(Excerpts from an article that appeared on The Economic Times of July 16, 2006)

Chennai has emerged as the favourite destination of Corporates and MNCs. Chennai recently emerged as the most attractive city for off shoring services in a survey conducted by A T Kearney. The cities were benchmarked on three major categories like financial costs, availability of skilled manpower and business environment.

Chennai is today home to major automobile industries, with a world class IT corridor taking shape on Old Mahabalipuram Road, a hardware corridor on its way on the western part and the northern part gearing up for port expansion to house warehousing units.

BMW is the latest entrant which is setting up an assembly unit Mahindra Industrial Park.First phase of IT corridor will be ready by September 2006. Out of 80 IT parks cleared by the nodal agency ELCOT, 50 parks will be set up on the IT corridor. Industrial estates like Ambattur and Guindy are slowly giving way to IT units.

SIPCOT’s industrial park with an area of 2469 acres has received overwhelming response from varied sectors. The first and second phases involving development of 490.94 acres and 1293.30 acres land area have been sold out to corporates The third phase involving 215.46 acres is now open for booking.

Hyundai has recently commissioned its second plant at a cost of Rs 2000 crores. Saint Gobain Glass has joined the bandwagon for a second float plant at an investment of Rs 1,400 crores. Following Nokia, Flextronics and Foxconn too joined the party and an SEZ is likely to be set up by Foxconn with Motorola. Realizing the potential land prices are already up by 25 to 35 % with prices of the arterial road commanding Rs 40 lakh – Rs 60 lakh per acre.

Soaring land prices in CBDs have pushed apartment prices to Rs 4,500/- Rs 10,000/- per sq ft. At the e-auction held recently the posh Boat Club area fetched Rs 15,371/- per sq ft for land i.e Rs 3.69 crores per ground.

Chennai is heading towards housing shortage which is one reason for the influx of property developers from Bangalore, Hyderabad and Delhi. Two township projects turned out to be non starter. Singapore Realty township is caught in a political controversy and Sahara is yet to submit its plan. According to an estimate 4000 apartments are required for people to be employed in Siruseri alone.

Akshaya Homes took a bold move to launch a residential project beyond 25 km from TIDEL which was a sell out and three projects launched on the IT corridor in Sholinganallur and Perungudi are entirely sold out. Bangalore’s Puravankara and Mantri are due to launch their projects whereas other like Brigade, Sobha, Prestige, Salarpuria, Renaissance and Delhi builders like DLF, Unitech and Aerens are eyeing land parcels for the projects.

Realising the potential of residential and commercial properties in and around Chennai, venture capital fund managers are visiting the city at regular intervals to forge strategic alliance with partners who expect a RoI of 18-25 %

Demand for office space is estimated at 4-5 million sq ft this year. 90 % of the commercial space will be absorbed by IT and ITeS sector. Capital values for office range between Rs 2900/- to Rs 4,900/- per sq ft. Rental levels are up by 15 % in the past one year. Due to hike in interest rates, the net yield to investor has also gone up to 11% p a now.

Retail is all set to scale a new high. The city’s gold hub, T Nagar will witness a state-of-the- art gold mall. About 10 to 15 malls-cum-multiplexes are due to be developed as part of integrated township development in and around the city. This will ad about 6 million sq ft of organized retail space in the city.

(Excerpts from an article titled ” A Chennai Home Companion” by V Nagarajan and Raja Awasthi appeared in the Economic Times of July 16, 2006)

Author’s comment

1.The major beneficiary of the present real estate boom is the banks, which were saddled with huge Non Performing Assets , are able to realize sizeable portion of their debts by sale of mortgaged assets.

2. Yet some of the properties like the one at the erstwhile Gemini Studio complex could not find takers, in spite of the property being located in a Prime Business Area.

3. There was an unfinished property at the Canal Bank Road in Foreshore Estate for years. Now Hindustan Lever occupies one property and Airtel, the other two.