Rising out of recession

Print edition : December 19, 2003

An apartment complex under construction near Thiruvanmiyur, in Chennai. - N. SRIDHARAN

IRONICALLY, the widely held perception of Chennai as a tradition-bound metro, compared to the others, is perhaps what has contributed to the city's real estate markets being less prone to speculative excesses. Even at the height of the real estate boom of the 1990s, when prices shot through the ceiling in most cities, prices of property increased only moderately in Chennai.

The housing industry has matured significantly in the last decade. The most significant change is the changed perception about living in flats. Earlier, the notion of living in flats was looked down upon; an "independent house" was what was considered good enough, particularly by the wealthy and the well-heeled. That has changed remarkably within the last decade. The other significant change is the development of a mature second-hand market for flats. This is mainly because the perception of a house-for-ever has given way to a less attached view of owning property. Funds are more easily available from financial institutions and banks. More crucially, the fall in interest rates in the last few years has spurred demand for new housing units.

A comparison of real estate values, made earlier this year, by a company specialising in real estate valuations showed that while rental and capital values in Mumbai and Delhi came under pressure, values in Chennai and Bangalore have increased. The study noted that the demand for property has tapered off in Mumbai and Delhi because companies looking for office space find prices too high for viable operations. Consequently, the tendency to relocate and consolidate operations has limited the demand for office space in Mumbai's Central Business District (CBD) leading to rationalisation of values. Chennai's residential property industry appears to have recovered from the recessionary phase it underwent in 2002. The study noted that prices appear to be stabilising, even as the demand for residential flats keeps rising.

Builders say that they generally concentrate on the middle- and upper-middle income groups. The increase in the number of software professionals in the city, apart from Non-Resident Indian (NRI) investors, has increased demand for flats even in the range of Rs.15 to 25 lakhs. Lower interest rates, they say, has encouraged buyers to buy residential units as a vehicle of pure investment. According to builders, the "hottest residential property" in Chennai are in Raja Annamalaipuram, Mylapore, Egmore, Adyar and Besant Nagar.

Builders have welcomed the recent reduction in stamp duty, imposed on the sale of property, from 13 per cent to 8 per cent. They expect a 20 per cent increase in sales of property within the next few months. Of course, the hard-to-please lobby wants more. It demands that the "guideline values", benchmark prices which local authorities set in order to ensure that there is no undervaluation of property sales, should be left to be freely dictated by "the market".

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