Plots thicken in Chennai as flat sales decline

The real estate market in Chennai has come a full circle, with apartment developers opting to turn a portion of their land bank as plotted layouts to drive cash flows in a slow market.

The city has traditionally been a market for layouts, with its borders expanding to the west and south through such developments in the 1960s and the 1970s. It is only in the last couple of decades that Chennai has seen the market for multi-storied buildings picking up in a big way as land prices soared and demand for space grew.

But over the last two years, built-up stocks in Chennai have increased. The real estate industry pegs inventory between 45,000 and 60,000 units in the city and its suburbs. That is about a year-and-a-half worth of sales. And, with the market conditions continuing to be slow, this is not going to change in a hurry.

Given this surplus of built-up residential space and the fact that developer funds are locked up in unsold flats, realtors are now looking to sell plots to enhance cash flows.

Leading developers, including Hiranandani, TVH, Olympia and Akshaya, have gotten into development of plots.

Mumbai-based Niranjan Hiranandani Group was among the earliest to launch a plotted layout development.

Niranjan Hiranandani said the group had opted for a 10-acre development of plots approved by the Directorate of Town and Country Planning (DTCP), given the “slow apartment sales environment”.

A senior HDFC executive said the sale of plotted layouts supports cash flows in a “low-sentiment market” where apartment sales are down.

For buyers, this is a long-term investment minus the uncertainties that buying an apartment entails — delays in handover and market fluctuations. The developer too side-steps risks of waiting for a buyer and a viable price after fully investing in development.

Ajit Chordia of Olympia Group, which is planning a layout in another western Chennai suburb Thirumazhisai, said the market is entirely different. Land buyers typically look at a 5-6-year horizon. Apartment buyers typically look to move in immediately.

To the Chennai investor looking for a long-term investment, the purchase of land comes in second only to buying gold, says a developer who recently announced a 50-acre plotted layout sale at Sembakkam, on the IT Corridor, or the Old Mahabalipuram Road.

The developer gets to avoid the long-gestation period involved in apartment development and marketing. The layout can be developed in a few months and sales happen fast.

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