In contrast to other Indian cities, Chennai's residential property market has seen better times. Being predominantly end-user driven, this has done a lot to sustain absorption.
Increased job security has definitely helped the market maintain buoyancy and a positive outlook. Over the last two years, it has become increasingly evident that Chennai's residential real estate market is significantly dependent on the IT/ITES sector.
Chennai has been attracting investments from several industries due to its strategic location, availability of skilled manpower, better infrastructure and cosmopolitan outlook. The influx of people from various parts of the country on job opportunities has been more than ever. This has increased the demand for real estate in return.
The residential market
Compared to other Indian cities, there’s a lot of scope for growth in Chennai’s residential market. This is because the demand is still increasing. It has been observed that home prices in the CBD (Central Business District) area, which consists of prime locations like Nungambakkam, Egmore, Mylapore, Alwarpet and T.Nagar, are consistently increasing, while new projects being developed in the suburbs are selling out instantly due to the location and price factor. With the development of world class infrastructure, better commuting facilities and integrated townships, people are willing to shift to the suburbs, thereby expanding the boundaries of our metro.
There is a very healthy demand in both primary and secondary markets, since supply is scarce owing to the lack of land within the city. Lack of supply is causing both end-users and investors to take a closer look at suburbs. Apart from this, another advantage of residences along OMR is the new floor space index (FSI) that permits a greater population density.
The preferred size for 3BHK flats in Chennai has increased to 1400-1500 square feet in the revival phase. The preference for 2BHK sizes has also increased to about 1100-1200 square feet. Again, the main reason for this upgrade in preference is the increased budgets made possible by improvements in the IT/ITES sector. Also, FDI is now being allowed in the retail industry and that will see huge growth in retail and commercial spaces.
Real estate industry experts calculate that for every 1,000 square feet of commercial space developed there will be seven new jobs generated. Hence, every square feet of commercial space will lead to five square feet of residential space sold.
Commercial market
The commercial real estate market is in consistent demand. A majority of the available supply was required for IT/ITES office space, concentrated in areas such as OMR, Ambattur and GST Road.
The retail market in Chennai is spread across the city, mainly constituting high streets. Based on existing malls, we can subdivide the organised retail market into two zones — Zone 1 with the CBD (Central Business District Region) and Zone 2 with the off-CBD region. Because of a high concentration of new residential developments as well as the strong presence of the IT/ITES sector, south and west Chennai is the most attractive destination for organised retail.
Unique features
The real estate scenario is promising, as Chennai emerges as a major automobile, manufacturing and IT/ITES hub. The absence of overt speculation has also ensured that the developer has moved pricing of homes in a stable manner.
According to Mercer's 2012 report, among all Indian cities, Chennai is ranked fourth in the Quality of Living Index, and third in terms of city infrastructure. A new cosmopolitan generation is developing a liking for ‘ambience-based’ apartments mostly in the urban areas, thereby creating a demand for high-end, amenities-rich apartment complexes. While other major cities in India are suffering from the lack of land supply, Chennai is still a growing city with large undeveloped land masses in the suburbs.
The road ahead
In 2013, after a two-year lull, banks are likely to start offering construction finance to residential projects with approvals. They will also become marginally flexible on interest rates, collaterals, LTVs (Loan to Values) and up-front fees. We expect new guidelines for non-banking HFCs to assist in pushing funding for the housing sector.
This will see an increase in the supply of quality residential and commercial spaces and in the purchasing capacity of buyers. Nevertheless, residential products in the price bracket of Rs 25-35 lakh will attract buyers and investors and these will mainly be projects in the near suburbs.
In the retail markets, the operating malls are performing well and more malls will soon emerge. There remains an inherent demand for smaller office spaces in the CBD and off-CBD regions. FDI in retail will also lead to increased demand for high-quality residential and commercial spaces.
