Is Chennai the next realty hotspot?

Is Chennai the next realty hotspot?
Jan 2018 , by , in Property Talk

Chennai’s real estate market had faced stagnancy during the last few quarters for the inevitable reasons including political turmoil, regulatory reforms and the catastrophic floods. But the real estate market of the region has turned corners owing to reasonable home loans and developers’ increased focus on completion of projects, buyers’ confidence is likely to ascend in the days to come. Also, boosting measures within the IT sector in the state is helping create more job opportunities as a result of which, the influx of migration into the city is rising. All this will eventually increase the demand for real estate in Chennai.

Implementation of the Real Estate (Regulation & Development) Act  (RERA) kept the developers busy complying with the new regulatory requirements. According to Q3 report by Cushman & Wakefield, majority of the launches (60%) were in South Chennai, primarily by established developers. With a consistent decline in launches, the city has seen a rise in demand for ready-to-move units across segments. Increased transparency under the RERA regime has given buyer confidence a major fillip and developers are aiming at capitalizing on this sentiment and attract fence-sitters using lucrative payment schemes and promotional offers. However, the focus will remain on clearing out existing inventory, keeping a lid on new launches.

Sunil Sharma, VP – Marketing and CRM, Mahindra Lifespace Developers Ltd, is of the view that as with most real estate markets across India, Chennai too was affected by demonetisation last year, with demand witnessing a steep drop in the last quarter of 2016.

Mr. Sunil Sharma

Mr. Sunil Sharma

Adding further, he says, “However, the market witnessed a revival during the first half of 2017.Sales has been dominated by the sub-50 lakh category, and the city is expected to witness significant demand for affordable homes, along with mid-premium units.Primarily an end-user driven market, home buyers in Chennai prefer apartments/homes in locations that are well-connected to office hubs, have fast-growing social infrastructure and basic amenities, and are promising in terms of employment generation.

Putting things in perspective, W. S. Habib, Managing Director, Ramky Group, says, “Post GST buyers are more interested for ready to occupy apartment to save tax. The entire market is being driven now by end users.

W. S. Habib

W. S. Habib



With rising property values and land parcels getting exhausted, homebuyers interest is skewed towards suburban micro-markets in the third quarter of 2017. Interestingly, the majority of these micro-markets are either in proximity to IT/ITeS hubs or enjoy seamless connectivity to these employment hubs. As per Roof and Floor data, Medavakkam, Avadi, Tambaram, Porur, and Perumbakkam are the top five localities that recorded the maximum demand in Q3 2017.

Ms. Sarita Hunt

Ms. Sarita Hunt

According to Sarita Hunt, Managing Director – Chennai & Coimbatore, JLL , “ Primarily Chennai’s market is  end user driven market with very minimum investment in this segment from investors. Buyers are well informed, educated and strategic in their purchases. Therefore focus is on quality & completed projects. Customer base is predominantly either in the mid to low income range or HNIs / UHNIs.”


South Chennai is the most preferred zone: South Chennai recorded the maximum demand due to the presence of IT/ITeS companies. Interestingly, the southern part of the city also recorded the maximum supply of affordable properties in Q3 2017, followed by the Western part of the city.

These include markets such as Singaperumal Koil, Sholinganallur, Medavakkam, Kelambakkam, amongst others. Out of the total units launched in South Chennai in Q3 2017, nearly 29% were in the affordable  segment. These projects were priced anywhere between Rs 2,200 to Rs 3,400 per sq.ft.

Infrastructure: A game changer: Improving connectivity, the development of Ponneri as a smart city, and the Chennai -Bangalore Industrial Corridor (CBIC) are the major projects likely to enhance the appeal of Chennai. Further, projects like upcoming metro corridors and revival of the Port Maduravoyal Road are also boosting residential demand in micro-markets like Virugambakkam, Perumbakkam, T Nagar, Perambur, and Medavakkam.

Ready-to-move in properties rule the roost: With RERA in place, the demand for ready-to-move-in properties continued to rise in Q3 2017. This can also be attributed to shortage of RERA approved under-construction projects in the city.


Apartments are most-preferred property type: Apartments continue to dominate the property spectrum in terms of both supply and demand. Nearly 49% homebuyers’ interest was slated towards apartments in Q3

2017 as well. This was followed by plots, villas, and other property types.

Buoyed by the higher return on investment, about 28% property seekers preferred investing in plots.

End users who are serious about buying homes in locations of their choice have continued to closely evaluate project fundamentals and scope, even post demonetisation.  While demonetisation did cause some amount of upheaval in the industry, we have mostly seen demand picking up over the last few months andreturning to pre-demonetisation levels; overall, there has been some positive movement.  The Real Estate (Regulation and Development) Act, 2016, has resulted in improved consumer confidence – in other words, home buyers arenow aware of a redressal mechanism to ensure that their interests are being looked into, and more assured when investing in the sector, on account of improved transparency and accountability.

Sunil Sharma, VP – Marketing and CRM, Mahindra Lifespace Developers Ltd

Important Micromarkets in Chennai

A significant portion of real estate absorption in the city is concentrated along the Old Mahabalipuram Road (OMR) and the Guindy micro-market, which is closer to Pallavaram. OMR and the localities in its vicinity will continue to attract corporates from various sectors and thus the demand for residential realty will increase potentially.

According to Hunt, key growth corridors of the city are OMR ( TillKelambakkam), ThoraipakkamPallavaram Road , GST Road Till Mahindra World City , Mt Poonamallee Road, Mount Poonamalle Road and Nolumbur, Ambattur.”

Talking about important micromarkets in Chennai and locations ideal for affordable housing projects, Habib, says, “The prime criteria for affordable locations are competitive price with good connectivity. The areas like Urapakkam, Guduvancherry, Poonamallee, Avadi, Kelambakkam are all the desired locations. These locations offers budget friendly homes with all social infra around.

Emphasising on the location, which are important from affordable housing perspective, Sharma, says, “Avadi, a fast-developing suburb located off NH 48 and close to the Outer Ring Road, to the North West of Chennai, is todayan affordable housing hub.  Avadi is well connected tocore city areas via bus and train services; its strategic location also ensures easy access to industrial clusters like Sriperumbudur and Oragadam.  Avadi is surrounded by major defence establishments and boasts renowned educational institutions and hospitals. Furthermore, entertainment options abound, including cinema halls, an amusement park and restaurants.”


Micro-market Average Capital Values (in Rs/sq. ft.) USPs
Medavakkam 3,650-5,400 Medavakkam has emerged as an alternative for professionals who want to stay close to their workplace. Well-developed social infrastructure promises brighter real estate prospects for Medavakkam.
Avadi 3,100-4,300 Prime location due to defence establishments, enjoys good connectivity to important areas of the city, and has several upcoming residential projects.
Tambaram 3,390-5,325 Situated along the Chennai-Trichy Highway, Tambaram is one of the prominent residential areas in the city. Easy accessibility via the Mass Rapid Transit System (MRTS) and the presence of several multinational companies are the two major factors catalysing housing demand in the area.
Porur 4,770-7,400 Strategically located on the Mount-Poonamallee Road, it is a prominent suburb known for its chemical industries and manufacturing plants.
Perumbakkam 3,570-4,860 Easy accessibility to IT establishments (OMR and Shollinganallur) and developed social infrastructure with a plethora of reputed schools.
Vanagaram 3,800-5,200 Strategically located near Poonamallee High Road, and developing social infrastructure.
Iyyapanthangal 3,500-4,930 Situated between the Grand South Trunk Road (GST) and the Bangalore Highway, housing demand is largely fuelled by professionals working in DLF SEZ.
Kanathur 4,100-6,200 Being situated along the East Coast Road, Kanathur boasts of robust connectivity to other parts of the city, proximity to AMET University, and the availability of beach-facing homes, away from the hustle bustle of the city.


Market opportunities:

Judging by the number of quality projects that are seeking and securing funding from Grade A investors, the consumer confidence is definitely on the up.

According to Hunt, “Transparency in sale, for example: select promoters are using “all inclusive” price per sq. ft. as their marketing tag is attracting buyers in the post-GST era. Buyer certainly has the assurance that RERA will provide the necessary safeguard to two vital factors of quality of delivery and timely completion.”

“Consumer confidence is getting back on track. Demonetization has impacted the sentiments of real estate buyers’ in a subtle way, however, post GST we are seeing a lot of buyers coming forward to buy ready to occupy homes. Also, developers’ are offering attractive deals, discounts and freebies on ready to occupy inventories. So, this is the best time for buyers’ to invest in the ready to occupy homes than wait for under construction homes,” says, Rocky Israni, Managing Director, Pacifica Companies.

Rocky Israni

Rocky Israni


Talking about the commercial real estate scenario in Chennai, Habib, says, “There is a slowdown in IT/ITES space take up already. The average annual absorption is also 2.5 – 3 million sq ft only.

A majority of these developments are in various stages of construction and are expected to be completed between 2018 and 2019. There will be some equilibrium between demand and supply but good projects may not face issue of leasing.”

Commercial & retail leasing in Chennai is to remain stable. However, due to higher disposable income in the urban population, demand is expected to rise. Thus, strong investment & higher inventory addition is expected. In terms of challenges, retail segment is facing utmost competition from the e-commerce segment and the lack of high quality retail spaces is also a big concern in the current real-estate scenario.

Rocky Israni , Managing Director, Pacifica Companies.

Demand and supply scenario:

New launches shall remain low as developers are now focusing on reducing unsold inventory. According to Israni, Mid-segment in southern peripheral districts and centrally located high-end products should steer end-user demand in 2017. On the rental market, we expect an increase of 5-10% in southern peripheral districts near IT corridors in the medium term.

Talking about the 3 important real estate asset classes, Israni, says, “Commercial & retail leasing in Chennai is to remain stable. However, due to higher disposable income in the urban population, demand is expected to rise. Thus, strong investment & higher inventory addition is expected. In terms of challenges, retail segment is facing utmost competition from the e-commerce segment and the lack of high quality retail spaces is also a big concern in the current real-estate scenario.”

Unsold inventory has declined by about 18 – 20 % from 2016, according to Hunt.

Talking about demand for commercial real estate hunt says, “Demand is exceeding supply, limited new addition till 2018. However between 2019 – 2020 close to 15mnsft of office space is proposed to be completed with key pan India developers like Embassy, Brigade, KRC entering the Chennai market.”

“Whereas in residential sector the market has been flat and sales have been moderate. Oversupply is seen in few select pockets, however projects which are witnessing steady construction and timely handover are seeing moderate to good demand,” states, Hunt.

As per Roof and Floor data, the number of units launched recorded 25% growth over the preceding period in H1 2017. This is largely because developers who held their projects for launch post-demonetisation decided to launch post RERA and GST.


The sentiments have started to improve after major upheavals of Demonetization and with the implementation of RERA. Homebuyers concern over delays in delivery has been waning with RERA being place. The confidence is showing in their action as enquires and sales have started to improve since last three-four months. But talking about the Chennai property market demand and supply equation, it may see an oversupply situation over the next two years, primarily due to several large projects near completion. Around the same time, which may put downward pressure on rentals. 

W. S. Habib, Managing Director, Ramky Group


Challenges and remedial measures:

The Indian real estate sector is slowly evolving into a more organised and professional one. It is interesting to see that the sector is embracing professional standards and transparency with open arms. While the government has initiated several policies and reforms, there is still scope for more.

According to Gowri Shankar Nagarajan, Cofounder and CEO, Roof and Floor, “The role of public-private partnership (PPP) in promoting the growth of affordable housing cannot be negated. Unfortunately, the tedious approval process has been one of the major impediments to the development of this segment or the sector at large. At present, a project needs to be cleared by as many as 40 departments, including the environment, fire, revenue and water departments, the traffic police, and so on.Therefore, single-window clearance is the need of the hour.”

Adding further he says, “According to an estimate, close to 57,392 acres will be required to build 2 crore homes, if one were to assume a size of 500 sq. ft. per home and an available FSI of 4. At present, huge land parcels are reserved by government entities such as the railways, ports, and defence authorities. If affordable housing has to be a success, unlocking these land parcels is very important. Rental housing can surely address the housing shortage in urban areas with a proper framework in place. The government should also focus on incentivising developers in terms of extra Floor Space Index (FSI) and tax benefits for affordable projects. At present, affordable projects are not very lucrative in terms of profit margins for developers.”

“The innovative measures implemented by the Government on the Indian Real Estate Sector will act as a boost to the market trend. The Real Estate sector will witness a healthy progress due to the expected escalating demand in the year 2017-2018. Additionally, the transparency in business is a major advantage for the buyers, thus aiding them to choose projects from reputed builders and make worthy investments, explains, Irani.

“The recent implementation of RERA will streamline the entire industry. The industry will have only organized players. Thanks to Housing Department and CMDA for implementing online approval submission, we expect substantial time can be saved in this. The early completion of Metro and other infra projects on pipe line would help the real estate sector the most,”opines, Habib.

In his concluding note, Sharma, says, “Single window clearances and fast-tracked approvals can help improve project execution efficiencies across markets.   Additionally, we believe that policies and incentives in favour of green homes can contribute to urban development that is truly resource-sensitive and future-focused.(In this context, any building/home that makes optimum use of natural resources throughout its lifecycle—from planning, design, construction and occupancy, to its decommission—can be called a ‘green home’.)”

Factors for growth:

Chennai is one of the top 10 global automotive clusters, and this sector continues to attract interest across various automotive ancillary units. The automobile and engineering companies already established in the state are actively deploying their expansion plans. Large original equipment manufacturers (OEMs) are insisting that their suppliers set up their facilities near their plants to enable them to maintain inventory support for just-in-time production.


According to JLL India Research, for the current financial year, TN has a potential investments pipeline of over INR 19,033 crore. Since 2015, the state has seen over 46 investment proposals with cumulative investments of approx. INR 37,381 crore. The resulting employment commitment from industries is over 30,000 direct jobs in the semi-skilled / skilled and unskilled categories. Apart from industrial activities, the logistics and warehousing industry is extremely upbeat in the state and keeping the market active.

Japanese investments into Tamil Nadu

At present, Tamil Nadu is home to about 600 Japanese industries – Chennai has the largest number of these, accounting for almost 2% of the total number of Japanese companies operating in India (with more than 1000 Japanese expatriates now living in Chennai). Japanese FDI in Tamil Nadu is estimated to be over US $1800 million, with major investments by the likes of Nissan, Hitachi, Toshiba, Yamaha, Komatsu, Mitsubishi, etc. Not surprisingly, the Government of Tamil Nadu is now following an institutional mechanism for improving the business environment for Japanese companies in the state.




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