RESIDENTIAL
According to a recent report by Cushman and Wakefield, of the total realty demand in the top eight cities, middle-income group (MIG) and high-income group (HIG) categories will constitute the majority in the future. R. Ramachanthran, CMD, Omshakthy Homes, says, “The concept of ‘affordable luxury’ will most likely evolve into a separate segment of the housing market and 2015 will see an increase in number of builders opting for green building technology.”
2015 will be challenging in the initial months due to slow approvals and huge unsold stocks of residential units, says A. Shankar, National Director, Strategic Consulting, JLL. “Price stagnation will continue and there will be a decline in new launches,” he says. But the market is expected to show a marginal uptick in 2015. “We expect absorption to increase by 15 per cent compared to 2014.
According to Kanchana Krishnan, Director, Chennai of Knight Frank (India), Chennai’s 2014 residential launches will split as affordable (12 per cent), MIG (67 per cent), HIG (17 per cent) and luxury (3 per cent).
Shushmul Maheshwari at RNCOS says Chennai’s residential market saw over 60,000 units launched in 2012 and 2013, and about 21,000 are expected now. “We expect affordable housing to occupy a large share. Developers and end users find south and west Chennai appealing. A shift in focus towards old Velachery, Mogappair, Tambaram and OMR is expected.”
COMMERCIAL
About 22 million sq. ft of quality office space is expected to be ready to cater to a demand of 30 million sq. ft in 2015, says Shankar. “The introduction of REITs coupled with FDI relaxation and positive regulatory environment will give a big boost to the commercial sector in the coming year.” He also points to the tremendous improvement and innovation in construction technology for office space. Sectors like pharmaceuticals, media and entertainment are expected to contribute to absorption of office space besides IT/ITeS.
Mallika Ravi, CEO, Lancor Holdings, says that despite the estimated demand for about 4 million sq. ft of office space in Chennai, there is a shortfall in Grade A and Grade B buildings. “In the last few years, Guindy submarket has been developing but office space requirements of MNCs are not met in surrounding areas. Ambattur submarket has a stock of over 1.5 million sq. ft where absorption is slow.”
Rajesh Babu of RECS Group expects commercial real estate to stabilise in 2014. “The trend is likely to improve with demand from IT and ITES sectors. GST Road, Pallavaram-Thoraipakkam Link Road and OMR up to Sholinganallur are expected to be the emerging corridors.” Education, service industries, tourism and other fields are poised for high growth with increasing public-private partnerships. Tier I cities like Mumbai, Bangalore, Chennai, and emerging Tier II cities like Pune will witness high growth,” adds Shushmul.
GROWTH BARRIERS
Delays in economic revival and structural constraints in the lending market have posed a challenge primarily for residential real estate, says Knight Frank’s Kanchana. “Borrowing costs and building commercial projects closer to the city have become challenging. Lack of single window clearances and delays in approval increase input costs,” she says. Shankar roots for cost-effective building technology. “Poor infrastructure is the biggest hindrance coupled with rising construction costs. In the next 5-10 years, economically weaker sections might not be able to afford housing at any location. Developers must adopt cost-effective technologies to reduce costs and offer affordable housing,” he says.
WANTED: REFORMS
REITs (real estate investment trusts) and other fund-raising avenues are expected to increase the fund base and diversify risk in 2015. The proposed smart cities and infrastructure developments along the industrial corridors should create jobs and boost growth, hopes Kanchana.
FDI relaxation is likely to attract private equity of $3 billion in real estate, and annual inflow is expected to double in the next two years. The government plans to increase the GDP growth rate to above 5 per cent while inflation is likely to stay below 9 per cent. Shankar explains, “The real estate regulation bill, which is expected soon, will bring in lot of reforms and streamline the industry, which has been unorganised for a long time.”
The government is also planning to offer interest subsidies to low-income groups for home loans. Better FSI norms and stamp duty rationalisation for registration could also prove crucial.
LOOKING FORWARD
Ultra-luxury homes, studio apartments, and retirement homes are the future, says Shankar. Major infrastructure initiatives such as the Metro Rail and the Outer Ring Road (62 km), the proposed monorail and the 162 km Chennai peripheral Link Road will change the city’s skyline. He says, “The Tamil Nadu Housing Board is planning to construct units in Chennai, Vellore, Villupuram, Salem, Erode, Coimbatore, Hosur, Madurai, Trichy, Thanjavur and Tirunelveli, which will increase the demand for organised housing.”
Tamil Nadu can look forward to more affordable housing as well as villas and plots.
Watch out for…
- Increase in fund base of REITs and other fund-raising avenues
- Infrastructure development along industrial corridors
- FDI relaxation in construction sector
- Interest subsidies for low-income groups
