Chennai, in areas like N.M. Road, Vadapalani,P.H.Road,Anna Salai, C-IN-C Road, OMR (Plans for 3-4 Malls), Velacheri and N.H.Road and will be operational shortly an it will bring to an end of Chennai?s quest for malls.

Fraudulent property transactions which were one of the nightmares for all sections of buyers and investors have come to an end with the introduction of computerization of records and insurance cover which protects against malpractices and the ?National Housing and Habitat Policy, 2005?, with provisions of `title insurance' in the country.

Despite all efforts Chennai facing infrastructure problems like narrow roads, transportations facilities, city cleanliness like and potable water sources which are considered to be major obstacles for development of this important city in Southern India.

Chennai Real Estate Prices

With growing need for more living space, office space and entertainment, India is throwing open huge markets for real estate. Adding to this is India?s geographical diversity that offers many money-spinning real estate options. Investment can be done in residential complexes, shopping malls, commercial offices, land for agricultural purposes and so on. India being a major tourist attractor, also paves way for investment options in hotels, guesthouses and resorts.

Though Indian real estate market has certain hitches like high transaction cost and an absence of complete transparency, it is still fueling the appetites of domestic and overseas investors. With fast growing economy, rising income, scarce land, changing government policies and a focus on infrastructure, the demand for office space, houses and shopping malls etc have boosted up. This has directly effected prices to shoot up. In such a scenario, affordability plays a major role in real estate market. As compared to other metro cities like Mumbai, Delhi and Calcutta; Chennai seems to be a little cheaper option.

Chennai Real Estate

The demand for real estate in Chennai is largely driven by the growth of IT and BPO sector. Not only has this increased the capital and rental values of commercial property, it has also fuelled a demand for housing for its workforce. Hyderabad and Bangalore are already saturated. Pune and Mumbai have high prices. In Chennai, land is comparatively cheaper because of the availability of large tracts of land. Labor costs are cheaper by 20 to 30 %, compared to other saturated cities. Therefore, talent is available and attrition level is also low. The other sectors driving growth are the automobiles and the electronics industry. In automobiles, BMW is entering Chennai. Hyundai and Ford are already there. Volkswagen is setting up shop in Chennai, giving up on its initial plans of Hyderabad. These manufacturers want to make Chennai their outsourcing base to supply automobile parts all over the world.

Growth is therefore certain for the next four years at the least. Chennai is converting into more of a cosmopolitan city. Coming up of lots of clubs, chain of hotels, retailers, improvement of transportation, evaporating language barrier etc are the factors paving way for increase in prices in next one year.

Chennai Real Estate Prices ? A comparative study

Though, the land and real estate prices have gone through the roof for some Chennai natives but in comparison to other metro cities, Chennai prices are still sustainable. According to survey conducted in 2005, the average price for the premium end of the residential market is about Rs 3,000 per sq ft and the price is likely to go up further. In comparison to this are the top end residential market in Delhi and Mumbai, ranging between Rs 12,000 sq ft and Rs 15,000 per sq ft. the IT and ITES drive the lease rentals. In Delhi and Mumbai price ranges between Rs 32 to Rs 35 per sq ft, while in Chennai it is Rs 23 to Rs 25 per sq ft. In retail space, the rental rates in Chennai ranges about Rs 50 to Rs 55 per sq ft while in Mumbai and Delhi the rates are about Rs 80 to Rs 85 per sq ft.

Chennai Real Estate Prices

With the high expansion and face-lifting plans taking place in Chennai the prices are said to be rising further. The old Mahabalipuram IT corridor is also seeing a new face. This six-lane highway stretching 20 kms is home to many MNCs who are setting up operations here. This has resulted in property prices shooting up in this area. Prices of lands in the Guindy and Ambattur are also shooting up. A ground costs is anywhere between Rs. 40 - 50 lakhs in Guindy.

Residential property prices have also seen an upswing owing to increased demand for premium housing apartments as well as budget flats. Typical prices in Sholinganallur are about Rs 2.5 crores an acre. Even the current residential market has grown from 30% to that of 35% in one year, within the city suburbs. Velachery, Mogappair, Gowriwakkam and Koyambedu are good places for buying property as investments as home rentals have amplified considerably. 2BHK prices start from Rs.10 laks and can reach upto Rs 32 laks for a luxury house in these areas. Rents of Rs. 8,000 to Rs. 14,000 can be expected for a 2BHK apartment for a month.

Majority of retail activity in Chennai is primarily concentrated in and around Nungambakkam, Cathedral Road and T Nagar. Other prominent retail areas are Anna Nagar, Adyar, Besant Nagar, Purasawakkam and Mylapore. The majority of the silk and jeweler retail is in T Nagar. Most of the new brands have positioned T Nagar, high on their priority list for showroom space. Though lately, the area has become too congested with no quality space available for new players. According to recent study, the rental rates in Pondy Bazaar ranges between Rs 50 and Rs 70 per sq.ft, North Usman Road, Rs 30 - 60 per sq.ft and G.N. Chetty Road, Rs 30-45 sq.ft.

On Nungambakkam High Road besides branded stores such as Reebok, Samsonite and Land Mark, Ispahani Centre with 54,000 sq.ft has a mix of retail and office space. The most recent entry on this road are Marks & Spencer. The rates are higher on Khader Nawaz Khan Road, which connects Nungambakkam High Road with Greames Road and is a much sought after retail location with rates touching Rs 70-75 per sq ft. The rentals on TTK Road are between Rs 30 and Rs 50 per sq ft and on CP Ramaswamy Road between Rs 25 and Rs 40 per sq ft. The rentals on RK Salai are between Rs 65 and Rs 75 per sq ft while rates on Cathedral Road Rs 60 - Rs 80 per sq ft. On the other hand, Levi Strauss is planning four exclusive Signature showrooms in the city.

Second Avenue in Anna Nagar seems to be buzzing with high street retail activity. This location serves the western part of the city and has a price range between Rs 65 and Rs 70 per sq ft. The Spencer Plaza, which started with a built up area of 3,00,000 sq ft, has now become the mega mall of city with 1.05 million sq ft. The pricing has gone up from Rs 18 to Rs 22 per sq ft per month in 1991 to the current Rs 60-100 per sq ft per month. The mall nearing completion is near Chennai City Centre on RK Salai road, promoted by the ETA group. It covers 3 lakh sq ft, out of which 2 lakh sq ft, is for shopping and multiplex theatre. The remaining 1 lakh sq ft is for office space. Anchor tenants of this mall are Lifestyle and INOX Multiplex. The second mall being developed is the Ampa Mall on Nelson Manickam Road, with 4-lakh sq ft built up area, and retail area of about 3 lakh sq ft.

The relaxations in FDI rules in real estate development have made national and global players to test the Chennai market. The property market in Chennai has been buoyant since 2004. Therefore, rental prices have also shown an upswing. Certain suburbs are undergoing increased real estate development activity. Even builders have entered into joint ventures to promote housing apartments. The apartment sales have increased in volume, as many independent houses have given way to buildings. The second-hand market for flats is also catching up. With housing loans being offered at attractive rates and all the above factors, investment in Chennai real estate market is sure to provide maximum profit to any investor.

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