Fairpro 2011

Today I was at the Fairpro property exhibition conducted by CREDAI. I think this is the first time in the last 12 months or so I was in RE exhibition and writing about in my blog after a really long long time. Though I didn't write about it, I was passively watching the market and getting a feeling that RE is slowly getting back to bullish state.

Fairpro exhibition has become a regular feature in the RE calendar of Chennai over the last 4 years or so. It is a very well organised real estate exhibition for the discerning buyers. CREDAI works with various developers and comes out with some attractive prices for this show.

As usual, this year show was also at Chennai Trade Centre, Nandambakkam. Over the years, the number of developers participating may have gone down, as compared to the heydays of 2007/08, but the quality of the builders participating has definitely improved. I should say, this year, it was organised well with well laid out stalls for each of the 54 participating builders with ample space for discussion. On top of it, they have even arranged for proper drinking water facilities and first aid. Most of all, they had neat and clean rest rooms!! A very rare phenomenon in our country.

My observations from the visit:

• Coming to the availability of the properties, I should say there is nothing new for a person who regularly follows on the big RE launches in Chennai.
• As far as the prices, it has definitely gone up in the last 1 year or so, in my opinion, by 12-20% across the entire spectrum.
• Most of the properties are on the fringes of the city in the newly developing areas like Oragadam, Guduvanchery and Siruseri.
• The innovative (not sure, if it is really, but I guess for the first time in RE) is the concept promoted by Inno-City at Oragadam. If you pay them 75% of the cost of the property in advance, they commit to pay an interest with a yield of 12.25% or so. Though it sounds interesting, there are associated risks with regard to execution and the credit-worthiness of the builder. I think, the promoter has PE funds participation in this project but that should not be the panacea for all the risks of paying in advance. Nevertheless, its innovative in RE!
• On the housing loan front, you have the usual suspects like LIC HFL, Axis Bank and ICICI Bank. The notable entity missing was that of SBI. Heard that they are having a separate exhibition in another 2 weeks time.
• Few interesting projects like the XS Real's La Celeste, RC's Blossoms which attracted my attention over the last 15 months or so, has been sold out. Honestly, I didn't expect them to be such a hit.
• I would have been happier to see more properties from the Tier II and Tier III cities as there is a big migrant population which wants to buy in their hometowns. Of course, there are few properties from Coimbatore but other places like Trichy or Salem or Madurai was not there. Guess, there is no penetration by the organised players in these cities which itself in my opinion is a big opportunity for players.
  

Overall, my expectation of bullishness returning to the RE space was evident during this exhibition. There was a steady flow of visitors and the entire car parking lot at the Trade Centre was full. The car park is quite big which can take at least 500 cars. So the turnout was good and CREDAI expects to close the exhibition with committed bookings of Rs200 crores. I think it is definitely achievable.

Buying a piece of land is out of common man's reach?

Everybody has a dream of owning a piece of land to build his dream house. But I think it is becoming lot more difficult these days, not only because of the high price, but also due to the complexities involved.

I think it is not the high price which is alone cause for the trouble, but the amount of "black money" involved in the whole transaction. Imagine you want to buy a 2400 sq ft land in a suburban locality of Chennai, the asking price is in anywhere in the region of Rs50 lakhs to Rs1 crore. But the saddest part is that at least 50% of the money is demanded in cash by the seller uniformly across the city. The actual price is at least double the guideline value in almost all the localities in the city. The Government loses huge money in the form of Stamp duty and registration fees and these land deals helps to accentuate the spread of black money further.

So far a person who makes a good amount of money as salary but with no "black" money in his kitty is at a distinct disadvantage in this transaction. He has to run around to create a huge amount of money by mortgaging his existing assets and creating the cash portion of the deal. He can't get the housing loan for the portion of the "black" component.

After having decided to do that, you find that the land documents are lying with a bank under mortgage and the seller expects you to pay cash upfront which is a good 60% of the price with only a very minimal documentation, that too, without mentioning about the land deal. Obviously, he can not, when the transaction value itself is only 50% in "white" and the balance in "black". It is really difficult for anyone to deal with such huge sums of money in "cash".

If this is not enough, you invariably land up in the hands of a broker who really rips you. The brokerage is 2% of the value of the deal upto Rs1 crore of property value and 1% above that. For no real service to the buyer, these guys takes home a sizeable amount of money. They neither have full information of the property nor an interest to learn them. The brokers I have met are of very low "value addition" to the deal.

It is truly nerve wrecking to complete a deal only with "white" money or through proper bank loans. That is the sorry state of affairs in the real estate industry today in Chennai. I don't know how long this kind of rates can survive with a huge element of black money. I tried to buy a piece of land for sometime but has completely given it up as the troubles and hassles around this are too high to fight against.

GST Road - too much buzz around that!!

I have not been deliberately writing about Real Estate for the last so many months and I am breaking my silence through this post.

I have been seeing too many advertisements/editorials/news coverage about the GST Road and its prospects over the last 2-3 weeks. There were detailed 4 page articles in Times Supplement about the GST Road and its developments. There was also an comparison between GST Road and OMR and as you would have guessed it was adjudged by the columnist that GST stands better chance of appreciation.

I dont deny the fact that GST Road has its own advantages but what worries me is the too much of news about that corridor. With the recent paid news coverage issue during the last Lok Sabha polls, I would not be surprised if these are paid coverage by the builders and promoters operating out of GST Road just to jack up the price and clear off the inventory.

Tamilnadu Police arrests JBJ Developer's Justin Devadoss

Coming close on the heels of his arrest in Bangalore (read here), Justin Devadoss of JBJ Developers was arrested again by the Chennai Police after hundreds of complaints have been lodged by the duped investors. The rumours are flying thick and fast that the amount of money swindled by this guy is not less than Rs1000 crores. It is true a mind-numbing figure but is it possible to do a fraud of this magnitude without political, governmental and police support. I really doubt it.

Going by the newspaper reports , particularly in the Tamil newspapers, the land buyers have been duped with forged registration documents. There have been instances where the agents of JBJ Developers have taken people for the "site visit" and robbed them of their valuables. This sounds cliched and not sure why the affected persons remained a mute victims.

The unfortunate thing is that this nexus between JBJ and the politicians, government officials will never come out, as this has been the case with earlier scamsters like Anubhav Foundations, Sneham Finance and Ramesh Cars.

Justin Devadoss of JBJ City Developers arrested

Couple of days back, I read about the arrest of Justin Devadoss of JBJ City developers. Read the newspaper article here.

More than a year ago, I wrote sceptically about JBJ City Developers and their phenomenal growth in a short span of time. Today we find the man behind the show, Justin Devadoss being arrested by the Bangalore Police for cheating customers to the tune of Rs7.5 crores in Bangalore. I did write about the the problems faced by land owners, buyers purchasing through JBJ in my blog post. You can read about that here. I dont claim anything for forseeing what is coming the way, but definitely it did raise my alarm bells seeing how things happened with this group. To much of media coverage for the group, lofty claims on land deals, photographs with leading personalities which are typical of all dubious promoters were there to see. Good that he has been arrested now but what would happen to people who have paid money but havenot got their plots registered.

I visited their website today www.jbj.co.in and still find that there are schemes which are available for participation. They have a scheme called 3P scheme (Promotional Partnership Programme) where one has to pay 10 lakhs to become a member. After 3 months, a plot would be registered in the name of the member in their Little Singapore project and after 9 months the entire money of 10 lakhs would be returned to the customer. What JBJ is getting through this scheme is 10 lakhs per member free of interest and promising a land of prosperity in return. Too good to be true.

This is another wake up call for buyers to be aware of these kind of dubious land promoters and developers. Stick to known developers and builders.

Co-operative Society and Stamp duty scam issue

In a recent article, Times of India has covered the Stamp duty evasion issue with regard to the plots sold through Co-operative societies in Tamilnadu.

Please visit www.ideas2wealth.blogspot.com to read about this.

Over-dose of real estate

Yesterday we were in Perungudi attending a family function and on the way back driving, as usual, I started talking about the real estate in Perungudi. The discussion progressed for some 5 minutes or so when suddenly my wife stopped and said that I am talking/thinking too much about real estate and instead should just stop thinking about it. Rather spend time enjoying these social gatherings.

On self-introspection, I found that what my wife said was right. And in the last few weeks I have spent considerable amount of time researching about real estate deals on the net, paper and through all different sources in different places in Chennai and Coimbatore.

I realise there are other pressing things to complete and so I am going to be away from it for sometime. Except for the weekly dose of Property Plus on Saturdays!!

Tellus Avenue, Rajakilpakkam - please tell us all the details!!

Recently along with my NRI friend I went to see plots at Rajakilpakkam. I wrote about few days back here. As I wrote my NRI friend decided to purchase a plot in Tellus Avenue and he paid the advance and obtained copy of the parent documents for legal opinion. The legal opinion was negative on account of lack of details with regard to one particular name transfer happened with regard to the property. When Tellus Avenue promoters were contacted for further details, the reply you get was something like this:
" IDBI Bank has approved the project and there are already 25 people or so who have registered the plots. So you dont worry about the legal opinion and you can go ahead and register".

I think this is not the right way to convince the prospective buyers. You cant just rely on the fact that some institution is willing to lend money to buy a piece of land, which really costs you a fortune. We all understand the levels the business ethics and integrity levels have gone down in the society, so unless all documents are clear, you can't just go ahead and purchase. Last heard, my NRI friend has taken back the advance truly dis-satisfied with the explanation given.

Buyers Beware!!

Site-seeing

When NRI friends come home for their vacation, it is the time to go for shopping. Shopping for plots!! One of my NRI friends was in town last month and he wanted me to accompany him in this endeavour. His target areas were Selaiyur, Rajakilpakkam, Mudichur and Perungulathur, on the southern fringes of Chennai, which we did see when he was in India last time around. My friend has done his homework well and he came with shortlist of broker names and the property details. He was kind enough to book a A/C taxi for us and together with another of my friend, who is also looking for plots, went for the hunt!!

We met up with a land broker near Tambaram and he showed us couple of plots and houses in Mudichur and Old Perungulathur areas. These areas have developed quite a bit in the last 3-4 years since I have first seen it. It still keeps growing. The plots closer to the main Tambaram - Mudichur road are expensive compared to plots which are in the interior. This roads goes and connects Mannivakkam and joins the Tambaram - Sriperumbudur state highway. The on-going rates in this area is around Rs30-40 lakhs depending upon the location.

While in a particular lay-out, the broker pointed us to a huge compounded area of 10+ grounds and told us that it belongs to Comedy Actor Vadivelu. I made a quick calculation and figured out that one property alone is worth some 3+ crores for this gentleman. Property over a long term has yielded fantastic returns for film stars!!!

After the Mudichur side site-seeing(!), we crossed the GST Road and went towards Selaiyur and Rajakilpakkam. Selaiyur and Rajakilpakkam localities are on the Tambaram Velachery road. If I understand the area correctly, the area on the left hand side (when you go from Tambaram) is called Selaiyur and on the right hand side is Rajakilpakkam. The broker took us to the Rajakilpakkam side and showed us a plot which is stone throw away from a big Jains residential project coming up in Rajakilpakkam. This side is much more impressive than the Mudichur side. There are number of plots still available and the infrastrucutre is also quite well developed. The ongoing rate is around Rs1600/- per sq.ft (for land alone), which translates into Rs38 lakhs for 2400 sq. ft or 1 Ground. While we were seeing the plot, we were informed by the broker that there is a new lay-out being sold under the name of Tellus Avenue. We went and saw that and it was quite impressive as well. The lay-out has good broad internal tar roads and it is surrounded by houses. Naturally, my friend got interested in the new lay-out and he went around looking for plots. I guess the broker would have rued informing us about the new lay-out!!

As a follow up I kept looking for Selaiyur/Rajakilpakkam plots in the Property Plus and there are a couple of them which came during the last 2 weeks. But more than the Property Plus, the local brokers have intimate knowledge of the area and they know of plots which are up for sale. These brokers have adopted the electronic medium much more strongly than the print media. Every broker advertises their plots in various property websites as it is cheap and the reach it has among NRI's. I enquired with the broker about the commission he charges for these deals. His commissions are 1% of the property value from the buyer and takes 2% from the seller. Not a bad deal for a property value of Rs40 lakhs or so!!

Obtaining Encumberance Certificate online - the easiest way

With the growing threat of enroachment and sale of the same plot to multiple buyers, there is always a threat of enroachment of your plot of land you have bought. Obtaining Encumberance Certificate is one of the ways to ensure that your name still remains as the owner of that plot in Government records and no further sale has taken place after you bought. How to get the EC when you have these Government departments work only Monday to Friday, 10 to 5 and you dont have time to go? Or if the plot of land is situated outside Chennai, you may not be able to make frequent visits to the Registrar's office.

To remove this difficulty, Government of Tamilnadu has introduced sometime back the online application facility for obtaining Encumberance Certificate through their website http://www.tnreginet.net/. You can apply for the Encumberance Certificate for any property within Tamilnadu sitting in the comfort of your home. The charges are very nominal and it goes to the Government. It helps to eliminate the need for bribing the Peon in the Sub-Registrar's office or the need of going through the brokers.

I applied for an Encumberance Certificate for my plot of land and it got delivered within 7 working days from the date of application. There is door delivery of the Encumberance Certificate by the Registration Department staff and you have to hand over the EC search charges to him, for which he issues a receipt. As few old habits die hard, the total amount paid to the Government was Rs136 but the person who came to deliver demanded and got Rs50 as service charges. Service charge is not part of the charges, but he just scribbles something on the receipt and hands it over to you.

The other advantage is that you dont have to be an owner of the plot to apply for encumberance certificate. Even if you are planning to buy a piece of land from somebody, you can apply for the EC online. You need to have the details of the Survey number, plot number, village name and the details of the sub-registrar office.

Imagine getting a EC for a piece of land in Tuticorin sitting in Chennai. It cant become better. This is the true e-governance and I am happy to report that it works. Hats off to Tamilnadu State Government.

La Celeste - a residential project by XS Real

Last weekend I was at the site of La Celeste, the residential project promoted by XS Real. I wanted to go to the Millenium Homes exhibition but since that had only 10 participating builders decided to check out this project, which was any way part of the Millenium Homes exhibition.

1. Site Accesibility of La Celeste:
It is exactly 2 kms from the Mount Poonamallee Road. You have to take the road opposite to TCG IT Park where there is HP office on the Mt Poonamallee Road. The entire stretch of 2 kms from main road to the site is fully developed, in the sense you have all the basic infrastructure, like pucca tar roads (30 ft), hospital (Kedar Hospital - there is bus stop Kedar Hospital bus stop on the Mt Poonamallee road), shops and lot of independent houses.

2. Construction quality: I am not a Civil Engineer, so cant really talk about construction quality and materials used. But at first look, nothing looked of inferior quality to me. They are using hollow brick construction for walls.

3. Builder's track record: My understanding is that they are definitely premium builders and they have successfully executed past projects across Chennai. They have almost sold the Phase I of La Celeste comprising of 80 flats. The construction has come up to the third floor and the completion date is Dec 2009. I think it looks reasonable considering that already the foundation and 2 floors have been completed.

4. Bungalow concept: It is nothing very different from other flats except for the fact that you get a additional foyer where you can keep your shoes and a place to sit and read morning newspapers. They will also put a wicket gate so that it gives you a feeling of a individual house inside the flat. I would not give too much importance to this.

5. French architecture: They are adopting a french style architecture for this project in the way of avenue trees, sculptures and entrance. More cosmetic in nature and it doesnt add much value to the flat you are going to buy.

6. Other amenities: The development of other amenities may take longer time since the builder is planning 7 phases of this project. So he will not complete all the common amenities unless he completes all the phases.

7. Price: As far as the price is concerned, to be honest, nobody can predict where it is going to go. Nobody expected the slump like what happened over the last 1 year. FYI, the same property was launched 1 year ago by the same builder for Rs3895/- per sq.ft. He launched 4 phases or so and he has already completed the foundation work for even phase 2 to phase 4. Since he could not sell the property, he has now reduced the price to Rs2895/- per sq. ft. The price has fallen over the last year but not sure if we have hit the bottom.

Regarding the location, I am convinced that it is a good location and going by their general behaviour the builder also looks professional and decent. May be, the project should be of interest to persons whose budget is between 50-65 lakhs.

You can know more about the project from their website http://www.xsreal.com/.

Millionaire Homes Exhibition by Dun and Bradstreet

There is a property fair being arranged by Dun & Bradstreet,  happening on June 6-7 at Chennai Trade Centre, Nandambakkam.  Do you know, the entry to this exhibition is by invitation only!? Looks like it is a priveleged property fair.  Received quite a few emails with the subject as Millionaire homes and I thought this is some spam email and didnt even bother to open it.  Then got a call from D&B when I was in Goa.  Told them that I would visit on 7th June.  Let me go and see what is on offer.  

I also see the advertisements in The Hindu Property Plus and Times Property picking up.  Is it sign of revival in the fortunes of the real estate sector? Not sure, though.  But more people have started showing interest in real estate compared to 6 months ago but they are not the guys who are there to speculate.  They are real buyers who are looking for flats or houses to live.  

Why I am saying speculation is not still back was because I happened to talk to a Marketing guy of a real estate promoter in Chennai last week.  He told me that there is absolutely no sale happening with regard to plots.  Plots are the speculative investments.  Flats are not.  He was jocularly  telling me that people like me or not buying plots for investments.  I just laughed at him!

Tempting price at Kundrathur, but is it worth it?

Couple of weeks back there was an advertisement in Hindu Property Classifieds about plots at Kundrathur, 2 kms from Murugan temple at Rs495/- per sq.ft. The property was promoted by "Vijaya Raja Builders" claiming to be in the business of real estate development for 50 years. Honestly, I have not heard about them before this advertisement. On the plain reading of the facts, the price and the location looked attractive and I was tempted to go and see where this property is. I have always had a fascination for Kundrathur as this locality is close to the city and at the same time gives you the comfort of being away from the crowd. Kundrathur is well connected by road due to plenty of MTC buses.

Kundrathur is 12 kms from the Porur Junction and it goes through areas like Kovur, Gerugumbakkam. I have earlier been to Kundrathur Murugan temple and at that time the road was not good. But this time to my surprise, the road has been re-laid and it was a smooth ride. We reached the Murugan temple and started searching for the lay-out. The lay-out is good 2.5 kms from the Murugan temple as what the advertisement said. But there was no other landmark given on the advertisement so we crossed the particular place where we have to take a right turn. No signages from the plot promoters. Very unusual but probably sign of times where they want to cut all kinds of expenditure. We went all-round the place and after couple of calls, we managed to identify the exact location of the lay-out. The lay-out is 0.75 kms away from the Kundrathur-Pallavaram road. Not sure if the name of the road is right, though!

You have a small village and a primary school, water-tank etc and if you think there is basic infrastructure(!) then its a developing area. The access to the lay-out is through a narrow 20 feet village mud road (first negative point). The lay-out has 100 plus plots of 1200 sq ft each and there were quite a few people who have come to see the project. I was really surprised to see even that small number of people considering the state of real estate market. We got down from the car and looked around and found that there are quite a few coconut trees inside the lay-out. Again prime agri land being converted to plots. Few of the plots comes with more than 10 years age of coconut trees. You could also see the Tirumudivakkam Industrial estate buildings from the lay-out.

But the big negative point is that the lay-out is unapproved. Unapproved in the sense that there is no DTCP approval for the lay-out. Neither they have Panchayat approval. The person in the site said that they have got a no-objection certificate from the Sriperumbudur Tashildar for this. I am not sure how this sufficient to buy a piece of 1200 sq.ft plot costing Rs5 lakhs. Its a big risk.

I think it is always better to stick with known promoters as well as ensure that the lay-out is DTCP approved. In the absence of DTCP approval, there is no common space like park, school or anything. The roads are narrow within the lay-out as well. As usual, the site in charge claimed that 4 plots have been registered and another 10 plots are getting registered the next week.

As I have been seeing that plots at Kundrathur costs around Rs650-800 per sq.ft, the price tag of Rs495 sq.ft looked attractive. But there are inherent risks in this venture like lack of approval, poor access, no meaningful development around, surrounded by industries. Though we started with lot of enthusiasm, it waned in the 15 minutes we spent there. I think it makes sense to look for something closer to the temple and closer to the main Porur - Kundrathur road rather than getting into this interior stuff.

Are real estate promoters smarter?

I came across a unique situation where the real estate company is quoting a price, which is lower than the price quoted by the re-sellers of the plots from the same layout.  The layout in question is “Sri Adhinath Residency” promoted by Baskar Realtors.  This layout is on the Chengalpattu-Kancheepuram state highway and a good 3 kms away from the GST. 

The price quoted by Baskar Realtors is Rs250/- per sq ft, when I phoned and enquired about the price.  I also came across advertisements in The Hindu for the same plot from a plot owner who wants to resell the property.  He is quoting Rs360/- per sq.ft.

I am at a loss to understand why the promoter is quoting a lower price. The possible reason could be that there are couple of phases and he is trying to sell the latest phase, whereas the owner who wants to re-sell may be selling from the earlier phase sold by Baskar Realtors.  But that is not the case as well.  There is only one phase.

So net result is the land promoter is selling lower to ensure that he doesn’t block his capital by looking for a higher return whereas the resellers are expecting a higher price.  May be Baskar Realtors is smarter in the current scenario!!

Real estate promoters are desperate for money!!

Last week I happened to talk to a real estate promoter. From the discussion I could make out, how desperate these guys are for capital. Out of a blue I got a call from this guy introducing himself as a real estate promoter and asking me if I would be interested in a real estate independent house project in Guduvanchery. I told him, I am not interested.
Then he started asking few questions which goes like this:

1. Even if I am not interested in buying in the project, he wanted to know if I could look at this as an investment opportunity. The investment he is looking for is Rs50 lakhs. I told him that I dont have that kind of money to become an investor in this special purpose vehicles. Only Lehman Brothers are good at it!!

2. He didnt leave me at this. He persists further by asking if I could refer any investor who would be interested in joining this project as an investor. I said that I dont know of anybody who could make real estate investments to that extent. I didnt have Richard Fuld's email address or phone number.

3. Thirdly, he asks me if I could arrange for a bank loan based on the security of his current house. I said I cant but he is unwilling to accept. He pesters you with further questions like can you recommend some other bank or I know of some other person who can get him a bank loan. I have to really use my persuasive skills to wriggle myself out of this situation.

The entire conversation lasted for 10 minutes or so. I can imagine how difficult his position would be, otherwise why he should call a person like me and talk about financing for 10 minutes.

Direction of Chennai Real Estate

It is in the doldrums, no doubt about that. I dont see any big projects being launched and for the existing projects as well, promoters are trying all possible means to sell them. The heartening thing that there is still some interest left in real estate, when the recently concluded Fairpro exhibition had a roaring business for the builders as well as the lenders. In 3 days time, it is believed that 200 crores worth of business was done. Not a small figure, definitely.


But if you look at the rates, it has definitely come down over the last 1 year. My guess is it is down somewhere between 10 - 15% in the suburbs and satellite towns like Chingelput and Kancheepuram. I have few examples to quote.

1. The first one is the Prince Residenzia project in Sriperumbudur. Last year, they were quoting at Rs2500/- per sq.ft plus other charges. Today, the same project is quoting at Rs2175/- per sq.ft plus other charges. This I got to see from the newspaper advertisements over the last couple of weekends. The project is on the Bangalore National Highway just before the toll plaza and Venkateswaran Engg college. It is definitely a good location if you have interest in Chennai-Sriperumbudur - Kancheepuram belt.

2. The second one is the residential land in Kancheepuram. This is a DTCP approved layout from BLB Estates, one of the well known promoters. When we visited this layout last year, they were quoting at Rs375/- per sq.ft and they were willing to give it at Rs350/- or so. Today, the price they are quoting has come down Rs300/- per sq.ft with another 2-5% price reduction possible. I have written about this layout here.


3. The third one is again a residential land at Vandalur from BLB Estates. Today's price is Rs685/- per sq.ft compared to Rs750/- sq.ft one year ago. Again there is a scope for further reduction in the price through negotiations. This layout I was told is away from the GST Road by a good 3-5 kms. I need to visit it once.


4. The fourth one I have enquired is about the residential land in Athur Village on the Chingelput - Kancheepuram state highway. This layout is promoted by MS Estates and they are in this field for more than 15 years. The price they are quoting today is Rs295/- per sq.ft compared to Rs350/- sq.ft last year. This layout is 3.5 kms from the GST Road and 500 metres from the Chingelput-Kancheepuram state highway. I have seen layouts around this area and I can say this is an interesting piece of property. Actually, if you look at closely, this is hardly 3.5 - 4 kms from the Chingelput town centre. Chingelput is a big town and district headquarters with good infrastructure facilities. It has a direct train link to Chennai on an hourly basis and number of buses ply between Chingelput and Tambaram. On top of it, the village Athur has existing pucca built houses and existing infrastructure.

Overall, the prices are coming down but not sure if it is the right price or will it go further down. Considering the macro economic fundamentals, I dont see any big fillip for the real estate sector in the next 6 months to 1 year time frame, so we may still get better prices. In case if somebody is planning to buy a piece of real estate, then there should be hard bargaining with the promoter. Dont buy without quoting a price which is atleast 25% less than the quoted price.

Real Estate - where it is going?

Real Estate one of the hottest investment avenues in Chennai is facing uncertainity as slowly the global meltdown starts percolating to the real economy. With number of job losses, cuts in salaries accompanied by severe liquidity crunch, Real Estate has taken a back seat now. This is very evident from the lower number of new launches over the last 3 months, both in flats and house sites. I have not seen any big project launch in Chennai over the last 3 months.

Couple of new house site projects have come up in satellite towns like Tiruvallur, 40 kms to the west of Chennai but I guess the prices are much lower than before. Even then the promoters are finding it difficult to push sales as it is evident in the form of freebies being thrown in. The land promoters have started offering free registration, free patta to entice land buyers. Some promoters are advertising as "triple benefit" offer where the promoters pays the stamp duty of 8%, registration fees of 1% and the patta charges. Considereing the price of the land they are quoting and the actual value at which lands are registered, this is a very small concession from the land promoters. Normally, lands are registered at one-sixth of the actual price being paid, particularly the sub-urban lands where the guideline value is much lower than the actual sale price.

What is putting pressure on the real estate?

1. High interest rates on housing loans by banks and higher margin amounts - The interest rates on housing loans have gone up over the last 6 - 9 months making many of the borrowers who have taken loan on floating rates to be indebted to banks for their life. For many of the borrowers, the loan term has got increased by 10-12 years or you have to cough up more money as EMI if you want to maintain the tenure. Banks have silently increased the margin money which is to be put invested by the borrowers to buy a property from 10% to 30% in most of the cases. That is, banks are willing to fund only 70% of the property value compared to 85-90% earlier. It means, that prices have come down by atleast 15-20% over the last 3 months with regard to apartments. Recently, Times of India carried an article that second hand flats within Chennai city limits have come down by even upto 30% in high priced areas.

2. Lack of liquidity - The liquidity in the economy was completely sucked out by RBI over the last many months. Now they have started pumping in the money by reducing CRR, repo rate etc., but it will take few months to percolate to the end user. Many of the investors have seen their networth being eroded by the falling stock markets thereby adding to the liquidity crisis. When they lose the money in stock markets, they become more scared to invest in real estate. Speculation plays a major part in all investing activities.
3. Uncertain economic scenario - with talks of global meltdown resulting in economy slowdown and job losses across industries, real estate would be the last thing on the radar for the investor. He would prefer to hold the money in liquid investments to tap in case of need.
4. Who wants to catch the falling knife - the investors have seen the asset prices getting corrected in stock markets and therefore, expect that real estate prices would also correct. And it is correcting. Therefore, who now wants to buy. It is better to wait before the investors sees value in real estate and start committing money.

Where the real estate prices are headed from now?

Right now, the projects which have been launched over the last 6 months are not fully booked resulting in more pressure for the builders to off-load the stock at lower prices rather than carrying the inventory. They are under extreme pressure to fund their ventures in the absence of bank lending, investments by PE funds. I understand that the DLF project has not started at all even after almost a year since its launch. The other big project on the OMR, Chennai Pattinam promoted by CeeDeeYes has also reduced the prices, but in this case, they have sweetened it with a guaranteed buy-back offer after completion.

The prices are definitely going to reduce further in the coming months. There is no sign of recovery in the global markets and real estate which was also driven by excess liquidity on speculative dealings have completely dried out. I think the prices would correct further over the next 6 months. It is also prudent to buy houses,flats which are closer to completion rather than going for a just launched project. You can save lot of pre-completion EMI if you are able to get possession over the next couple of months. There are couple of projects which are closer to completion like the Sterling Ganges in Iyyapanthangal (near Ramachandra Hospital) and Ceebros Shyamala Gardens ( on the Arcot Road next to Avichi School), which has started advertising the savings in pre-completion EMI, as one of the advantages. It goes on to show that sales is not happening at all.

Over the next 6-12 months, I expect the prices to soften by 10-25% to make it much more affordable for people and also by that time the global economic situation gets more clarity. I would wait for some more time if I have to buy a piece of real estate.

JBJ Developers - what is happening?

For people who are familiar with real estate in Tamil Nadu would have started hearing about JBJ City Developers very frequently in the last couple of weeks.  JBJ City Developers has been in the news over the last couple of weeks for all the wrong reasons.  For the customers who buy plots from them, they were complaining that registration was not happening on time, for registered plots documents were not delivered.  For the financiers of JBJ City Developers, they were complaining that they were being cheated by the promoter Justin Devadoss @ David as he has not returned the funds.   

To give a brief introduction about JBJ City Developers, they are into the business of developing real estate plots across Tamil Nadu and selling it to customers.  Their focus is on the peripheral areas of various cities and towns of Tamil Nadu.  They have projects across Tamil Nadu and their business style is to promote real estate projects at low cost.   They have grown in a big way and they have 13 "Regional" offices across Tamil Nadu.  I have seen lot of advertising happening for JBJ City Developers both in Television/Radio as well as the print media.  They employ agents to sell plots for a commission.  

For a person like me, who has been actively following Real Estate in Tamil Nadu atleast for the last 5 years, till very recently,  I have not heard the name JBJ City Developers.  They entered Chennai in a big way over the last 12 months or so with an advertisement blitzkrieg.  JBJ was originally a Tirunelveli based small time real estate developer who wanted to make it big.  My immediate reaction to the sudden growth of JBJ City Developer is that of a firm which is politically well-connected or this would be a "benami" of some powerful politician.  Otherwise, I dont think such a growth of creating lot of real estate projects within such a short time is not possible.  

For most of the middle-class, buying a plot is a once in a life-time activity and it is very important that we remain very careful about the vendor.  The problems are plenty.  No proper registration would happen, no patta/name transfer in patta, delay in getting registration documents/non-receipt of registration documents, un-professional attitude, lack of standardisation are the common issues you face when you deal with fly by night operators.  I think it is better to stay with established names in Chennai real-estate to relieve yourselves of the hassles of going through a deal with these kind of operators. 

Real Estate prices around Tambaram in South Chennai

This past weekend, I was going around Southern suburbs of Chennai with my friend who wants to buy a real estate in South Chennai. When he mentioned about this I was more than happy to accompany him to areas like Mudichur, Rajakilpakkam, Sembakkam, Madambakkam, Nuthancherry etc., I have been there only two weeks back so I was little familiar with the places. These areas have developed unbelievably and the prices, I am sure you wont want to hear about it. From the information I could gather, these are broad price range in various areas:

Mudichur - Rs24 - Rs30 lakhs - for sites closer to the road and Rs13 - 15 lakhs for sites which are away from the road by 1- 2 kms.
Rajakilpakkam, Sembakkam - 1 ground costs around Rs40-45 lakhs translating into per sq ft rate of Rs1600 - Rs1900 per sq. ft
Madambakkam, Nuthancherry - Rs30 - Rs 40 lakhs per ground, depending on the proximity to the main road.
There are number of duplex houses which are coming up for sale at these places. Typically for a 1500 sq ft land, the total built up area is 1700 - 1800 sq.ft which is costing anywhere upwards of Rs75 lakhs. This sounds to me as a costly affair. Saw a couple of built bungalows (!!) at Madambakkam and Sembakkam. These are well built but the problem is there is no vacant space around the house. The concrete structure occupies the entire land area and it defeats the very purpose of why you buy an independent house.

What I like about these places?
1. These are well developed residential areas with complete infrastructure.
2. It is closer to GST Road as well as it can take you to OMR easily.
3. Thirdly, on the personal front, I like Madambakkam very much. There is a very old Sivan Temple in Madambakkam which is more than 1000 years old. I have also visited Seshadri Swamigal Ashramam in Madambakkam couple of years ago and that is the first time I was there. It is exactly 5 kms from Tambaram Railway Station on the eastern side.

Litigation problems with housing projects - bane of even organised players

I always had an impression that land grabbing and wrongful transfer of properties without the actual owner being aware of this happens to individual buyers or sellers in the Indian market. But it has started impacting developers as well. Recently I cam across two legal notices/advertisements in leading newspapers given by Wellwin Industry against Chitra Anandan Constructions for a property in Perungudi and the other one by Ozone developers. There were advertisements by both the buyers and sellers in both the cases on back to back days.

Wellwin Industry - Chitra Anandan Constructions:
In this case, a subsidary company of Wellwin Industry was sold lock, stock and barrel to Chitra Anandan Constructions as per the advertisement of Chitra Anandan constructions. The subsidary company is the legal owner of the land and Chitra Anandan constructions is building a residential complex in this land. Wellwin Industry has refuted the claim of Chitra Anandan Construction saying that the land still remains with them.
Ozone Developers case:
Ozone developers contends that they have legally bought the land from the owners and they are in rightful possession. The land in question I guess is a hereditary land running into few centuries!! When I checked their website, they have a project coming up in Anna Nagar, Chennai and I am not sure if this pertains to their Anna Nagar project or any other land they have bought.


The buyers go to this organised players primarily to avoid legal issues in ownership. And now we are hearing about legal disputes even on lands/properties developed by reputed builders. I was recently told that even Ceebros Shyamala Gardens project ( being built on Shyamala studio land) at Saligramam has some legal issues. It is really vexing for individual buyers if they have to face these legal issues even after paying hefty premiums. Now buying a house without any legal issues boils down to your luck!!