After five years, the Chennai residential market has grown by 3% year-on-year (yoy) in 2018. According to data from property consultant, Knight Frank 2018 saw sales (housing units) of 15,986 when compared to 15,520 units in 2017.
“A major thrust to sales has come from rationalisation in residential prices which have come down further by 3% in the second half of 2018. Developers were also offering attractive discounts and schemes,” said Kanchana Krishnan, Branch Director, Chennai, Knight Frank, after launching the tenth edition of Knight Frank half yearly report on India real estate. The year 2018 saw 10,373 launches (housing units) and an increase of 12%. In 2017, new launches stood at 9,235.
But overall, demand continues to be lacklustre as homebuyers continue to resist high property prices. Additionally, emerging trends like preference to be asset-light and choosing to pay rents over EMIs are significantly contributing to low demand from homebuyers, especially millennials.
The developer community is also struggling to find their feet in the Real Estate (Regulation and Development) Act, 2016 (RERA) and Goods and Services Tax (GST) world. Doing business has become difficult as threats of RERA penalties or of being stuck with unsold inventories loom large. The cost of construction has escalated, and poor sales are not helping.
Another important reason for reduced launches is the Tamil Nadu Combined Development Regulations (TNCDR) and Building Rules 2018, which will bring into effect the increase in floor space index (FSI) from 1.5 to 2 for all types of buildings in the State. Developers most certainly want to avail this benefit and are therefore holding back until it is officially notified.
On a positive note, this slowdown in new launches has positively impacted the quarters-to-sell (QTS), indicating that the Chennai market now holds a little more than a year’s inventory.
Ms. Kanchana also said that over the years, a major driver of the Chennai real estate market has been the information technology / information technology enabled service (IT/ITeS) and industrial sectors. “However, in recent times, no new businesses are coming to Chennai and the existing ones have either deferred expansion plans or moved out to other states that have aggressively wooed them. Consequently, the flow of immigrants to Chennai has come down and so has the subsequent residential demand,” she said.
According to Knight Frank, the first quarter of 2019, will bring in more project launches and will witness greater sales. However, for the real estate market to see significant and steady activity (like old times) developers will have to adjust and adapt to the needs of homebuyers, and compromise on prices.
Chennai office market mirrored the lacklustre scenario existing in the city’s residential market during the first half of the year. New supply fell by 81% year on year during second half of 2018 while transaction volumes weakened by 33% year on year, in the same period. New office supply numbers stayed doggedly low at 0.01 mn sq m (0.2 mn sq ft) in second half of 2018, further worsening the supply crunch that continues to hamstring the Chennai office space market. This stark decline in absorption, 23% in the entire year, can be attributed to an acute shortage of viable, good quality office space in the preferred commercial districts of Chennai viz., the suburban business districts (SBDs).
The IT/ITeS sector, the largest consumer of office space in the city, had been showing a declining share in the total transactions pie, coming down from 43% in second half of 2016 to 27% in first half of 2018. In second half of 2018, the sector accounted for 44% of the total consumption, indicating a possible trend correction.