Is Chennai’s market on recovery mode?

Policy changes, price corrections have resulted in lower inventory levels in the residential market. Nidhi Adlakha reports

August 18, 2017 03:01 pm | Updated 03:01 pm IST

With the impact of the slowdown on the city’s residential market wearing off, inventory levels are now gradually decreasing. Aimed at creating a transparent and organised market, the Real Estate Regulation Act (RERA), Benami Transactions Act, and new tax laws like the Goods and Service Tax (GST) have also contributed to the reduction in unsold stock.

Knight Frank’s recent report indicates Chennai has an unsold inventory of 28,110 units (HI 2017) as against 43,797 (HI 2014).

Unsold stock levels

While construction and delivery delays primarily contributed to the present stock of inventory levels, other reasons include high-end homes being set up in areas suitable for affordable housing, policies like demonetisation, and weather conditions such as the 2015 floods, cyclone Vardah.

Caught in the ongoing lull in the industry, Chennai has probably been among the worst hit residential markets in the country, says Dr. Samantak Das, Chief Economist and National Director-Research, Knight Frank India. “The existent slowdown has only been exacerbated by a series of events ranging from political uncertainty due to changes in leadership and the recent demonetisation drive that didn’t allow market volumes to recover,” he explains.

Realty projects have a long gestation period spread over 3-6 years, and Chennai witnessed several project launches in 2013-15, many of which witnessed slower absorption in the past two years, due to the above mentioned factors, says T. Chitty Babu, Chairman & CEO, Akshaya Homes. Thus, instead of launching new projects, developers shifted their focus towards liquidating older stocks.

It also helped that customer preference had shifted to organised larger players. Higher unit costs for homes in certain pockets were an issue, with 3BHK homes over 1,500 sq.ft. in suburban locations, and 2BHK units above 1,200 sq.ft., forming a majority. For example, the demand for units in Chennai is in the range of ₹40 to ₹70 lakh. Apartments priced higher than this in the suburbs did not have any takers.

Luxury apartments in affordable locations, projects located in areas that lacked physical and social infrastructure, and developments without necessary clearances also suffered.

Absorption patterns

Over time, developers have become extra cautious, and now prefer launching projects in a phased manner. Though there was a fluctuation in the market, annual absorption remained constant to about 18,000 - 20,000 units. Explaining other reasons behind plummeting inventory levels, A. Shankar, National Director, JLL says the correction in product positioning in terms of price, size in many micro markets helped to an extent.

Viswajith Kumar, Director – Navin’s, explains how certain parts of the city have fared better than other areas. Medavakkam, for instance, has witnessed constant demand, and the Moolakkadai market is also doing well. The Report states it will take 1.5-2 years to exhaust the current inventory, which according to Kumar, is a healthy number. “The buyer profile is a mix of SME entrepreneurs, lawyers, doctors who keep buying there. In Porur or Medavakkam, buyers from the IT industry form a majority,” says Kumar, who has upcoming projects in these areas.

Focus on South

Of the 28,110 units, South Chennai has the maximum number of units — 16,642. Comprising areas such as Adyar, Thiruvanmiyur, OMR, and GST Road, the South has witnessed steady growth over the years, and is a strong luxury home market in the city.

Considered to be the major market in the city, South Chennai shares 47% of Chennai’s residential stock, and it is only in recent times that other localities such as like Porur, Moggapair, and parts of North Chennai have seen traction. “Proximity to employment hubs and the relatively affordable housing stock on offer has made the area popular. While it continues to remain as the most sought after zone for a homebuyer, the sheer magnitude of supply itself is the biggest reason for it to hold the majority of unsold units,” says Das.


As per JLL research, NCR-Delhi has the maximum unsold inventory of approx. 1,50,000 units, followed by Noida and Greater Noida with 93,000 units. Bangalore comes third with 70,000 units, followed by Mumbai: 43,000 units. Other cities such as Pune, Kolkata, Hyderabad have unsold units within 20,000 units to 36,000 units.

In Chennai, it takes about 18-19months to sell out its entire inventory, whereas in Mumbai takes about 27-28 months, NCR takes twice as that, explains Kumar of Navin’s. The only two markets faring better than Chennai, are Hyderabad and Pune. “Hyderabad has been nascent for a very long time; the Pune market has low pricing and the job market is also doing well. Barring these two cities, Chennai is the best market in terms of inventory overhang,” he says.

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