John

The pace with which real estate development is sweeping across Chennai is, no doubt, welcome news, but ground realities are causing concern for several sections of the people. While residential property prices have zoomed to unheard-of levels, commercial development is moving at break-neck speed, little realizing the impending price correction both on land and capital values and rentals.
Liberalised FSI norms for encouraging influx of the IT sector and the declaration of an IT Corridor with world-class facilities have, of course, lured many developers to plunge into real estate development in and around Chennai.
However, land as a prime commodity for development is not available at competitive cost and landowners are demanding either exorbitant prices or quoting ratios for joint venture development without realizing the market dynamics.
While soaring land prices are partly attributed to the intermediaries playing the spoilsport, none of them realised the need to develop real estate at competitive prices as, otherwise, corporates and MNCs would move to smaller cities where cost advantages are luring them. While commercial property supply level is anticipated to touch 19.5 million sq ft during this year, estimated absorption level is only 6.5 million sq ft. This is apart from the projects under varying stages of construction, which will enter the market by next year.

On the other hand, start-up units are facing acute shortage of quality office space in city areas due to lack of new supply and reluctance of developers to inject fresh supply as a result of soaring land cost. In a strange development, landowners who are keen for joint venture development are still insisting on commercial development to maximize their yield.
However, instances of established developers keen on commercial development by committing tenants on long term lease are slowly receding as the supply level is causing concern and considerable time has already been lost in the bargain. This is yet another instance where even landlords have lost a golden opportunity to convert their barren land into landmark areas. With regard to residential development, soaring land values have deterred developers from undertaking new development activities in the city. Even land parcels at prime locations like Adyar, Nungambakkam and T Nagar are being shunned due to exorbitant prices to develop and market at today’s prices. Property developers owning smaller parcels of land earmarked earlier for development are keen to dispose them rather than resort to development. For pan-India developers entering the city, it is the large land areas that will lure them for development, as residential demand continues to soar in suburbs. Even land costs in suburbs are inching up, with the result that home buyers are compelled to cough up higher cost for shelters. Apartments are being quoted at prices above Rs 40 lakh even in areas beyond 30 km on the IT Corridor.