The Hindu Business Line : Apartment prices in for correction, say developers

Chennai realty
Buyers pay Rs 40-60 lakh for an apartment up to 30 km from city.
Rising interest rates has hit affordability.
Those planning a second house are exiting the market.
Huge supply to drive down prices.

Chennai April 26 Apartment prices in Chennai are set for a correction as market resistance to high prices builds up. Developers say the correction could be up to a fifth of the prevailing rates and is imminent.

Prices are not realistic, acknowledge developers.

A buyer would have to shell out anywhere between Rs 40 lakh and Rs 60 lakh to own an apartment that could be up to 30 km from Chennai. There are fewer buyers in the market as mounting interest rates hit affordability and speculators and those going for a second house are exiting the market.

Also, supply is on the increase — on Old Mahabalipuram Road, the centre of focus for residential projects, developers estimate that there are between 15,000 and 25,000 apartments in the pipeline.

Mr C. Subba Reddy, Managing Director, Ceebros Property Development Pvt Ltd, says in the last 3-4 years, people opted for apartments, even a second property, because they were affordable, with interest rates of about 7-8 per cent against 11 per cent now. The enthusiasm for buying, that was apparent even a few months ago , is lacking now. With affordability hit, people will take a second look, he says.

Eliminating speculators

`Panic buying', driven by fears of increasing prices, will go down. Also, speculators who book apartments and hope to make Rs 300-400 per sq ft on resale will be eliminated.

People move to suburbs because availability is down within the city, which has driven up prices to around Rs 5,000-6,000 a sq ft. But now in the suburbs up to 30 km away, the prices are around Rs 4,000 a sq ft. It is not in line with the land value or the construction costs, he says.

Builders are looking at sharing a portion of the rising costs with the buyers.

Mr Reddy said Ceebros is bearing the interest costs of the buyers during the construction phase for one large project within the City — till the apartment is handed over. The benefit is about Rs 400-500 a sq ft and Ceebros is extending the concession even to those who purchased the apartments about a month back, he said.

Holding priceS

Mr R.V. Shekar, Managing Director, Lancor Holdings Ltd, says Lancor has taken a conscious decision to hold prices relatively lower than the prevailing trends. Lancor is building over 550 apartments on the Old Mahabalipuram Road (OMR).

Having been in the business for more than two decades, he says, his experience is that Chennai is a mature market with price-conscious buyers. There is a need for correction. Or the market would go the Bangalore way — where prices are lower than in Chennai and there is an over supply of residential apartments, he says.

At Rs 3,800 a sq ft and offering specifications in terms of finish and amenities that rank with the best in the market, Lancor has had steady sales. It has sold 14 apartments since April 6 in a project on OMR, where over 172 apartments have come up. Nearly 150 have been sold.

"No discounts, no floor premium, no preferred clients and all details are on the Net," he says.

Another leading Chennai-based developer, who is putting up two residential projects on the OMR, says a correction is in the offing.

Supply effect

The huge supply will drive down prices, especially along the OMR. There are more than a dozen township projects announced, apart from large numbers of apartment blocks, all of which represent over 25,000 apartments in the making.

Also, the higher interest rate for housing has hit eligibility. There are fewer buyers in the market, he said.

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