With new projects outpacing sales by a huge margin, unsold inventory becomes sore point, finds Knight Frank report

Chennai’s residential property market was marked by moderate demand during calendar year 2012, but despite the subdued economic conditions, the city witnessed several new project launches. With absorption staying at around 29,000 units in 2012, an increase of only 6 per cent over the previous year, the surge in new launches increased the proportion of unsold units alarmingly, which now hovers around the 40 per cent mark, up from the previous level of 31 per cent in 2011. This has forced developers to resort to freebies and schemes to attract buyers.

Developers announced a huge number of large-scale projects in 2012. Approximately 26,000 residential units were launched from January to December 2012, signifying an increase of almost 73 per cent over the previous year. As on December 2012, an estimated number of nearly 77,500 units are under construction in the city.

These are some of the findings of Knight Frank India’s 2013 residential research report on the Chennai market.

Regionally speaking

The report looks in detail at the area-wise break-up of the new residential units launched in the city. The majority is concentrated in the southern part of the city. Around 60 per cent of the total launches were accounted for by South Chennai, depicting an increase of 5 per cent over the previous year. South Chennai, along the OMR and GST Road, is rapidly developing as a self-sustaining hub with the presence of a large number of IT SEZs, IT Parks and manufacturing units.

The southern micro-market is followed by West Chennai as the region that witnessed the second highest number of new residential unit launches during 2012, accounting for 32 per cent of launches. This depicts an increase of 10 per cent over 2011. Unlike South Chennai, the western region of the city is dominated by the manufacturing sector. The region is expected to benefit immensely from the large number of existing and upcoming manufacturing units along the Sriperumbudur-Oragadam industrial corridor.

The northern part of the city accounted for 7 per cent of the total units launched during 2012, an improvement of 17 per cent over the previous year’s share. The general perception of North Chennai as more of a logistics hub is gradually ebbing away owing to recent infrastructure developments and the launch of key residential projects by prominent developers. Locations such as Tondiarpet, Madhavaram and Perambur are turning a new leaf and increasingly becoming preferred residential destinations.

The central part of Chennai, expectedly, accounted for a minimal percentage of the total number of new launches in the city during 2012. In the previous year, the region had contributed towards 8 per cent of new launches. This can be attributed to the dearth of suitable plots for development in the region.

Price points

The Chennai residential market has generally been characterised by low price volatility. Yet, a number of factors have led prices to increase considerably across the city’s residential market, one of them being rising construction costs during 2012 that led to steady price appreciation despite increasing pile-up of the proportion of unsold units. Moreover, prices also moved upwards owing to the positive impact of major infrastructure projects, such as the Metro Rail, Phase III of the MRTS from Velachery to St. Thomas Mount, the Outer Ring Road and the Monorail.

The report concludes with the finding that while the growth momentum achieved in new launches in 2012 may not be sustained through 2013, developers are expected to continue executing projects already launched. However, unsold inventory will continue to be a major point of contention.