Tracking residential property prices over the past year, VAISHNA ROY finds that infrastructure has been the main arbiter

As 2013 dawns, it is interesting to track how the residential realty market behaved in the year gone by and look for pointers for this year.

Unlike other cities, one of the chief characteristics of the Chennai market is that home buyers are primarily driven by location. The overwhelming tendency has been to stick to areas within city boundaries. Of course, this is not merely due to conservative buying behaviour. The suburbs have shown an abysmal lack of infrastructure development. Without good schools, public transport, and viable roads, it is unrealistic to expect that citizens will move out of the city. Unfortunately, this has limited the potential for suburban development and increased the pressure on prices within the city.

As you can see from the table (High Rise Prices), tony localities such as Anna Nagar and Nungambakkam peaked in property prices over the last one year despite the hype around newer developments along the OMR or GST. Prices have risen in these two areas by 33 per cent and 23 per cent, respectively. One important reason is that most people are buying second homes here as investments and expect high RoIs (return on investment). “With construction costs also rising, capital values have stayed high in these places,” says Kalpana Murthy, Associate Director – Residential Services, Cushman & Wakefield.

Kilpauk, with a 24 per cent price rise, follows the same route. Interestingly, areas right next door such as Vepery or Aminjikarai have not caught up. That makes it clear that the demand is for localities that offer classy neighbourhoods and high quality buildings.

Two areas that buck the rising price trend are Adyar and Besant Nagar, where prices have only risen around 8-10 per cent. This is largely explained by the higher supply seen in both areas. “However, in a year or two, as new supplies come in, these differences will be averaged out,” points out Murthy.

Velachery is one of Chennai’s success stories. When it started out, despite its brilliant location, everything else was wrong — low-lying areas that were constantly water-logged, no connectivity or other infrastructure and a bad reputation. In the last few years, though, all that has changed. The link roads to OMR and GST and Phase II of the MRTS proved to be the major impetus. Today, it is a major hub and prices have risen 22 per cent over the last year. “Chandigarh was built around its roads,” says Murthy, “and similarly the Velachery Bypass created the structure for retail outlets, schools and businesses to come up.”

Unfortunately, Perungudi has not quite met its early promise. One of the chief problems here is potable water, which is very high in iron content. Also, supporting infrastructure is poor. “Perungudi will see better capital appreciation as and when social infrastructure improves,” says Badal Yagnik, Managing Director-Chennai & Coimbatore, Jones Lang LaSalle India.

While some of this is changing now, the OMR area on the whole has not quite met expectations. Poor sewage and garbage arrangements, lack of corporation water, bad roads and lack of street lighting are perennial problems. Properties close to the main road and areas closer to the city don’t face these issues, but the interiors are suffering.

The suburban dream

What might be changing, though, is the city’s distrust of the suburbs. As other things fall slowly into place, especially connectivity and schooling, Chennaiites are showing less reluctance to move out of city limits. As lifestyle improvements take place, people are beginning to see a better quality of life outside the city at the same price points.

In that aspect, OMR has fared better than Oragadam or Sriperumbudur, Chennai’s other suburban growth corridors. Yagnik attributes this to its IT industry: “Chennai residential real estate is primarily driven by IT, since affordability comes to play only from this sector owing to the salary levels.” However, OMR still has a long way to go. Says Yagnik: “Compared to Bangalore and Hyderabad, the area needs a serious facelift.”

Oragadam and Sriperumbudur are more affordable for now because they are in the automotive and manufacturing zones, where ambient salaries in the Rs. 12,000-15,000 range keep spending power lower. Besides, very large projects across 100-400 acres have increased supply heavily, keeping prices down. Unfortunately, poor connectivity is still keeping city dwellers away.

Some of the most promising suburban markets today are Porur, Medavakkam, Mogappair and the Pallavaram belt. It is obvious from this list that connectivity to the IT corridor will continue to be a big growth driver for the city’s residential realty, but other strong influencers are the Metro Rail, public transport and road connectivity, supply of good quality schooling, and adequate infrastructure. Whichever suburb gets this magic equation going will win outright.