Chennai Property Values

By Unnikrishnan

Chennai is the fourth largest city in India and situated on the south eastern coast. Historically, it has been a mega city and famous trading port with the rest of the world. It has a population of about 78 Lakhs with a high literacy rate of 80%, much above the national average. Though it may lack the cosmopolitan culture of Mumbai and Bangalore, it never affected its position as a center of knowledge and industrialization. There are over 400 colleges, which produces at least 300,000 graduates every year, in Chennai. It is a major hub of automobile industry having a presence of industry leaders such as Ford, BMW, Hyundai and Mitsubishi. Chennai accounts for 60 per cent of the country’s automotive exports and is sometimes referred to as \"the Detroit of India. It is also rapidly becoming a preferred destination for medical health tourism and competing aggressively with Kerala.

Facts and Figures

Area
181 Sq. Kms

Population
78,00,000

Literacy Rate
80%

Major Industries
Automobile, KPO, BPO, IT, Healthcare

Major Companies
BMW, Ford, Hyundai, Infosys, OfficeTiger

Economic growth
11.2%

The rapid industrial development of Chennai and abundant supply of manpower as well as jobs have led to an increase in real estate development. This growth has been widely supported by successive governments by announcing pro-investments policies and projects and establishing several IT parks and SEZs. There is a unique feature of Chennai real estate sector - it is relatively insulated against speculation. One reason may be because office space development in residential area is limited and mostly restricted to outskirts or designated areas. This has not allowed a mindless increase in property values as we see in NCR, Mumbai and Bangalore. The other reason being demand has been mostly fuelled by consumption and not investments. According to the CII, Chennai\'s is estimated to grow to a $100-billion economy, 2.5 times its present size, by the year 2025.

Chennai Residential Sector:
With the economic development of India after liberalization, Chennai naturally became a hub of development and industrial activities. People started moving from western countries to Chennai in search for better opportunities. A number of NRIs as well as “liberalization kids” fuelled the demand for residential properties in the recent past. The demand for high end properties by wealthy individuals and NRIs remained strong. The city is growing in a southward direction and developers are looking at Grand Southern Trunk Road (GST) and East Coast Road (ECR) as new growth corridors. However, the overall demand is down by around 20% quarter-over-quarter (Q-o-Q).

Central Chennai: It is a major commercial hub in the city and includes places such as Georgetown, Egmore, Triplicane, Nungambakkam and Royapetah. Naturally, this region also has the highest premium on property prices. Central region of all mega cities in India has the same problem – acute shortage of land and properties. Chennai is no exception to it. This shortage of good quality space has led to extremely high appreciation in both capital and rental values. Sooner than later, prices will close to that of in Mumbai. This region is characterized by independent units and bungalows.

Prominent projects: It includes Llanstephan by Doshi Housing in Chetpet, Templeton by Akshaya Homes, West Hills by AppaSwamy Real Estate and Lumbini Homes by True value Homes

North Chennai: It includes places such as Ennore, Perambur,Pozhal,Purasavakkam, Tiruvottiyur, Tondiarpet and is unfortunately the least developed among all the major regions of Chennai. North Chennai is home to majority of low income population and small scale or cottage industries such as textiles and dyes.

Prominent projects: Not available

Upcoming projects: It includes Orchid Springs by Alliance Infrastructure and Pinewoods by Appaswamy Real Estate Limited near Inner Ring Road.

South Chennai: It includes places such as Adyar, KK Nagar, Kotturpuram, Meenambakkam, Mylapore, Saidapet, Tambaram, Teynampet,Thyagaraya Nagar, Tiruvanmiyur, Velachery . South Chennai like most of southern regions of other metros is witnessing rapid development of properties owing to increase in demand. Most of IT parks are situated in this region. Also the announcement of IT corridor on Old Mahabalipuram Road (OMR) has led to increased activities in these areas.

Prominent projects: Estancia in Maraimalai Nagar by L&T - Arun Excello, Hiranandani Upscale in OMR, Swanlake by Purvankara, Adora by Akshaya Homes

Upcoming projects: Zen Garden in KK Nagar, Harmony Homes in T Nagar

West Chennai: It includes places such as Ambattur, Anna Nagar, Ayanavaram, Kilpauk, Porur and Vadapalani. Its proximity to major automobile manufacturing units has led to increase in residential property development. Upcoming Electronic Hardware corridor is also fuelling land prices in this region.

Upcoming projects: ETA Starat Sriperumbadur and Ceebros, township project by Ceebros Property Development in Saligramam, Duplex Villas at Porur - Fairy Land

Residential Property Capital Values (Rs. Per sq. ft.)

Location
Oct 2008
June 2008
Jan 2007
% Q-o-Q
% Y-o-Y

Central – High End
17,000-24,000
17,000-24,000
14,000-20,000
1%
20%

Central – Mid End
7,000-9,500
7,000-9,500
6,000-8,000
0%
15%

South – High End
6,000-10,000
6,000-10,000
5,000-8,500
0%
15%

South – Mid End
4,500-6,500
4,800-7,000
4,000-6,000
-5%
10%

West – High End
6,000-9,500
6,200-9,500
5,500-8,500
-2%
10%

West – Mid End
5,000-7,000
5,500-7,000
4,500-6,500
-5%
10%


Chennai Office sector
There has been high construction activity in Suburban as well as Peripheral regions of Chennai due to the presence of big IT majors. Chennai added over 3 Million square feet of office space in the last three months. Out of this, 58% was consumed by IT Parks, 40% by SEZs and the remaining 2% by other industries. There is a genuine over supply of office space in Chennai. With the economic slowdown across the world, IT sector has taken a severe beating. Unlike Bangalore, Chennai has relatively balanced demand for office space. IT accounts for almost 80% of office space consumption in Bangalore. We have classified Chennai’s office market as following:

Central Business District (CBD)
It includes areas such as Anna Salai, RK Salai. CBD remains the most attractive and suitable micro-markets for new corporate entering Chennai. The central locations offer ease of accessibility and visibility for these new companies and allow established companies to retain brand equity by being in the heart of the city. There is less supply of office space due to shortage of affordable and high quality land. Supply in the Central Business District (CBD) remains constrained with only small land parcels (in the range of 30,000 sq.ft. to 40,000 sq.ft.) available for development in Thyagaraya Road (T. Nagar micro market) and Radhakrishnan Salai.

Non-CBD areas or Secondary Business District (SBD)It includes areas such as T.Nagar, Guindy and Alwarpet. Supply in the Secondary Business District (SBD) was added in the rapidly growing business district of Guindy. It is evident from the office supply and demand activity that apart from the rapid growth of the peripheral district of Old Mahabalipuram Road, the emergence of secondary business districts in the city is the most striking development. The areas in the SBD that are expected to witness office construction activity in future include locations around the inner ring road like Ekkaduthangal, Mount Poonamallee Road, GST Road, Guindy and MRC Nagar. Many leading developers from across the country such as DLF, Hiranandani and K. Raheja have either launched or are expected to launch their IT Park projects in Chennai.

Suburban and peripheral areas
Chennai\'s office building market is now second only to Bangalore\'s, thanks to the growing population of IT and BPO outfits. Though absorption of space was the highest on Old Mahabalipuram Road, secondary areas such as Guindy and the Mount-Poonamallee Road are fast catching up and will be the ones to watch for. New office supply was added in the Peripheral Business District (PBD) comprising areas like Old Mahabalipuram Road (IT Highway), Taramani and the Perungudi Byepass Road

Commercial Property Rental Values (Rs. Per sq. ft. per month)

Location
Oct 2008
June 2008
Jan 2007
% Q-o-Q
% Y-o-Y

CBD
70-85
75-95
65-78
-10%
10%

SBD
60-75
65-80
55-70
-5%
8%

Suburbs
35-55
35-55
25-45
0%
5%

Peripheral
20-25
20-25
30-35
0%
-15%

Chennai Retail Sector
There is no mall frenzy in Chennai when compared to Gurgaon and Bangalore. Only three major malls are present in Chennai. There has been no new addition of malls since a long time. Indi Mall, constructed by…, would be completed and opened to public in May 2009. With the global slowdown and recessionary fears, people are avoiding or delaying their purchase plans. This has put pressure on mall owners as sale-per-store is down.

Almost all regions except T. Nagar, Mylapore, Khadar Nawaz Khan Road and Nungambakkam High Road are witnessing dip in retail values. These areas still remain famous among shoppers and will continue to remain so in near future due to their location. Prominent retailers such as Future Group want to use this slowdown as an opportunity to sign long term contracts with developers and grow significantly. Retail development per 100,000 people is low in Chennai as compared to Gurgaon, Bangalore and Mumbai. There is an upside potential to this underdeveloped state of organized retail sector in Chennai especially in Suburbs and Peripheral areas. About 9 million square feet mall space is under construction and is expected to complete in the next 2-3 years.

Retail Property Rental Values (Rs. Per sq. ft. per month)


Location
Oct 2008
June 2008
Jan 2007
% Q-o-Q
% Y-o-Y

CBD
220-260
210-250
175-220
-4%
30%

SBD
180-225
170-220
150-185
-5%
15%

Suburbs
150-200
150-210
130-180
0%
5%

Sector Outlook
The real estate sector is under pressure across the country, less so in Chennai due to absence of speculators. However, it may not be so forever. High returns and massive expansion always attracts speculators and push prices upwards. Apart from this, there is a genuine over supply of properties especially office space in suburbs and peripherals. This has worsened more after the global slowdown. This would last for another 1 year or so which would put pressure in property rates. There would be huge addition of residential as well as office properties due to upcoming OMR IT corridor and other SEZs. Capital and rental values for lower as well as middle income housing properties have come down and may stabilize in few months. However, ultra luxurious properties especially in CBD will continue to see more increase in prices due to shortages in space. In the longer run demand should be able to match supply of properties.