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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