Sustained real estate demand has been a result of IT & BPO boom

Speculation might be the buzzword in the realty market in major metros, but in Chennai, it is a serious buyers’ domain. Largely, it is end-users driving the residential property segment, while the commercial segment is growing in tune with demand from other sectors.

The commercial IT space is facing an excess supply due to STPI norms not meeting industry expectations, but the situation in residential market is real, says Prakash Challa, president, Confederation of Real Estate Developers’ Association of India, Tamil Nadu. In fact, if prices touched unrealistic levels recently, the reason was rising land prices and construction costs. Mr Challa says real development has taken place in two pockets — GST and OMR corridors.

In the residential segment, sub-Rs 3,000 and Rs 4,000 per sq ft categories have been doing exceedingly well. Bookings across new projects such as Opaline, Estancia and L&T’s Eden Park have been on the rise. Apartments in the range of Rs 30-60 lakh are still a large and growing market segment. Unlike in Bangalore, Delhi or Mumbai, where speculative interest is high, the city has not seen a major shift as the belief that it is a growing platform is still alive among investors. Barring OMR, where the rates were ostensibly high, there has been no radical change in the infrastructure matrix, says consultant M S Jagan, formerly head of Ascendas and Mahindra RI Developers projects.

According to HDFC (TN &Kerala) regional manager Mathew Joseph, there has been no slowdown in credit off-take. Mature first-time buyers are graduating to larger apartments, given their rising incomes.

“Very few realty markets globally have undergone such a dramatic change in a short span of time. Reflecting the diverse nature, the next few years would see tremendous growth opportunities. Sustained demand has largely been a result of growth spearheaded by a spurt in the knowledge sector, essentially the IT and BPO-led businesses,” says Jones Lang LaSalle Meghraj (Chennai) MD Ramesh Nair.

Real Estate Consultancy Services chief consultant Rajesh Babu says middle and low-end developers are facing difficult times. Unable to withstand debt pressure for ongoing projects, they are triggering a new trend. By “liquidating” space to accommodate multi-tenants, they get the twin advantage of meeting demands from SMEs and overcoming their debt burden.

In January-March 2008, 1.6 million sq ft commercial space was absorbed, marginally down from 2 million sq ft space in the year-ago period. Around 60% space utilisation has gone into setting up SEZs. But, it is still corporate office space that has is facing a supply constraint.

Though only 20,000 sq ft is needed, the supply has drastically come down, Babu adds. Demand for office space in Chennai is expected to touch 7 million sq ft in 2008. As IT and Infrastructure Developers’ Association secretary Salaikumaran says, “We must have a hybrid system wherein companies, IT and non-IT , can co-exist and increase the developers’ risk appetite.”

Sustained real estate demand has been a result of IT & BPO boom- Property-The Sunday ET-Features-The Economic Times