Real Estate Slowdown in Chennai?

For the past few years, mostly since the IT boom and lot of NRI’s pumping money into real estate in India, prices, especially in the major cities, have skyrocketed. Chennai is no exception. Chennai, located in South India, where most of the IT companies started booming, witnessed a very high appreciation in property prices over the last few years. Flats are being priced at around 4500 per sft in areas like Egmore.

Over the past few months, there has been a slowdown in the growth rate. This is due to various factors.

- Rise in home loan interest rates, which has made it extremely difficult for a normal salaried person to be able to afford a house.

- Fall in the US dollar rate, which means that NRI’s who were earlier pumping money into the real estate are now able to get less number of rupees per dollar they earn in the US. Many of them have shelved their plans to purchase a house in India, as they are waiting for the prices to come down or the rupee/dollar rate to increase.

- The tsunami in 2004 December has shaken the confidence of many prospective buyers of real estate.

- The Chennai Metropolitan Development Authority (CMDA) has imposed stricter norms for apartment construction and penalties for violations are more severe than before.

- Failure of the legal system in Chennai to prevent encroachments, forged documents and illegal constructions has added to the problem as many NRIs are hesitating to buy plots in Chennai.

- Another major problem in Chennai is that of drinking water. Tamil Nadu has always been at loggerheads with its neighboring state Karnataka for its share of Cauvery water which is the main source of drinking water in the state and Chennai city as well. But the state always seems to be at the mercy of Karnataka to receive its share of drinking water.

Nevertheless, lot of people seem bullish on the real estate market in Chennai, especially areas like Old Mahabalipuram road, South Chennai etc because of the numerous IT/ITES/Electronics/Automobile sector companies that are expected to set up their centers in these areas. The commercial real estate sector is expected to do very well as there are numerous projects in the pipeline. Once these projects are complete and the companies begin their operations, many people would like to live close to these areas and as a result the residential sector is expected to boom.