Predictions of LDF winning polls bring down real estate value

The wide-spread prediction s that the Left Democratic Front (LDF) will win the next assembly elections and V S Achuthanandan, a veteran communist leader, could be the chief minister of Kerala, have seen real estate value fall in the state. For the last five years, the state has seen real estate boom with the Congress-led UDF (United Democratic Front) in the saddle.

There is already a drop of 10 percent in the value of land in rural and semi-urban areas in the state and realtors fear that it could even fall to 20-30 percent if people voted LDF to power. In this predominantly communist state, business, especially real estate, flourishes whenever UDF is in power.

During the last five years, land prices have shot through the roof. So much so that it is almost impossible for a middle class family to buy a piece of land in cities like Kochi.

What has triggered the sea change in the state are several mega projects being set up in IT and other areas like Smart City in Kochi and Vallarpadam international container terminal (VICT), to name a few. For instance, Vypeen island, which has been hitherto neglected, is in the limelight now because of projects like VICT, LNG terminal and SPM at Puthuvype. A few years back, a 'cent' of land in Vypeen, Mulavukad and Vallarpadam islands used to cost around Rs 7500 - 10,000. Now the minimum price is Rs 200,000 a 'cent'. Smart City, a mega IT initiative of the Kerala government and Dubai Internet City (DIC), has caused skyrocketing of land value in and around Kakkanad, a prime location in Kochi.

During the last five years, real estate has remained a major business of Kerala and land prices have increased by 200-300 percent on an average in almost all parts of the state. But with the elections round the corner and the predictions of LDF coming back to power, people are skeptical about the Left Front's commitment to keep investment climate intact as it openly opposes Smart City. Even Achuhthandan recently said that if LDF came to power it would re-examine Smart City project, definitely not a positive signal for investors. Though LDF, especially CPI (M), one of its key constituents, has clearly mentioned in its election manifesto that it would promote private investment, businessmen are not willing to take it seriously considering its track record.

Precisely for this reason, real estate business became dull after the announcement of elections to the state legislative assembly.

P B Tomy, a real estate broker, told Business Standard that the business slowed down considerably and the number of transactions dropped by around 30 percent during the last couple of months. He said that a major part of the business during last five years was speculative in nature which was the major reason for skyrocketing of prices. This seriously effected the dream of middle class families of owning a house or flat as the prices increased by leaps and bounds.

In Kerala, the main investment avenue for an average middle income group is land and the limited availability of land is one of the main reasons for the increase in prices. Most parts of the state is densely populated.

Since 2001 there has been so much hectic activity in construction of apartments that there has been an acute shortage of masons, carpenters, plumbers and other skilled workers. Big construction firms have booked skilled workers paying them advance remuneration. As a result, individual builders and middle class people find it very difficult to find them in the state.

Though apartment boom suffered a setback after the Gujarat earthquake, it recovered. Now flats are in great demand in cities like Kochi, Thiruvananthapuram, Thrissur and Kozhikode. For instance, in Kochi, the cost of flats in prime locations has increased to Rs 75 lakh to 1 crore. Despite the shooting costs, most of the flats are booked even while the construction is underway.

Sounding a positive note, V Ramachandran, a prominent architect in Kochi, said that flat business would not be affected by the change in government as there was still huge demand for accommodation in every city in the state.

The average cost per square-feet of a flat in the beginning of 1990s was Rs 750 which now has increased to Rs 2500 and in prime locations like Marine Drive, it has even touched Rs 3500. "Waterfront apartments are the latest craze in Kerala and naturally those located near water bodies like sea and rivers cost more than Rs 3000 per square-feet", said a builder here.