Residential segment in Chennai set to recover

In fact, the second half of 2016, (H2 2016), saw residential market volumes fall below those of Hyderabad. Even the strength shown by the premium segment till a year ago has waned, as increasing supply forced developers to compromise on price growth, to entice wary buyers back into the market. 

As per Yashwin Bangera, Assistant Vice President – Research, Knight Frank India, “Early indications show that the damage caused by the demonetisation drive has been repaired to a large extent in early 2017, as developers across the country have been seeing increased interest from buyers. Increasing commercial office space demand is a good indicator for employment growth in any region and points at increasing incomes and a consequent requirement of new housing units for the growing workforce. This bodes well for the city, as it does seem like Chennai’s ailing residential market is due for a healthy boost in volumes, as the office space demand has been consistently robust and has hit a four year high at 5.3 mn sq ft in 2016.”  

A discussion with a leading financial institution in the Chennai home loan market revealed that they have seen a sharp uptick in activity, with the average monthly applications exceeding 600 in 2017 from approximately 450 in the preceding two years. Developers too have experienced a similar trend with purchase enquiries increasing significantly over last year. 

Two developers with the largest stock of unsold inventory also revealed that a large chunk of this interest was being seen in the Rs 40 lakh and under budget category. The developer fraternity has been proactively moving toward accommodating this need by reducing unit sizes and offering discounts as high as 20 per cent in some projects, to boost demand.

Bangera says that prices continue to stagnate on the OMR (Old Mahabalipuram Road) as it has to contend with a comparatively much bigger stock of unsold inventory and increasing competition from locations such as Tambaram, Vandalur and Medavakkam that are located along the length of the GST Road and the Velachery-Tambaram road that extends and connects the GST road to the OMR. 

The Real Estate (Regulation and Development) Act, 2016 (RERA) and policy initiatives such as the Pradhan Mantri Awas Yojna (PMAY) were quite conspicuous in terms of their lack of impact on the market. While the RERA has just been notified in Tamil Nadu, there is very little awareness of the PMAY among residential buyers, despite leading developers making attempts to educate their target buyers on the same. 

Summing up, Bangera says that the positive vibe picked up from interactions with market stakeholders regarding an uptick in demand, robust office space market fundamentals and the concerted effort by developers to make their product more affordable provide strong tailwinds for an improvement in the Chennai residential market.