Thursday, July 13, 2006
Spiralling land price in Chennai
Three factors influence the rise: Promotion of Chennai as an investment destination, particularly IT sector, increase in FSI and Foreign Direct Investment
It is generally believed that the value of land used for industrial purpose is less than a house plot and value of plots of smaller extent will be more than the plot of larger extent. This is not always true, not so in Chennai.
Normally in a township 50% of land is reserved for residential use, 8% for commercial use, 1% for industrial use and 8% for institutional use. The balance will be reserved for roads, parks and open spaces.
The residential use will be further divided for economically weaker section, lower income group, middle-income group and for higher income group. The unit rate of land will be more for commercial than residential use. The unit rate of land for MIG and HIG residential use will be more than that for a plot meant for industrial use. The ratios and rates may vary but the price of Industrial use will be about 50 % to 60% of the unit rate for housing plots of HIG and MIG.
The situation is now reversed. Land for industrial use costs more than house plots influenced by three factors. One is the government emphasis on promoting Chennai as a destination for investment, in particular IT sector. The other is the incentive in the form of higher Floor Space Index (FSI) and the increasing foreign direct investment in real estate.
The Tamil Nadu Government focussed its attention on I.T. industry and adopted an exclusive IT policy. The main objectives were to encourage the growth of hardware and software industries and associated services. The Government in addition to encouraging the private developers also set up IT parks. These IT parks are treated as an industry and are eligible for various concessions.
Increase in FSI
One of the important incentives given for IT buildings is the increase in Floor Space Index. The demand for IT buildings coupled with this higher FSI has motivated many builders to construct IT buildings. An IT park or a building dedicated to IT purpose can get additional 50 per cent F.S.I over and above the normal F.S.I permitted. The FSI is defined as the quotient obtained by dividing the total coverage area on all the floors by the plot area. If the extent of plot is 10,000 sft and the F.S.I is 1.5, the maximum built up area, with all floors together, shall not exceed 15,000 sft. A plot with more than 1500 sq.m (about 6.73 grounds) facing a road, more than 60 feet wide, is fit to have a multi- storeyed building. The permitted F.S.I for multi-storeyed building is 2.5. The same building, exclusively dedicated for IT purpose, can enjoy a higher FSI - as high as 3.75. Usually the incidental activities not considered in computing the FSI are about 10%. As a result, the total built up area will rise to (3.75 x 1.1 = 4.125) or say 4.
Construction boom
These incentives and the buoyancy in economic situation have fuelled a large-scale construction of IT related buildings. About 50 buildings on old Mahabalipuram Road, 6 buildings in Guindy, 4 in Ambattur and about 25 buildings in other parts of the city ranging from 30,000 sft to 12 lakh sft adding up to a total of about 2 million sft are under construction.
The concept of FSI is to limit the extent of built up areas in a locality and through that the density of population in relation to the infrastructure available. Exemptions such as higher FSI for IT buildings would only strain the infrastructure if they were not accounted and planned for. What we witness in the city is an ad hoc approach and planning by exemption. This not only affects price for industrial purpose but also the residential land price. If incentives for IT parks like high FSI are one reason for high land price, the other reason is large- scale investment in real estate. Many developers from Ahmedabad, Bangalore, Hyderabad and Delhi are promoting large projects in Chennai. . This large-scale development takes the form of integrated townships. Some of them are proposed at Valasaravakkam, Sriperumbudur, GST Road,Tambaram-Velachery Road, Vandalur and Siruceri. The extent of land in such projects varies between 10 acres and 200 acres. The Government decision to open up Foreign Direct Investment and setting up of Real Estate Investment Trust has only pushed the land price to irrational level. The Securities and Exchange Board of India (SEBI) has approved the guidelines of Real Estate Mutual Fund, a scheme which has investment objective to invest directly or indirectly in real estate property.
This means further money and investment in real estate.
If the present trend continues we would shortly witness the real estate prices spiralling out of control.
It is generally believed that the value of land used for industrial purpose is less than a house plot and value of plots of smaller extent will be more than the plot of larger extent. This is not always true, not so in Chennai.
Normally in a township 50% of land is reserved for residential use, 8% for commercial use, 1% for industrial use and 8% for institutional use. The balance will be reserved for roads, parks and open spaces.
The residential use will be further divided for economically weaker section, lower income group, middle-income group and for higher income group. The unit rate of land will be more for commercial than residential use. The unit rate of land for MIG and HIG residential use will be more than that for a plot meant for industrial use. The ratios and rates may vary but the price of Industrial use will be about 50 % to 60% of the unit rate for housing plots of HIG and MIG.
The situation is now reversed. Land for industrial use costs more than house plots influenced by three factors. One is the government emphasis on promoting Chennai as a destination for investment, in particular IT sector. The other is the incentive in the form of higher Floor Space Index (FSI) and the increasing foreign direct investment in real estate.
The Tamil Nadu Government focussed its attention on I.T. industry and adopted an exclusive IT policy. The main objectives were to encourage the growth of hardware and software industries and associated services. The Government in addition to encouraging the private developers also set up IT parks. These IT parks are treated as an industry and are eligible for various concessions.
Increase in FSI
One of the important incentives given for IT buildings is the increase in Floor Space Index. The demand for IT buildings coupled with this higher FSI has motivated many builders to construct IT buildings. An IT park or a building dedicated to IT purpose can get additional 50 per cent F.S.I over and above the normal F.S.I permitted. The FSI is defined as the quotient obtained by dividing the total coverage area on all the floors by the plot area. If the extent of plot is 10,000 sft and the F.S.I is 1.5, the maximum built up area, with all floors together, shall not exceed 15,000 sft. A plot with more than 1500 sq.m (about 6.73 grounds) facing a road, more than 60 feet wide, is fit to have a multi- storeyed building. The permitted F.S.I for multi-storeyed building is 2.5. The same building, exclusively dedicated for IT purpose, can enjoy a higher FSI - as high as 3.75. Usually the incidental activities not considered in computing the FSI are about 10%. As a result, the total built up area will rise to (3.75 x 1.1 = 4.125) or say 4.
Construction boom
These incentives and the buoyancy in economic situation have fuelled a large-scale construction of IT related buildings. About 50 buildings on old Mahabalipuram Road, 6 buildings in Guindy, 4 in Ambattur and about 25 buildings in other parts of the city ranging from 30,000 sft to 12 lakh sft adding up to a total of about 2 million sft are under construction.
The concept of FSI is to limit the extent of built up areas in a locality and through that the density of population in relation to the infrastructure available. Exemptions such as higher FSI for IT buildings would only strain the infrastructure if they were not accounted and planned for. What we witness in the city is an ad hoc approach and planning by exemption. This not only affects price for industrial purpose but also the residential land price. If incentives for IT parks like high FSI are one reason for high land price, the other reason is large- scale investment in real estate. Many developers from Ahmedabad, Bangalore, Hyderabad and Delhi are promoting large projects in Chennai. . This large-scale development takes the form of integrated townships. Some of them are proposed at Valasaravakkam, Sriperumbudur, GST Road,Tambaram-Velachery Road, Vandalur and Siruceri. The extent of land in such projects varies between 10 acres and 200 acres. The Government decision to open up Foreign Direct Investment and setting up of Real Estate Investment Trust has only pushed the land price to irrational level. The Securities and Exchange Board of India (SEBI) has approved the guidelines of Real Estate Mutual Fund, a scheme which has investment objective to invest directly or indirectly in real estate property.
This means further money and investment in real estate.
If the present trend continues we would shortly witness the real estate prices spiralling out of control.
# posted by mashup @ 12:45 AM 
