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In Velachery, where Gopalan is building his house, apartments that sold for Rs. 1000/sq. ft. are
now selling for over Rs 3000/sq. ft.
And Velachery is not the only backwater that has become a red hot real estate
investment. What is true for Velachery is true for most of Chennai. It is a story that is being repeated
in cities across India,
indeed in most of the emerging world. After the crash of equity markets that
resulted in the bursting of the dotcom bubble, real assets everywhere in the
world took a front seat to financial assets. Although stock markets have made a nice
comeback since slumping in the early 2000s, real estate, art, and other
physical assets have done even better. The early 1990s boom in Chennai real
estate had fizzled by later that decade, and prices had stagnated or dropped
from 1996 to 2001. But since 2001, two major factors have kicked in to
turbocharge the current boom in real estate. The first, alluded to already, is
the rise in incomes of the nouveau
bourgeoisie, driven by economic development and rises in real wages. The
second, equally important, is the easier availability of credit, both to
consumers and businesses. (A typical upscale condominium complex is pictured to
the left.)
 Getting a loan to buy a house in India was once a very difficult
proposition. When my father got a Rs. 42,000 loan from the central government
in 1971 to construct a house on a plot of land given to him by my grandparents,
he was helped by the fact that he already had title to the land, by having a
secure and stable government job, and by the fact that he was only borrowing a
fraction of the value of land and house combined. And on top of that, the
process took mounds of paperwork and many months. In contrast, a host of
government-owned and private banks have made the process of obtaining a home
mortgage very easy. The lending rate for a private mortgage dropped
precipitously from 16% in 1997 to 11.5% in 2003 and has fallen further since
then, and loan-to-value ratios have crept higher, so that borrowing, say 80% of
the value of the property is no problem nowadays.
Nothing epitomizes the boom in Chennai better than our own
family’s project. Until about forty
years ago, my grandparents’ home in Egmore, a busy central neighborhood, was an
estate of about 5/8th acre, with a
stately home, a cowshed (!) and a couple of outbuildings. Starting in
1970, the land was parceled out to my dad his siblings, several of whom built
individual apartments on the grounds. Eventually the main house was also
converted to flats, and the whole complex sat awkwardly like hastily assembled
lego blocks bunched around the original driveway. Some apartments were rented
out, and the rest my parents and uncles lived in. By 2006, my grandparents had
long passed away, my uncles were in their 70s and 80s, and most of their kids
had emigrated aboard to the US
or Australia.
The flats built in the 1970s were showing their age, and they were awkwardly
arranged. It was time to do something.
So we decided to raze
the entire aging complex and build a modern condominium block on the property,
in which each of us would buy flats. In Egmore, the value per built-up square
foot had risen in recent years to between Rs. 5000 and Rs. 6000 ($125 to $150)
per square foot, so it was not difficult to find a builder to take on the
project. One of my uncles in Chennai did a lot of the leg work, signed a contract
with a builder, and the project finally took off. When I visited this time, the
demolition was complete and foundation was just being laid. If the construction
proceeds according to schedule, the new building will be ready by July 2008.
 The complex will continue to retain its old name, Vedavilas,
named after my grandmother, a source of
satisfaction to all of us. But the physical reality of the new apartment
complex is vastly different than the stately house of my grandparents that once
stood in its stead. Our complex, which was once just a single family
dwelling, will probably house 60 to 80
people, have a 16-vehicle car park, plus room for many more two-wheelers. In
our case, four floors plus a parking level was the maximum we could build given
the land area. But similar stories are being enacted all over Chennai. One- and
two-story buildings are being replaced by multi-story buildings, and each one
is built to the maximum that the Chennai Metropolitan Development Authority
will allow. Every one of the new apartments will consume water, electricity,
and gas, and will produce raw waste and sewage. Multiply that across the city
and you begin to get an idea of the challenges the city faces in the decades
ahead. I will address these challenges more fully in the sections ahead.
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