High growth momentum for luxury real estate in Chennai

 Chennai’s luxury real estate market has seen a paradigm shift over the years. To make it simple, the concept of luxury living has a different meaning now, and it is evolving every moment, thanks to people’s aspirations due to boundless affordability.

Gone are the days when developers in the southern metropolis used to offload homes with  ‘luxury’ tag, which has homes with imported fittings and furniture, modular kitchen, designer wall cladding, swimming pool, premium flooring, hi-tech security system, ample car parking space, landscaped gardens, etc. All these are now became ‘necessary’ amenities being offered them in HIG or LIG residential projects.

People in Chennai, who were once traditionally conservative as for as buying home was concerned, are now an evolved lot aspiring to ‘live in luxury’, thanks to the phenomenal growth in the affordability level that has triggered a huge demand for luxury housing in the metropolis.

At a time when residential realty market, catering to HIG, MIG and affordable segments, is facing tough challenges across the country, luxury housing has shown resilience to slowdown by clocking more than 10 per cent growth year-on-year across top eight cities, and Chennai, being one of the fastest growing metros, has contributed significantly to this growth factor.

Growth prospect

India’s luxury market is valued at US $ 8 billion and is pegged to grow at 25 per cent from 2013-2015 to cross USD 15 billion, according to industry estimates. The boom in economy since 2005 and spurt in the number of high net worth individuals (HNWIs) have contributed to the growth of luxury realty across the country as developers are cashing on the extended affordable limits being enjoyed by home seekers by offering them world class amenities at a premium cost. 

The number of high net worth households, with a minimum net worth of Rs 25 crore is expected to be at 2.86 lakh in the next five years, according to ASSOCHAM-Yesbank’s study, which further added that, the number of HNWIs would go up to 4 lakh in as many number of years with their collective wealth clocking USD 2645 billion.

Demand drivers

“Several factors are aiding the growth of luxury realty in Chennai. Primarily, the city is under-serviced in terms of luxury housing. Obviously, the demand is high. Secondly, high-salaried individuals drive this segment. Thirdly, the supply is opening up because many developers are shifting to luxury segment to offset the loss incurred by unprecedented rise in input costs. By spending little more and adding world-class amenities they can make it ‘luxury’ and sell them with high premium instead of launching mid-income housing projects, where the profit margin is less,” says Badal Yagnik, Managing Director (Chennai), Jones Lang LaSalle India, a leading real estate research firm.

To tide over the current crisis, even small-time developers are launching luxury housing projects with houses costing upwardly Rs 2 crore. Are they able to meet the aspirations of luxury home seekers and make profit? 

“Luxury housing projects are profitable compared to other residential projects because of high cost per dwelling unit and high margins available in these products. However, there are limitations in the availability of large land parcels resulting in low-density big-ticket products, which may not provide scalability and visibility to the developers as available in large-scale cluster housing developments,” says N Nandakumar, Managing Director, Devinarayan Housing and Property Developments, who has completed several luxury housing projects in key areas of Chennai and Bangalore.