Real estate in Chennai

The property market in India was always seen as unorganised and fragmented. However, the past three years have seen a big shift in the fundamentals that drive the growth. This has attracted private equity players and other real estate funds from abroad. In addition, existing and new players in the development business are eyeing viable and profitable projects.

The market continues to grow in all major markets of the country. Mumbai, Delhi, Bangalore, Chennai and Hyderabad have attracted interest from IT and ITES companies, who are either setting up their bases or looking for expansion. The suburban localities in these cities are experiencing high level of activity due to easier availability of land, construction of large floor plates; offer of built-to-suit facilities and at lower rental.

The real estate sector is riding high on a strong economy and the commercial real estate is being driven like never before by the booming IT/BPO/Call Centre sectors. To make most of the opportunity, developers have geared up to provide more efficient and high-class developments. These offerings are of global standards, matching the requirements of corporates. Not just that, developers are using new age techniques to act delivery times.

This is clearly evident from the large number of transactions across various metros resulting in high volume of absorption. Bangalore recorded 1.6 million sq. ft. of office space in 2004 Q3 while Hyderabad recorded 3 lakh sq. ft. of office space. As much as 8 lakh sq. ft. of office space was absorbed in NCR in Q3 2004. In Chennai, 9 lakh sq. ft. of office space was absorbed in Q2. The high absorptions have resulted in low vacancy rates. In Mumbai Central Business District (CBD), it's 10-12 per cent. In Delhi CBD, the vacancy rate is 14 per cent, while in suburban Gurgaon it is 15 per cent. In Pune, which has emerged as hot corporate destination, the vacancy rate is just 15 per cent.

Hot and happening

According to data provided by Chesterton Meghraj, property consultants, five of the 12 cases where property prices doubled were from Chennai. For instance, Velachery, Tambaram, Nilankarai, Tiruvanmiyur, Valmiki Nagar and Mogappair doubled property values in the past five years after Chennai started attracting IT talent. Old Mahabalipuram Road is a great example of heightened IT/BPO activity which has set residential property prices soaring. On an average, Chennai realty prices rose 72 per cent during the five-year period. It needs to be mentioned here that Chennai realty prices have been lower than other metros and hence for a given price rise, it would naturally show higher appreciation in percentage terms than others.

The new trend of campus facilities is also contributing significantly to steady increase in corporate occupancy as more and more corporates ardemanding greener and low-rise office surroundings. With Chennai being the flavour of the season among IT companies, the likes of Infosys, Tata Consultancy Services, Wipro and multinationals like Cognizant, Covansys, Ford Information Technology, Xansa, and Verizon have invested in land and are building their own campuses on the old Mahabalipuram road. Says Anuj Puri, MD, Chesterton Meghraj Pvt Ltd: "Chennai is on the threshold of an IT/ITES revolution, thanks to a large skilled work force, low operating costs, good infrastructure and proactive government policies. While Delhi, Mumbai and Bangalore have hogged the limelight till now, the next hub will be Chennai, on the back of the underlying compelling offer."

The city is getting increasingly cosmopolitan; it has the requisite manpower pool; the cost of living is 35-45 per cent lower than Delhi, and has cheaper real estate options. Several MNCs are therefore evaluating Chennai for their second phase of growth in India and developers have already started creating IT-focussed developments in peripheral locations.

Many developers are already planning malls in the suburbs. There are two malls coming up within city limits, one on Nelson Manickam Road and the other on Radhakrishnan Salai.
A new study by Jones Lang LaSalle, a global real estate firm with operations in 100 countries, found that locations like Sao Paulo, Brazil and Buenos Aires, Argentina may "compare favourably with current offshoring favourites such as Delhi and Shanghai when companies expand their locational criteria beyond labour cost reductions."

The Index contains data for 45 variables that affect the choice of cities for various offshoring activities. The real estate researchers grouped these variables into six sets of drivers:
1. Cost: labour, business, real estate, telecommunications and utilities
2. Human capital: labour supply and quality
3. Business environment: innovation and competitiveness
4. Market: growth and population
5. Infrastructure: physical and telecommunications
6. Real estate: structure and availability

Not surprisingly, Delhi topped the list, followed by Manila, Chennai, and Bangalore. The residential development is mainly in Velachery, East Coast Road, Old Mahabalipuram Road and Vadapalani, as these areas have moved up the value chain and offer good qualityresidential clusters. The development in these areas is largely a spin off from the IT and ITES businesses on the OMR and Ambattur belt. Providing a more stable and favourable IT environment, amidst the inherent potential of a vast and varied knowledge pool, robust infrastructure and cost-effectiveness, Chennai has emerged as a southern star on the property scene.