Residential space: Chennai poised for take off

Posted online: Saturday, Dec 14, 2013 at 0000 hrs
Over the past three years, Chennai has been one of the better markets in India as far as the residential space is concerned. The year began with not so good sentiments across the country which also had its bearing on Chennai.

Sales during the initial quarter was sluggish, there was however some respite in between with a bit of liberalisation of rates happening, which propelled the momentum of purchases over the second half of the year. The last quarter has also been in line with the previous two quarters where sales have been moving gradually.

This year would see a total launch of 25,000 new units approximately across all price bands with an absorption having seen for roughly 65 per cent of the units in terms of bookings made and / or partial payments made.

There is demand seen though for a greater number but this demand is mostly felt in the price bracket of Rs 25-40 lakh, where the supply in the preferred locations hasn’t been to the mark.

That can be counted as one of the main reasons for some inventory to pile up as earlier periods. It would be good to note that the amount of completed stock, which is ready to be handed over for possession and has been unsold, is very negligible. It is only that the sales have been slow and it has become common place for people to confuse slow selling inventory under construction with the completed unsold inventory. Chennai will play a significant role in Indian residential demand at 30,000 units per annum for the next four years.

Demand for the right products at the right price has always been there and that has been a key driver across all price brackets for apartments. This will continue to be the headline to sum up the residential activity in Chennai for the next few years to come.

The interesting aspect to note here is that the southern markets of Bangalore and Chennai are predominantly end-user driven which is more the reason that price appreciation is moderate in the range of 10-12 per cent p.a. in general, and even lower at around 8-10 per cent in specific CBD locations.

As for infrastructure in the city, there have been a few new projects which have been announced like the construction of new bridges / flyovers across growth areas like East Coast Road, Old Mahabalipuram Road (OMR), Velachery, Porur, Anna Nagar and few other northern pockets.

It would be good to see places deriving their appreciation not just by demand but also by development of infrastructure as that would make a difference between the better and the best locations.

A new trend which Chennai has been witnessing over the past 7-8 months is the amount of ultra luxury stock which is coming in CBD locations. There are at least about 10 projects or more leading to supplies of more than 1,000 units in this space over the three years to follow.

This year has also set the trend for more number of villas and row houses being developed in the peripheral areas and that has been a proving success for a few developers who have got in good sales. We have seen villas come up in all corridors including OMR, NH-4 and the Grand Southern Trunk Road. The strength of developers would be seen in how they are able to differentiate the product than being more innovative.

Innovation would add to cost increase at the developer’s end unless it is spent through technology that will help reduce construction time frames or bring in efficiencies of scale across projects for the developers. However in the immediate term, we would be witnessing more of products being redefined than being innovative and innovation will hold the key once the cycle changes to a bullish nature.

It is also worth mentioning that private equity and NBFC activity has been on the rise and they have been the quick and alternate sources of funds in the absence of flexible funding from banks in the interim. What will help developers increase sales and drop prices would be for the NBFCs’ to possibly soften the rates by 2-3 per cent depending on projects and quantum being lent.

Over the next six months we will see the mixed bag of market conditions with respect to sales and developers who hold the key will be the ones who have been able to gauge the customer instincts on size and price.

The author is Associate Director, Investments, DTZ India

Satish Narayanan