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The growth is moderate here
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Many potential buyers adopted a “wait and watch” approach in 2007 preferring to live in rented accommodation than buy property, writes Ramesh Nair
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After a record 50 per cent plus price increase per annum in 2005 and 2006, the Chennai residential real estate market witnessed moderate growth in 2007 with prices increasing 8-12 per cent across various micro markets. However most of this price increase was seen in the first quarter of the year when prices stagnated. Although the office market saw a record 7 million sq ft absorption in 2007 indicating new job creation and a strong economy, this did not translate into dire
ct increase in prices and volumes in the residential market as witnessed over the last three years.
Many potential buyers adopted a “wait and watch” approach in 2007 preferring to continue staying in rented accommodation than buy. The number of apartments being sold in 4Q 2007 was also lower than 4Q 2006. Also, the home loan market, which was growing at 30 per cent plus in 2005 and 2006, saw a growth of only 10-15 per cent.
The key reason behind this slowdown has been higher prices and interest rates, impacting affordability, and to a lesser extent excess supply in a few micro markets, rather than slow down of economy. Developers, who were selling their entire projects in a few days, are now taking months to sell their unsold stock. But no major drop in prices is expected immediately as the vacancy rate of unsold completed residential real estate stock is still negligible. Developers have started offering a variety of offers such as free car parks and flexible financing options such as interest waiver during construction period so that they do not have to bring down the prices.
Negotiability
The year 2007 saw Chennai’s residential market returning to more normal levels of activity. Properties with deficiencies in location or overly optimistic asking prices were slow to move. The hardest hit was the Rs. 60 lakh plus apartment market. The past year saw return of negotiability in asking prices after a relatively long absence from the marketplace.
The city’s economy remains strong, and is creating jobs at a fast pace. Interest rates, which have been rising steadily, have begun to stabilise as inflation remains under control. These factors should continue to maintain reasonable demand, and prices from falling drastically.
. Contrary to what was seen in 2005 and 2006, the number of investors and speculators who entered the market in 2007 was lesser. Real estate private equity investors such as J.P. Morgan, Citigroup, Red Fort Capital and HDFC Realty invested in the Chennai real estate market. The difference in the launch price and sale price at the time of completion has reduced drastically in the last one year.
The yields from residential property remained steady at 4.25 to 5 per cent. Home buyers have become more quality conscious.
Media savvy
Developers have become more media savvy and aggressively started spending on advertising and marketing. The home buyer’s exposure to real estate-related advertising has increased drastically in the last one year. Developers also realised that they need to identify specific target markets to market their products. Many developers have started investing in setting up strong marketing teams.
After three years, the market started moving from a sellers’ market to a buyers’ market. Many landlords, who were quoting exorbitant land prices in corridors such as OMR, are now willing to negotiate at more realistic levels. With IT and BPO companies facing the brunt of the appreciating rupee and many investors and speculators preferring to invest in other avenues, residential demand is further expected to be under pressure in 2008.
Unlike the last three years where the Chennai real estate market saw only winners, 2008 will witness winners and losers. It is also expected that developers will construct smaller units without compromising on the amenities to make it more affordable.
With more than half the time spent in automobiles today representing time spent in severe traffic and soaring of fuel prices over the last few years, access to public transportation and road infrastructure will become key drivers for taking housing decisions in the future. Developers need to understand their consumers better and figure out a way to reach them the way they want to be reached. Developers need to realise that over the last few years the consumers have been exposed to new areas of real estate and become more knowledgeable.
As the market becomes tougher and the home buyer more choosy and price sensitive, developers will need to use many more innovative lead generation and touch point creation methods to successfully market their residential units.
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Property Plus
Bangalore
Chennai
Hyderabad
Kochi
Malabar
Thiruvananthapuram
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