The Hindu Business Line : Chennai sees correction in some pockets

The market has seen an average drop of about 10 per cent in apartment prices over the past six months in the suburbs and peripheral areas. This is a reflection of what the buyers are willing to pay rather than rate cuts by developers.

— K. Pichumani

Land value holds even as apartment prices soften.

Bhavana Acharya

Following a boom , the realty sector is now hit by lower repayment capacity and higher borrowing costs, which have affected house buying. Developers across the country are facing lower demand, slower sales and reduced and expensive funding.

How has the Chennai residential market fared?

Chennai City has seen an average correction in apartment prices of around 10 per cent over the past six months, according to realty market participants. The correction is driven by what buyers are willing to pay now rather than actual rate cuts by developers.

This being said, the main city areas and the central business districts have remained relatively unaffected, given the advantage of location and lack of developable space. It is the suburbs and the peripheral areas such as Ambattur, an industrial suburb to the west of the city; along the OMR towards Siruseri, Kelambakkam – about 25 km south of Chennai; and the GST Road (NH45) that have borne the brunt of correction. Developers predict that prices may remain stagnant or may even fall further in the short term.

A steady rise in interest rates, excess supply and weak market conditions prevailing across the residential belts of Chennai appear to be the prime cause for the correction in real-estate prices. Lack of infrastructure development at the expected pace in the suburbs is also a factor limiting demand for higher-priced properties in these areas.

While apartment prices have witnessed a correction, developers feel that the capital value of land has remained stagnant in the past few months, with room to strengthen in the long term. The volume of transactions seen in purchase or sale of land itself has got reduced. Sale of land is partly need-based and developers are restraining themselves from further acquisition.

Demand drivers

According to leading developers, the price correction may not have a uniform impact on demand; this may depend on the location of the property. Within and just off the central business areas, a price correction will, in all likelihood, boost demand for property, given the limited supply. On the other hand, in peripheral and suburban areas, a price correction may not be the only trigger needed to improve demand.

Though inflation and rising interest rates have led to a correction of sorts, consultants continue to view Chennai as a promising market for developers over the long term. Global real-estate consultant Cushman Wakefield lists an increasing migrant population due to the upcoming manufacturing, IT and IT-enabled services (ITES) sectors in Chennai as the demand drivers for real-estate in prime locations with good amenities, citing areas such as GST Road.

Second sales up

In an interesting trend, the slowdown in new home sales has sparked off some beneficial trends for existing home owners. Second sales of homes have increased as a result of reduced new home buying. With the city attracting a fairly large floating population, demand for rental property is also on the rise. In the central business districts, quality residential properties rank high, while towards south of Chennai, minimal supply of quality completed projects has pushed up rental values.

Sales strategies

On new homes, developers are devising innovative sales strategies to promote purchases.According to Mr Subba Reddy, MD, Ceebros, upfront payment of the entire value of an apartment could allow room for a discount of up to 12 to 25 per cent on the overall sale value.

While price cuts are necessary to induce buyers, amenities such as swimming pool, gym and adequate parking play a vital role in inducing buyers to purchase apartments, say the builders. Other factors include quality of construction, location, and value add-ons such as 100 per cent power back-up.

Better infrastructure

Affordable housing, in the bracket of Rs 10-20 lakh for a two-bedroom apartment in city outskirts, is said to be the biggest segment of the market. On this count, Chennai ranks better than most cities on account of the improvements expected in its infrastructure three to five years from now, even with the slow pace of current development, as well as a more stable demand, according to Mr Pratish Devadoss, MD, VGN Enterprises. Demand in Chennai originates not just from one or two segments of buyers, but from a wide cross-section — sectors such as IT, auto, healthcare and manufacturing, professionals such as doctors and architects. In the light of these factors, developers see the current downturn as a cyclical one, and believe the situation may take anywhere from a year or more to stabilise.

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