Chennai real estate: Growth unabated

Chennai’s residential real estate is largely driven by end-users. This has made the southern metropolis one of the stable markets across cities in India even during the worst economic crisis in the past. Unlike Mumbai and NCR regions, the price upheaval is not wide-spread in Chennai but limited to only a few pockets within the CBT.

Known for their conservative mind-set, which has its impact on the residential property market trends, people buy properties in and around Chennai either for investment or residential purpose.  For instance, home buyers in Chennai generally used to give importance to location to any other considerations like infrastructure and amenities, and this had put limits on the demand and possibility for community living in the city.

“The growth in Chennai’s residential market can be attributed to the fact that it is primarily an end-user driven. Investor participation is long term in nature, thereby mitigating a speculative market scenario which is prevalent in Mumbai and NCR,” says Suresh Krishn, Secretary, Confederation of Real Estate Developers’ Association of India (CREDAI), Chennai.

"In contrast to many cities across India, the growth of Chennai’s residential market has been steady in terms of pricing, demand and supply, over the last couple of years."

Since the market is more or less stable and not volatile, the buy-today-and-sell-tomorrow trend has not yet seen the momentum here. Anything and everything do not sell here and developers know the preferences of the home buyers and accordingly choose the locations and design projects. Due to lack of speculation, prices are steady in most of the areas over the last few years.

People in Chennai are known for their unyielding preference towards living within the CBD region because of lack of good schools, convenience stores, entertainment and restaurants in fringe areas of the city. Due to lack of space, developers had been constructing projects with lesser units with or without amenities, little or no green cover and extremely restricted open spaces. But things are changing now.

Paradigm shift

The change in mind-set with regard to the preferences of seeking home is visible in Chennai.  Thanks to the economic growth coupled with the large influx of people from other regions due to growing opportunities in IT/ITeS, engineering, auto sectors etc., there has been a spurt of integrated township projects coming up along the peripheral areas like OMR, ECR, GST, Oragadam, Porur and Sriperumbudur, offering world-class amenities and facilities.

Projects like Estancia by Arun Excello, Chennai Pattinam by Cee Dee Yes Infrastructure, Hiranandani Palace Gardens by Hiranandani Group, Prestige’s Bella Vista, Geo Inno City in Oragadam and most recently, Golden Homes’ Golden City near Ponnamalle are the testimony to people’s change of approach towards community living as these projects offer office, retail, hospitals and educational institutes along with club house, swimming pool, walking track, community hall, gym, etc., in their precincts.

In the coming months, Chennai will see more township projects by developers of national stature under execution and nearing completion. These projects have minimal plot coverage, which paves the way for large green cover and ‘lung space' within the project. This is an added incentive to opt for community living, which was largely unheard-of until as late as 2006, says Badal Yagnik, Managing Director, Chennai & Coimbatore, Jones Lang LaSalle India, a leading real estate research firm.

 “Community living in the true sense is finally emerging in Chennai. We anticipate that once these large projects are fully executed, we will see a decisive forward momentum in the concept of large, well-equipped residential communities in Chennai,” he says. 

Chennai’s periphery is also witnessing a series of villa launches by leading builders with notable being Isha Homes, Unitech, Artha Properties, Green Tree Homes, Sare Homes, Shri Janani Homes, Radiance Realty etc., which offer a gated-community of exquisite villas with modern facilities. Importantly, most of these villas have energy efficient features and ‘gold’ certified by Indian Green Building Council (IGBC).

With improved purchasing power, residents’ preference for unit size has also changed considerably. The preferred size for 3 BHK flats in Chennai has gone up from an average of around 1250 sq.ft. to 1450 sq.ft while the preference for 2 BHKs has increased from an average of around 900 sq.ft. to about 1150 sq.ft.

“The economic scenario notwithstanding, developers have continued to launch their projects in Chennai, consisting of a balanced mix of both high-end and mid-end developments. However, affordable housing projects continue to rule the roost in peripheral areas which lags social infrastructure,” says Dr. Samantak Das, Director - Research & Advisory Services of Knight Frank.

Supply & Demand

In contrast to many cities across India, the growth of Chennai’s residential market has been steady in terms of pricing, demand and supply over the couple of years. However, with more number of mega projects coming in, the demand will be fast overtaken by supply, say realty experts.

According to a latest report by global real estate consultancy firm Cushman & Wakefield, Chennai will be witnessing a demand-supply gap for residential units particularly in MIG and LIG segments over the next five years. The overall estimated supply for both the segments will be around 1.59 lakh units while the demand is pegged at 2.58 lakh units, showing a steep gap of 60%. The demand-supply mismatch may take the prices of residential units to higher levels, the report mentioned.

T Chitty Babu, secretary, CREDAI National and Chairman of Akshaya Homes says, “Chennai residential market’s absorption rate is better than the all India average and we have not seen builders sitting on unsold stocks for more than a year. As of now, the demand and supply is evenly-poised and there is no mismatch at all. However, if the present economic downturn continues both globally and locally, then, there is a chance that Chennai market too will get affected with supply shrinking and demand going up.”

Blaming the complex approval system which delays projects from one to two years, Sandeep Mehta, President, CREDAI Chennai and Managing Director of Jain Housing, argues, “Project delays due to cumbersome approval processes put pressure on the builders to hike prices who have been sandwiched between high input costs, labour issues and approval delays. As for Chennai, we are working with the state government to remove bottlenecks for quick project clearances in state level so that builders can launch projects early, which can reduce the cost of the dwellings considerably and also bring in more supply in the market.”

The need of the hour in Chennai's residential real estate market is a good supply of land so that new locations can be opened up and the requisite social infrastructure and other utilities can be put in place. If this happens, we will see more innovation in residential products, because developers will need to set themselves apart with uniqueness and differentiation in their products, Badal Yagnik sums up.

Southside trend

Though Chennai real estate has been growing at steady pace, the growth is only restricted to certain areas or sides. For example, due to the proximity to IT companies, multi-national automobile firms and auxiliary units and presence of educational institutions, areas around southern Chennai’s Old Mahabalipuram Road (OMR), East Coast Road (ECR), Oragadam and GST along NH-45, which connects major heavy engineering industries and satellite town of Sriperumbudur, are witnessing unprecedented realty boom over the past five years.

Since property appreciation in these areas are between 20-30 per cent per year, more and more people are investing in these areas compared to north, east or west Chennai localities. Though northern localities like Porur, Ponnamalle and Sriperumbudur are witnessing a series of property launches, the growth potential here is less compared to south Chennai.

More so, the proposed six-lane road connecting Tambaram on the southern side to the next most important town after Chengalpet, Tindivanam by the National Highways Authority of India, has given a new impetus to the areas falling along NH-45 as land prices have gone up considerably. A proposal by the Sothern Railways to lay two-way tracks from Chengalpet to Tindivanam too has increased the property prices in areas around GST.

At the same time, areas which come under the CMDA limits in north Chennai such as Ambattur, Korattur, Avadi etc have not seen much growth even though they are well connected by both rail and road networks to the CBT. Some of these areas here even don’t have basic infrastructure like road, street lights, sewerage and water connection.

Agreeing the south-side trend, Sandeep Mehta, says, “South Chennai has been expanding rapidly. There was the time, when Tambaram was considered to be the city limit. Now it has become a part of city’s most developed areas. Today, we have gone beyond Maraimalai Nagar and even Chengalpet, from where people are commuting to city daily. Areas like OMR, Padur and Thiruporur are also witnessing rapid real estate growth. As the land prices keep going up within city limit, people do not have option but to look for areas away from city where they can afford a house.” 

Of the total upcoming supply in the Chennai residential market, the southern region accounts for a significant share of around 59%. The southern part of Chennai is witnessing hectic real estate development, says a Knight Frank report, which further adds, “Growth in the region is taking place in Adyar, Velachery and Taramani to Shollinganallur belt.  Emerging corridors like ECR have become good avenues for plot investment. The presence of IT corridor along the Old Mahabalipuram Road and the concessions given by the government in promoting the industry has indirectly led to the growth of the residential market in South Chennai.”