Chennai housing recovery faster than national average

At a time when the property markets across the major cities are struggling for the sales velocity and new launches, the track record of Chennai has been quite decent, if not impressive.

The recovery in the Chennai housing market over the last 2-3 years indicate that the city property market has fared better than the national average of residential growth.

Facts speak for themselves. As per the data available with property consultant, JLL for the nine-month period ended September 30, 2018, sales in residential segment have risen 40% nationally. In contrast, the growth rate of Chennai has been  77%, as against the lower growth rate in of 53% in NCR, 19% in Pune and 12% in Bangalore.

Another report by Knight Frank suggests that after witnessing a drop in sales for the last five years, Chennai’s residential property market is picking up, posting a minimal annual increase of 3%. According to Knight Frank, Chennai witnessed sale of 15,520 residential properties in 2017. In 2018, it rose marginally to 15,986.   

This is for the first time since 2012 that Chennai has witnessed a growth in sales, however marginal. The report also found that sales was concentrated in the below 50 lakh-ticket size. Preference is for ready-to-move homes and highest launches were witnessed in South and West Chennai — each recorded 48% of total launches made in the second half of 2018 in the micro markets. 

“Sales are concentrated in two categories — the `30-50 lakh segment and ready-to-move-in ones. The former category is in demand owing to affordability while the latter is picking up because there is no GST and no risk of project delays. The growth in sales should be viewed as green shoots of recovery for a market that has registered sequential decline,” says Kanchana Krishnan, Chennai Branch Director of Knight Frank.

Chennai ground realities

Recovery of Chennai housing faster than national average   

Apartments mostly below INR 50 lakhs

Luxury landscape is by and large into plotted developments  

Office space uptake behind reducing demand & supply gap of housing

The local property analysts believe that the new launches that are in the pipeline also indicate that the city will be witness to more new launches in the latter half of the year 2019. There are many factors leading to this recovery, and the market is one of the best balanced market now in terms of demand & supply cycle.

Ajitabh (single name), a local property agent is of the view that since the developers in the city are more grounded and have lesser risk appetite, hence this fair assessment. According to him, Chennai developers were always conservative in launching luxury and super luxury projects. With most of the offerings in the affordable segment and many projects nearing ready to move, the absorption was always on the cards despite of short-term market uncertainties.

“First of all, the developers across the city are pretty conservative and risk averse. No one wants to launch a luxury project here and then struggle for finances to keep the construction going. Yes, there is demand for villas also in the city. But then the developers in the segment are mostly selling the plots. The residential segment is by and large below INR 50 lakh apartments and that is behind the faster absorption of these units,” says Ajitabh.

A market analysis of Chennai by Track2Realty finds that the main city center is mostly offering the affordable and mid segment housing. The developers are even shrinking the size of the apartments, even removing balconies, to keep the prices in check. This is in contrast to the many other cities where the overall unit cost has not reduced despite of the standing inventory.

The city with a penchant for villas is mostly moving towards the periphery locations. In those locations the land cost is still very affordable. The buyers, mostly local communities, are preferring these plotted villas. Since the developers do not have the construction finance to bother, they can even hold it in the wake of slow sales.

The apartment buyers in the main city areas have a mixed buyer profile of young city population into jobs as well as the increasing expat professionals. This is the buyer profile that wants to have an affordable house, even if that apartment is a compact one. The key here is not the cost per sq feet alone but the overall ticket size.

The realisation of this market reality by the developers, their lower risk appetite, increasing demand for office spaces and reducing demand & supply gap in the residential segment are the factors that are driving the Chennai market to recovery.

Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.  

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