No rosy picture for Chennai Real estate in 2014

Macro-economic conditions coupled with weak demand and rising input costs have impacted the growth of Chennai residential market in 2013, and if one goes by the experts, 2104 will be no different either unless there is a dramatic turnaround in economic condition, feels K Ramanathan.

Owing to negative sentiments among buyers, the city has witnessed decrease in sales to the tune of 33 per cent in 2013, which forced developers to defer new project launches. According to a data available, Chennai has witnessed a whopping 35 per cent drop in availability of new homes in 2013.

According to a Knight Frank study, owing to weak demand, developers in Chennai now require seven quarters to clear their existing unsold inventory compared to five quarters in 2012.

Indicating the impending price correction in Chennai, Om Ahuja, CEO - Residential Services of Jones Lang LaSalle India, said, “Over the last few months, many research reports have spoken of excessive real estate supply and slowing demand across many cities including Chennai. Developers in this southern metropolis have been rolling out discounts and freebies that are not part of the normal offers. This trend has created an expectation that first few months of 2014 will see a correction in property prices.”

Though there is no visible state of panicky among developers, the reducing number of homes available to buyers, piling of inventory, dolling out of freebies, marginal reduction of prices are nothing but an indication that all is not well for Chennai realty market in 2014. And according to Ahuja, “The current sluggishness in property sales can continue for a maximum of two more quarters.”

Praising the swift reaction by Chennai developers to overcome the sluggish demand by of deferring new launches and focusing on on-going projects, marginal reduction in prices and introduction of innovative schemes, Dr Samantak Das, Chief Economist, Director-Research and advisory services of Knight Frank India, hoped that such measures would revive the sales volume in 2014.

However, the drop in absorption and launches during 2013 has drastically shrunk the size of Chennai market. Surprisingly, even though there has been a drop in sales and demand, property prices has seen a marginal rise in the range of 5-7 per cent, said a Knight Frank research report on Chennai residential property market.

As for as office realty market in Chennai, absorption has gone down drastically which has pushed the vacancy level up. When compare to other major markets, which have held on to their 2012 levels, this is indeed a bad news for Chennai commercial market that is looking for a revival in this year.

For residential side, West Chennai is expected to attract buyers in the coming quarters on the back of some emerging employment hubs, while the upcoming metro corridor will be instrumental in driving demand in other locations within Central Chennai.