The Hindu : Front Page : Chennai land prices skyrocket, push small builders out of business

Online edition of India's National Newspaper
Thursday, Dec 29, 2005

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Chennai land prices skyrocket, push small builders out of business

K. Ramachandran

IT boom, latest technology and income tax concession work in favour of big builders

CONCRETE JUNGLE: With land becoming scarcer by the day, buildings and their cost can only spiral upwards. - PHOTO: K. PICHUMANI

CHENNAI: As land prices continue to rise abnormally in Chennai, the pressure is mounting not only on those trying to find the right urban space, but also on big builders to move to the suburbs.

This is leading to an upward spiral of land cost in the suburbs too. The result: small businessmen in the real estate sector operating outside Chennai feel threatened.

Big builders, with their ability to tap funding from banks, are able to get loans at lower interest for buying land at `fancier' prices and still quote competitive rates. The CMDA's inability to rein in violations and the lack of an updated set of development control rules is only aiding the trend.

In the last five or six months, land prices in residential localities such as T. Nagar, Ashok Nagar, Vadapalani, Anna Nagar, Kilpauk, Adyar and Alwarpet shot up by 60 - 70 per cent, says Chozha Foundations head M.K. Sundaram.

"It has turned into a sellers' market. Anyone with a piece of land is able to call the shots. Almost on a daily basis, the sellers tend to change the land price quotes."

Prices double

All builders agree that the rates are in no way comparable to the guideline values fixed officially by the Registrar's offices.

Within the last five or six months, the price of property in K.K. Nagar has almost doubled, as one of "our members found out," says the chairman of the Builders Association of India, Chennai, L. Moorthy.

"There is no land available in the inner city for development. Almost every bit is fully exploited. The only option is to move to the suburbs. But there too prices are shooting up," he says.

And this is affecting those builders who were working on smaller projects.

S. Narasimhan, a developer in Chromepet says: In the western parts of Chromepet and Pallavaram, the land costs are frightfully high... they have gone up in the last few months.

Big builders have moved to these parts and are buying off chunks of land of one or one and a half acres.

"They are able to quote higher rates than us, because they get a line of credit from banks for project loans at lower interest rates. But we only depend on financiers who charge higher rates of interest. This also has an impact on the quality of the structure," he says.

The State BAI chairman, K. Ramanujam, agrees that the small builders' role is shrinking in commercial exploitation of urban space.

Mumbai model

He feels the situation only highlights the need to follow the Mumbai model: create a new city - a planned city with more efficient use of infrastructure and resources.

A former national chairman of the Institution of Valuers, C.H. Gopinatha Rao, says the boom in the information technology sector and the incentives given to the IT buildings in floor space index and availability of more money with people speeded up are fuelling faster urban development.

But it is pushing up the land price and leading to urban problems.

Big builders adopt latest technology and complete buildings in a shorter time at a lower cost. Hence, they are patronised by lenders and buyers.

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