Will Chennai Repeat the Bangalore Story?

By: George Gonigal

Real estate demand in Chennai's IT corridor seems to be taking a back seat. The IT corridor, a collective name for localities on the Old Mahaballipuram Road, is the hub of all the IT and ITES companies in the city. Big IT giants like Infosys, Wipro, Cognizant, along with small and emerging companies have their offices there. This area has always witnessed positive demand for both commercial as well as residential property. However, this scenario has reversed in the past few months.

The present rental rate for a 2 bedroom apartment ranges between Rs 7,000 - 15,000. The capital value for this apartment could be anything between Rs 3,800-4,500 per sq ft. This is far more affordable than the prices prevalent six months ago. In September 2007, the capital value for was Rs 3,500-5,000 per sq ft. Also, the plot values have witnessed a drop in the prices.

This dip in the real estate prices are being attributed to the over supply. A property broker from Chennai explains that though the many property projects have been launched in the region, but most of these projects are over-priced. "Developers are launching their projects at Rs 4,000 per sq ft. An average two bedroom house of 1200 sq ft is being priced at Rs 40-60 lakh. Hence, this over-pricing is killing the property transactions," says A Selvaraj of Kumar Estates.

A similar phenomenon was witnessed in Bangalore in the last quarter of 2007. The IT region there - Whitefiled area- witnessed a huge demand in property and developers lined up innumerable projects there. Suddenly the number of takers for property dwindled because of exorbitant costs. Real estate developers tried to cash in on the demand created by the IT companies but users didn't show much interest in the over-priced property because affordable property was available in the suburban areas. Hence, most of the newly built apartments do not have takers now. It seems that the Bangalore sentiment is being repeated in Chennai too.

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