The Hindu Business Line : Coimbatore realty looks to IT

The expectations are that once the State Government-promoted IT park and the private IT SEZs take off, providing large-scale employment to the techies, the real-estate industry will bounce back.

Awaiting demand from IT growth.

R.Y. Narayanan

Blame it on anything — recession, buyers biding their time, expectations of a price correction — but the real-estate market in Coimbatore is facing slackening demand. Coimbatore shares some of the reasons with other cities — hardening of home loan rates and increase in the cost of land and building materials that have pushed up the price of homes/apartments.

But there are other reasons that are specific to the city. The slowdown in the textile and engineering sectors, the backbone of the city’s economy, because of the increase in the price of their raw materials, has probably made the local people cautious about investment in real-estate, particularly when the prices have gone up steeply.

Though the foundation for the Coimbatore IT park was laid more than a year ago, progress on that front has been painfully slow. There is also a feeling that the infrastructure bottlenecks, such as better roads, underground drainage facilities and assured drinking water supply, are yet to be addressed.

Waiting for IT demand

It is not as if the real-estate sector has written off the potential of the second largest industrially important city in the State. The expectations are that once the State Government-promoted IT park and the private IT SEZs take off, providing large-scale employment to the techies, the industry will bounce back.

Mr V. Mohan, Managing Director, Mayflower Enterprises Private Ltd, Coimbatore, says, in Mysore a prominent IT company was able to buy land at about Rs 10 lakh per acre, but in Coimbatore the price is around Rs 50 lakh to Rs 1.5 crore per acre within a 10-km radius. . This has discouraged the entry of potential IT investors in the city. Earlier, land cost would constitute about 30 per cent of any project cost but now it accounts for nearly 50 per cent of the cost within the city and in the outskirts, it is almost 30 per cent.

He said builders were unable to offer budget flats in the Rs 20 lakh-Rs 30 lakh price range within the corporation limits and the market does not accept such flats outside the city limits. At present around 5,000 flats were under construction and another 5,000 were in the planning stage. Only if the IT industry takes roots in the city might the demand increase.

Mr Mohan said the recession started about six months ago. The builders were able to withstand it and wait for another six months for a reversal in the trend. If it continued beyond that “you may expect a correction in the market” up to 10-20 per cent. The price of apartments has gone up in the past two years by 2-2.5 times fuelled by the increase in land and construction material cost. Because of competition and oversupply, demand has come down.

He said the anticipated infrastructure development has not taken place and the IT sector’s growth has been slow. Most of the industries in the city were not doing well. While textile industry is facing recession, the increase in the cost of iron and steel has hit the foundry sector. The real-estate market does not look at the salary segment for apartments costing above Rs 40 lakh. It is the business class, NRIs and the IT seniors who can afford it.

Putting off buying

Mr Madan Lund, Director, Srivari Property Developers, Coimbatore, said there has been a “considerable degree of slowdown due to various factors.” But in the past two months, more enquiries have started coming in. He said the “slowdown is basically a postponement of buying rather than slack in demand.”

Unlike in 1997, when the economy was doing badly and there was nothing to back any increase in prices, this time “there is a lot of money and the price increase has been backed by money”.

While buyers feel the prices could come down, the sellers, who could not increase the prices, are holding on to their stocks and no transactions are taking place. Along with the slowdown, increased availability of housing stocks has created a mismatch between demand and supply.

He pins his hopes on the IT parks to come up in the city for the revival of demand, which he expects by the end of 2008 or mid-2009. But rates are not likely to go up for at least another year. The increase, if any, could be because of hike in raw material prices and not because of demand. But within the next two years, he anticipates a ‘tremendous change’ in the city when all the IT parks start functioning.

He does not expect a price war in Coimbatore because the “prices are not that high to warrant it.”

While some builders may put off new projects, especially in high-risk places such as the peripheral areas of the city, projects within the city will continue to come up because of demand.

He said the rates for apartments in some of the prime areas in the city are: Avinashi road up to Lakshmi Mills, and Race Course area — Rs 6,200-Rs 6,500/ per sq.ft — the price is still holding up and may rise because of increase in land cost; R.S.Puram — Rs 4,500-Rs 5,000/sq.ft.; Saibaba Colony — Rs 4,000-Rs 4,300/sq.ft.

Delayed approvals

Mr V.S.Venkataraman, Managing Director, Ramani Realtors Pvt Ltd, said apart from the cost of land and materials, the cost of labour has gone up by almost 100 per cent and there is acute shortage of labour.

The company wants to go slow in taking fresh commitments because of cost escalation. The cost increase was so swift that it had hit the projects under construction.

He said if the builders were to survive, the powers to grant permission to special buildings (G + 3) should be vested with the respective urban local bodies since the present rule for approval by DTCP at Chennai takes almost a year for the process to be completed.

He did not anticipate any competition from big builders since they have created land banks outside the city whereas small builders’ focus was inside the city.

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