Siva Krishnan, Head â€“ Residential Services (Chennai) Jones Lang LaSalle India
DEMAND, SUPPLY AND PRICING
In contrast to what was been witnessed in many of the more volatile cities over the last couple of years, Chennaiâ€™s residential property market saw steady growth in terms of pricing, demand and supply. Chennaiâ€™s residential property market is predominantly end user driven, and this fact did a lot to sustain consistent absorption throughout 2011. The absence of overt speculation has also ensured that developer has move pricing of homes in a stable and gradual manner. Unnatural spiking has therefore been successfully kept at bay.
We expect interest rates to decrease over the course of 2012, and this will result in greater demand for homes in Chennai in 2012.
Increased job security in the city has definitely helped the market to maintain buoyancy and a positive outlook. Over the last 12 months, it became increasingly evident that Chennaiâ€™s residential real estate market is significantly dependent on the IT/ITES sector. With employment stability in this sector looking a lot better now than it did in 2010, demand for homes has now reached a comfortable and dependable growth trajectory from which developers are taking their market cues.
CONFIGURATIONS IN DEMAND
The preferred size for 3BHK flats in Chennai has increased from 1200-1300 square feet during the recession to 1400-1500 square feet in the revival phase. The preference for 2BHK sizes has also increased from 850-950 square feet to about 1100-1200 square feet. Again, the main reason for this upgrade in preferences is increased budgets made possible by improvement in the performance of the IT / ITES sector. This is a welcome trend which is enabling architects, planners and developers to come up with better quality dwelling units. Affordable housing units continue to rule the roost in areas where social infrastructure lags and capital values are therefore lower.
We expect overall demand for residential properties in Chennai to increase once the interest rates stabilizes from their current peak. There is a very healthy demand in both the primary and secondary markets, since supply is scarce in both owing to the severe lack of land within the city. Land pricing has, in fact, surpassed the buying capacity of developers and this has put pressure on their ability to come up with viable residential products. Lack of supply and exorbitant pricing are causing both the end users and investor segments to take a closer look at suburbs with decent infrastructure.
Suburban Demand Drivers:
- Positive market sentiments
- Possible softening of interest rates
- Increased job security
- Unaffordable property rates in the central city
Year 2011 saw residential property pricing in Chennai moving up in a phased and rational manner, which helped in sustaining the momentum. Prices rose by between 8-30% in different areas, but these rises took place in small compartments and in proportion to the actual sales in particular locations and projects. We expect a similar trend to prevail in the year 2012.
Expected Price Movement For 2012:
- OMR – 15-30%
- GST – 10-15%
- City â€“ 20%
- NH-4 – 5-8%
AREAS TO WATCH
- Madhya Kailash â€“ Sholinagnallur
This stretch is witnessing a clear supply-demand mismatch, with demand outstripping supply. With new employment being generated in this corridor and corresponding absorption of IT space, this area and its peripheries are witnessing extremely healthy demand for residential property. Its proximity to the city adds to the appeal of this area, which will see good appreciation over the coming years. Encouragingly (and in contrast to other parts of OMR) all completed projects here are fully occupied.
Velachery is seeing consistent growth, because it is one of the few areas which are seeing holistic and self-sustaining development. With malls and other social infrastructure improving, Velachery is definitely next in line for good appreciation. In fact, near-lying areas such as Medavakkam, Pallikarnai, Pallavaramâ€“Thoriapakkam, the 200 FT. MMRD Road and Rajakilpakkam are already experiencing the positive fallout effect of Velacheryâ€™s growth as a residential property destination. These areas are also witnessing good absorption and capital appreciation. There is also significant demand for homes in Porur along the NH4 corridor up to Urapakkam on the GST Road.