Chennai's residential market slowly regains pace

Chennai: Chennai's residential market, which was experiencing an all-time low for the past few years, has finally started recovering this year, which began on a positive note with sales and unit launches seeing a healthy bounce back.
 Relaxation on Foreign Direct Investment (FDI), demonetisation and real estate bill, which was contributing to the lull in the real - estate sector got worsened in the city due to political uncertainty, building collapses due to flouting of norms and the devastating 2015 floods. As a result, it was found in the bottom in H2 2016.

According to India real estate analysis: Jan-June 2017 by Knight Frank India, the developers across the country have been seeing increased interest from buyers this year.

“2017 began on a positive note. A 14% growth in sales during H1 2017 compared to the preceding period clearly indicates the transient impact of the demonetisation drive, while a more modest 5 per cent YoY growth could point at the beginning of a more sustained revival in demand,” said Kanchana Krishnan, Director, Knight Frank India.

The analysis says a major chunk of new releases were below '5 lakh highlighting the emphasis on the affordable sector. “Residential development took place in cheaper micro markets where the consumer would want to stay in close proximity to office hubs,” said Kanchana.

So, the affordable locations in South Chennai saw maximum development. Two third of the total unit launches in H1 2017 took place in the locations such as Pallavaram, Mahindra World City, Siruseri, Padupakkam, Navalur, Thalambur and Sholinganallur.

While the project launched with an average ticket size of '50 lakh expanded from 39 per cent in H1 2016 to 69 per cent in H1 2017, the share of projects with an average ticket size of Rs 75 lakh grew from 52 per cent to 89 per cent in the same period.

On a positive note, the unsold inventory levels have plummeted nearly 30 per cent over the last two years to 28,110 units. Kanchana cites the reason to decreased number of launches. “The Chennai market currently has a QTS (quarters to sell unsold inventory) of 6.5, meaning it can be exhausted in less than six years,” she said.

Meanwhile, the residential price growth is weakening in Chennai with the H1 2017 prices growing by a modest 1 per cent YoY.

Office space market faces wrath of supply crunch

The supply crunch at office space market broke the momentum in transactions that the city has gained over the past one and a half years. This caused the current period to witness a drop in transaction activity with H1 2017 recording 1.9 mn sq ft of transactions while only 1.1 mn sq ft of new office space came online.
  “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,” said Kanchana Krishnan, director, Knight Frank India.

Paucity of office space also brought down the vacancy levels from 22.5 per cent in H1 2015 to 10.8 per cent in H1 2017.

Though the IT/ITeS sector continues to be the largest consumer of Chennai office space market accounting for 0.7 mn sq ft of office space transactions in H1 2017, it has given way to other services and the Banking, Finance Services and Insurance (BFSI) sector.

Kanchana attributes the growth of BFSI to two large leases being taken up by Wells Fargo and HDFC bank amounting to over half of the 0.31 mn sq ft space transacted by this sector.  

Lack of office space inventory coupled with steady demand led to skyrocketing of rental values. It has pushed weighted average rentals in the city's space market to Rs 55 per sq ft per month.

The OMR business district saw the strongest rental growth at 8 per cent.
Above average rental growth was witnessed in Perungudi, Guindy and Taramani.