The Hindu Business Line : Chennai property prices go up; so does the demand

DESPITE an increase in land and construction cost, the demand for both housing and commercial space has gone up in Chennai during the last eight to nine months.

The cost of land in Chennai has gone up by at least 15-20 per cent during the last eight to nine months and the cost of construction has escalated by 18-20 per cent, industry sources said.

The increase in land cost has been fuelled by the housing boom that the city witnessed during the last year. The demand for people opting to buy their own houses in Chennai has gone up as most people preferred to pay the monthly instalment on bank loans rather than to rent, sources said. The low interest rate is the other factor that has encouraged people to go in for their own house.

Mr Navratan Lunawath, Managing Director, Arihant Foundation & Housing Ltd, said that the company had recently announced a project consisting of 260 flats in Purasawalkam, a residential-cum-commercial area in Chennai. All the flats, priced at Rs 1,500 a square foot were sold out in one day, he said. The prevailing rate in this area is around Rs 2,000-2, 800 per square foot.

Condominiums in the price range of around Rs 1 crore are also being picked up, Mr Lunawath said. Arihant has also come out with some premium projects in R.A. Puram, Boat Club Road and other upmarket areas, he said.

The Government's announcement to set up a new secretariat complex of 1.2 million square feet in Kotturpuram has caused speculation in the real estate in this area. Market sources said that at present the cost per square foot for a used apartment would be around Rs 1,650 a square foot. Sources feel that if the secretariat project takes off, the area will evolve into a commercial area, which would push up prices.

The input cost has been spiralling during this period, industry sources said. The cost of cement went up by almost 60 to 70 per cent; there was a 100 per cent increase in the cost of sand and a 50 per cent increase in the cost of steel. Builders said that in some of the ongoing projects, which did not have an escalation clause, they would lose money.

This demand is expected to continue for another year or so, said Mr Ramesh Nair, Senior Manager of a real estate consultancy, Jones Lang LaSalle. The reduction of the stamp duty and registration charges from 14 per cent to 9 per cent by the Tamil Nadu Government is expected to increase the number of investment transactions both in the residential and the commercial segments. Market sources also felt that the reduction of duty would bring in better compliance.

On the commercial front, the demand has come from information technology (IT) and information technology enabled services (ITES) companies looking for large space.

According to the Cushman & Wakefield report, last year saw 1.7 million square feet of commercial office space being absorbed in Chennai. The key drivers have been IT, ITES and back office functions, while the development of campus facilities has become the trend for most of the large software companies.

The report said that the demand from large space users was high, and many builders have already initiated the development of quality buildings to meet the demand. The new supply is expected to hit the market by the third quarter of 2004. Peripheral locations like the IT highway, Ambattur, and the suburban locations like Guindy are likely to emerge as the potential areas of commercial activity in the coming months.

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