The residential market in the city has been bleeding due to a series of events ranging from political uncertainty and extreme weather conditions to the recent demonetisation drive.
The series of events has not allowed market volumes to improve and has caused a notional revenue loss of ₹1,100 crore to the industry. The State government’s notional loss on stamp duty stands at ₹50 crore, said Kanchana Krishnan, Director-Chennai, Knight Frank India.
According to a half-yearly report by Knight Frank India on the residential and office market in Chennai for the period July-December (H2) 2016, new launches dropped by 18 per cent to 4,800 units in H2 2016 compared to 5,854 units in same period in 2015. Sales also dwindled 12 per cent to 7,737 units.
Ms. Kanchana, said, “The announcement of the demonetisation drive by the Central government in November proved particularly damaging to home buyer sentiments as demand plummeted 31 per cent year on year (YOY) in quarter four 2016 to its lowest quarterly level since 2010. The YOY decline in demand during H2 2016 would not have been as pronounced, had this drive not been taken up.”
The uncertainty is likely to continue for the next quarter (Q1 of 2017), indicated Ms Kanchana. “Reduction in home loan interest rates, RERA, GST and ‘possible’ tax benefits in the upcoming budget are likely to bring in a feel good factor among buyers,” she said, adding that the industry would keenly watch how the U.S. outsourcing business is going to take shape.
South Chennai market
The South Chennai micro-market that was the hardest hit during the 2015 November torrential rains has seen a healthy recovery in the number of units launched in the subsequent periods. It accounted for over half the units launched during H2 2016 in locations like Kelambakkam, Mahindra World City, Ottiambakkam and Siruseri. The western micro-markets such as Kolapakkam and Maduravoyal continue to see traction due to an increased uptake of the comparatively lower-priced inventory and good connectivity. The recent revival of the Maduravoyal-Chennai port elevated corridor will boost the residential market in this micro-market, said the report.
Unsold inventory
“Unsold inventory stood at 30,926 units at the end of December 2016. It will take little less than two years to offload the unsold inventory,” Ms Kanchana said. As per Knight Frank’s study, the premium segment is now carrying nearly four years of inventory. Prices in this segment have increased 32 per cent since the beginning of 2014, compared to the overall residential market, where prices have only grown by seven per cent during the same period. The strong price growth and low inventory levels encouraged developers to increase the supply in the market during the first half of 2016 but price growth in this segment slowed down to three per cent during H2.
On the office space market, Ms Kanchana said, “The Chennai office space market moved from strength to strength as demand rose for the fourth consecutive year despite the acute space crunch.”
H2 2016 also experienced the highest transaction levels of any half-yearly period in the history of the city’s office space market on the back of big-ticket transactions. The Chennai office market has traditionally been anchored by the IT/ITeS sector which accounted for 1.3 million sq.ft of office space transactions in H2 2016. However, the last 18 months have seen the manufacturing sector gaining in market share, the report said.
