Financial Daily from THE HINDU group of publications
Tuesday, Mar 28, 2006
Industry & Economy
Real Estate & Construction
States - Tamil Nadu
Builders' invasion: Is there room for all?
The boom in real estate business in Coimbatore has brought in its wake an influx of builders from other cities and market players indicate that a few from abroad too might pitch their tent here.
While this is good news for buyers, as competition means competitive pricing, top quality construction and the latest in design, specifications and style, there are questions as to whether the city has the capacity to absorb the manifold increase in housing stock and whether any glut in the market would not send the realty prices on a downward spiral.
In the last two years, land prices have gone up by 100-300 per cent in many areas of the city. The price of apartments/homes has moved up in tandem and the increase in the cost of building materials has only fuelled this trend.
While this is not something specific to Coimbatore alone, what has contributed to the general euphoria in Coimbatore is the expectation that the city is on the threshold of becoming the next IT/ITES destination in Tamil Nadu after Chennai. The city's location (it is almost equidistant from Bangalore and Chennai) and its salubrious climate, well- established educational/healthcare institutions and the business-like attitude of its people have become its selling points.
But the important issue is that it is yet to become an IT hotspot. True, Cognizant Technology Solutions has established its facility here and TCS has a small unit. Though it has been quite a while since the entry of Wipro and other IT giants was spoken about, it is yet to become a reality. In such a scenario, whether the upturn in real estate prices would continue is the question that the builders have to grapple with.
Taking on big developers
Mr V. Subramanian, Executive Director, Ramani Realters Pvt Ltd, Coimbatore, said already builders such as Jain Housing from Chennai and Sahara group have announced projects in Coimbatore. Some companies from the US have plans to promote projects in the city.
While conceding that the availability of a large number of houses would bring some pressure on pricing, he pointed out that even Bangalore and Chennai had witnessed sudden spurt in growth.
The fierce competition for land for development and the concept of land banking have pushed up prices steeply in the city. He said in R.S. Puram, the land price that was roughly Rs 4 lakh/cent (1 cent = 436 sq.ft) in February 2005 has moved up to Rs 8-9 lakh/cent now. The increase in prices in other areas during the same period is as follows: Parts of Avananshi road from Rs 7 lakh a cent last year to Rs 12-15 lakh now; Saibaba Colony from around Rs 2.5 lakh/cent to Rs 6-7 lakh/cent now.
Change in mindset
Mr R. Rajahram, Managing Director, Sri Renga Group of Companies, commenting on the entry of big builders to Coimbatore, said their entry would "put lot of pressure on the existing builders" and the local developers would have to change their attitude and thinking and they should match the standards of large developers. Otherwise, it would be "very difficult to exist in the market". The small builders would vanish and those who were not committed would also have to go, he said.
Mr V. Mohan, Mananging Director, Mayflower Enterprises Private Ltd, said the Coimbatore real estate market was driven by demand from end-users and it was not a speculative market. He said apart from Cognizant that has taken about 50,000 sq.ft. in Kumaraguru College of Technology, he expected Wipro, Infosys and other prominent IT companies to set up their facilities here. If they do, "Coimbatore has real future". If they do not, whether this kind of appreciation could be sustained is questionable but as it looked, the real estate market seemed to be good for another two years.
He said because of the increase in the cost of land and building materials, the apartment costs have moved up by 60-70 per cent within the city. He said the price in Coimbatore was almost at par with rates in Ernakulam. Though land cost was higher in Ernakulam, as the permitted FSI was more the apartments could be priced competitively there. Coimbatore was at par with Hyderabad five years ago but now Hyderabad rates were at least 50 per cent more than that in Coimbatore.
Mr Mohan said that if the pace of construction continued as at present, he doubted whether the city could absorb all the tenements being built unless influx from other cities took place for which entry of IT sector was crucial.
He said the Bangalore-based Puravankara group was likely to enter Coimbatore market and the Chennai-based Coromandel Engineering Co Ltd of the Murugappa group had advertised for purchase of land in Coimbatore for real estate promotion and the name of DBS group was also doing the rounds.
He was doubtful as to whether Coimbatore has that much of demand to accommodate so many developers rushing to grab a part of the real estate pie.
Whatever it is, the city, forever a brides-maid, is basking in the glory of herself becoming a bride, at last!
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