Tuesday, May 13, 2008

Chennai Real Estate Party Over

The hottest city in South India, Chennai, is now reeling under cooling real estate prices. Current rates are at least 20% lower than the same time last year. One of the main culprits in this is greed.

Take the case of owners of a property in Karpakkam, who were getting Rs 50 lakh per ground (2,400 sq ft) in March 2006, and Rs 54 lakh in December 2006. In March 2007, they demanded Rs 65 lakh and got it, but greed got to them and they upped it to Rs 70 lakh, the next week. Finally, the builder backed out and the deal fell through -- it has never been closed again. The owners are now stuck with property, whose price has now fallen to Rs 56 lakh a ground. All through 2006 and the first quarter of 2007, prices along the IT corridor had risen steeply due to anticipation about a bigger boom in the software and knowledge industries.

Chennai has actually shown greater appreciation than Mumbai, but has not made it to the headlines. There are interesting cases to note: Layouts promoted in 2002 at Rs 2.4 lakh per ground saw 20 times appreciation. Some owners of land had sold their properties for Rs 50 lakh per ground, reinvested the money in outlying and undeveloped areas and got 300 percent appreciation on the reinvested money. However, with the downturn setting in, those who delayed the sale of their land in the hope of reaping higher profits have been stranded. This applies especially to some of the layouts promoted by the Tamil Nadu Housing Board in Sholinganallur.

The plots in the TNHB layout that fetched Rs 45 lakh last year are now down to Rs 30 lakh. Businessmen earlier flipped properties purchased on 14% loans from banks and sold it for 100% profit. This is not happening any more. DLF’s low-cost housing plan is another factor that has affected speculators. One speculator purchased 15 acres on the Old Mahabalipuram Road (OMR). Then DLF came in and announced its Rs 2800-per-sq-ft property near Semmancherry, and this person, and others, are struggling to recoup their investment. By pricing its project Rs 1,000 to Rs 1,200 less per sq ft than other ongoing residential projects in the area, other builders had to scale down prices, and land demand fell.

Apartment prices are good indicators of land prices too. Slumping apartment prices, are causing land prices to sink too. Dreams of the IT corridor in Chennai are now turning sour. Builders are saying the IT Corridor was overrated and hype, because infrastructure was never in place. Further, water in this area is saline and brackish, and hence cannot be used for construction, thus increasing construction costs.

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2 Comments:

Powerhouseindia said...

Very true...Thanks for your efforts. Do cover Chennai closely.

Mohmmad Sazid said...

Thank for sharing your valuable thoughts. Akshaya Today in Chennai

KM

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IN PASSING

Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book


“When
everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

“Last
year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

"Most
people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

The
most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Prachi
Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror

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