In the last four to five years Chennai has witnessed more than 10 million sq. ft of quality IT SEZ supply. Occupier sentiments are improving as the global economy recovers and corporates have shown a clear preference for quality office spaces with reasonable rents. In the last quarter, approx 2.4 million sq. ft of office space came into supply and almost 94 per cent of the leasing activity was registered for Grade A stock.
The residential sector continues to see some robust investment by local and national developers where few developers cumulatively have invested more than Rs.1,000 crore in land in the last one year primarily for residential development. Interestingly, this Rs. 1,000 crore investment made by few developers and fund houses have been in city locations where the overall supply compared to peripheral location is low. Developers sense a demand for luxury segment as enquiries for up market addresses like Poes Garden, Boat Club and Nungambakkam have historically remained high.
Moreover, overall supply in this up market or luxury segment would be much less compared to that of peripheral locations. In the peripheral areas of Chennai, unsold units are on the rise. While the manufacturing and automobile sector had played a significant role in the city’s economy growth over the years, the last two years have seen a dip in demand. Dearth of land in existing SIPCOT industrial parks – Sriperambadur and Oragadam have added to this.
Will there be a price correction or will the prices go up?
In the residential sector, sales are expected to improve as overall housing demand has increased in the city. This is mainly due to improvements in infrastructure, rise in income levels and increasing employment opportunities in all sectors. Most of the micro markets are expected to maintain stable capital value trends. In the mid-end segment, Adyar, Mylapore and Velachery may witness an increase in capital values in the long term due to inherent demand from business class and HNI individuals. Velachery, in particular has seen a 40 per cent rise in capital values on a year-on-year basis as improvements in infrastructure and the ongoing metro work will provide better connectivity and prices are witnessing an upward trend in this micro market.
In the high-end category, R.A.Puram and neighbouring areas of Alwarpet and Abhiramapuram saw a 5 per cent increase in capital values this year and may continue to increase, as demand remains strong in these pockets. At present, four or five major high-end projects are under construction around CBD (Central Business District) areas, with apartment sizes ranging between 3,000 – 4, 000 sq. ft. These are priced in the range of Rs. 7.5 – 10 crore and will provide capital appreciation in the future. In summary, the trend of unsold units in the some parts of OMR and GST continues, price correction in these locations is natural and in the city since the launches of these high projects will come in phased manner, the demand for high end segment will hold up the price.
When is a good time to invest?
Investments in residential properties are dependent on the time horizon and an investor’s risk appetite. For short to medium term, investing in Anna Nagar, Adyar, Velachery and Nungambakkam are good choices as projects in these micro markets find takers quickly and most known developers have been able to sell their units while still under construction. For medium to long term, peripheral stretch of OMR and GST are good options, however the current situation of unsold units is on the rise in some of projects in these locations. Therefore developers are largely dependent on end user and investors who invest for rental yields.
Which areas in Chennai have the most potential for growth over the next ten years?
From a residential perspective, OMR and GST in a long term will continue to be an attractive proportion for middle income group. High-end supply which caters to upper income group is in locations like Nungambakkam, Boat club, Poes Garden and ECR.
What advice would you give home buyers? What should they look out for before buying a home?
With the approval of the Real Estate Regulatory Bill, the developer community is expected to be more transparent and accountable; however, home buyers must only invest in housing projects where all the necessary approvals are in place. Before investing in a house one should also check the title deeds and ensure there are no disputes on land titles. Investing in projects with developers with a good track record and no delays in construction completions helps ensure the developer’s credibility and makes the investment less risky and relatively “safe”.
Hariharan has been in the commercial leasing business in Chennai for over 11 years. He also has experience in the financial and telecom space and has worked across realty markets in cities like Chennai, Coimbatore, Kochi, Trivandrum and Colombo.
