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Madras Gloom! Property market slumps

Circa 1993. Venue: a hall exhibiting and selling houses. It was for the first time that an exhibition of houses was being held in Madras. The citizens were excited. Proof: the huge compound outside the hall was jampacked with cars; traffic jams on the roads leading to the hall; all roads leading to the hall. It was not an exhibition of luxury apartments alone nor was it targeted only at the upper crust. People understood that. Rubbing shoulders with cities elites were the middle class who arrived in their modest two-wheelers.

The turnout was a pleasant surprise to many, including the organisers who were no doubt overjoyed to see so many people walk in cheque books in hand and buy apartments over the counter as one would buy an expensive stereo set. The middle class huddled in corners and compared the prices of various builders, even as they discussed their dream houses.

Apartments were not the only items on the middle classes' shopping list from the years 1993-1996. Manmohan Singh's economic policy had unleashed middle class aspirations, which began to lap up all the items hitherto restricted to their dreams and advertisements. Materialism was in, and purchasing apartments was a major goal for many of the middle class.

Unfortunately, all good things must end, and so did the boom sometime in 1997. Today, real estate developers and builders anxiously wait everyday for prospective customers in their empty offices. The city has hundreds of half-complete buildings and houses that stare into the sky, on whom work began in better days; while finished houses remain unoccupied, their walls bereft of human touch.

Whatever happened? "There was a lot of speculation in the real estate market during the boom years. It rose along with the share market; but when the share market crashed, this too did. You don't complain when you lose money in the share market, so why are they cribbing now?" asked Tommy Mathew, senior manager of marketing and communications, Alacrity Housing.

"Wherever there is speculation, this is bound to happen," he added, "Developers tried to make a fast buck out of the trend by buying land cheap and selling it dear. It resulted in opportunistic purchase of property, defective titles, and incomplete and undelivered projects."

In fact, till recently, Madras was considered one of the most stable real estate market in India, not having witnessed any violent fluctuations. The market was a steady growth of 20 per cent, considered healthy.

"The reason was that Madras only had end-users. Nobody purchased land for speculative reasons here. But 1995-96 saw an abnormal rise of 40 per cent. The demand for houses was so high that we had to just put a hoarding outside a land and within two weeks, all the flats would to be sold out. Many non-resident Indians found the city a fast growing area," said Prakash Menon, deputy general manager of operations, Ashok Leyland Properties.

"One fallout of the boom was that anybody could become a developer then because there was a mad scramble to buy houses. Those who entered the scene to make fast buck are now feeling the pinch," said Nirmala, sales manager at Chaitanya Housing.

A good example is C Silvalingam of Bala Abiramai Builders and Developers. He returned to India from the United States in 1995 and straight away entered the real estate market. "Yes, I thought it was the right and best time too to enter the market. I could sell my flats as soon as I put an advertisement in a newspaper," he said, recalling those heady days, "Now there are only enquiries. People just ask about the price, that's all. There are no sales at all.

"See, when there is no money in the market, how will sales take place? I did not construct any huge complexes, just three flats in a compound. I could sell 3-4 flats worth Rs 600,000 in two months time then. Now I cannot even sell even one in four months. Nobody wants to buy flats at Rs 1800 per square feet. Compare this with the fact that during the boom period, many sold flats for Rs 3000 per square feet."

In a building on Cathedral Road, a prime area in Madras, apartments were sold at the rate of Rs 3,250 per square feet just two years ago. Today, there are few customers at Rs 2,250 per square feet.

One primary reason for the boom was the change in rules. The Madras Metropolitan Development Authority in 1993 changed the floor space index (FSI) ratio from 1.5 to 2, which suddenly increased the floor space available per building. "This saw a surge in the builders grabbing land and developing property. Moreover, land owners, desperate to make easy money, began selling land to all and sundry," said Tommy Mathew.

Even old, conservative residents of Madras did not think twice before selling their ancient houses in the heart of the city at Mylapore and moving to the outskirts. Soon, a visitor to Madras would see old independent houses being demolished almost all over the city, while huge boards would announce the construction of a residential complex. Seeing the construction activity, people began purchasing with a frenzy, hoping to buy a flat before the price rose in six months' time.

Calamity, however, struck when the court told MMDA to keep the FSI at 1.5 itself, forcing the builders, who had purchased land at high prices, would be forced to build fewer apartments. Moreover, other builders who had started construction on the basis of FSI at 2 feared that their property might be demolished. Thus, the builders yanked up the price of the apartments in anticipation of future losses. A flat costing Rs 1300 per square feet was now quoted at Rs 1800-2200.

The hike in costs turned away prospective customers, including many potential NRIs. Suddenly, there was more property in the market than buyers. While prices had begun to drop by mid-96, by 1997 prices had gone into a slump.

"As much as the upward rise was fuelled by mere speculation, the downward trend is also the result of speculation," reasoned Mathew, "But the reverse speculation has affected us who were not in the race at all. However, luckily, now even the reverse speculation has flattened out."

Alacrity constructors had begun developing property on the outskirts of Madras when the boom occurred. Thus, it was also able to escape the downturn and today, is the only builder selling 15 to 20 flats every month. "It is still down from the one flat per day during 1995-96," pointed out Mathew.

Prakash Menon agrees that there is a slump in the market, but refuses to call it a crash. "Only the profit margin has come down and the present slump will hurt those who had picked up land at high costs," stated Menon. "No new projects are coming up now and everybody is trying to sell the old, unsold ones. So, if you invest in a good property now, there will be good takers."

Menon is optimistic about the situation improving. "In Madras, rents have shot up. When real estate prices are low, why are rental prices going up? I am sure the real estate price also will go up, once there is a stable Union government," he said.

Chaitanya builders are also positive about a turnaround in the market. "Despite all the other cities real estate being down, Madras is a safe bet even now, at least for commercial property," declared Nirmala, adding, "I don't expect the market to boom like it did earlier again; but it will become steady soon."

"Madras still has plenty of land available which builders can use, and the huge demand for houses is still very much alive" said Mathew, giving reasons on why the gloom will end. And he does have a point.