Chennai: Back to the boom days
Chennai has always reported a consistent demand for housing and growth corridors. With the corporate sector and the influx of workforce creating an all-time demand for housing, there has been new vistas of growth for the city. V Nagarajan explores the emerging opportunities for housing in the city.
Among the southern cities, Chennai has been lucky to witness a boom due to surge in demand from end-users. Unlike other cities, supply level has not been keeping up with the demand. While the earlier IT boom had driven developers to opt for commercial development, many failed to realise the related need for housing to accommodate the influx of skilled workforce to the city. The migration of professionals from other states is such that Chennai has now housing enquiries from other cities like Pune and Ahmedabad.
The potential of housing in and around Chennai has increased to a level where a premier housing finance company has done home loan business worth Rs 3,000 crore in January 2011 alone, due to the sudden absorption of supply level across all micro markets. “The market is definitely upbeat and unlike other cities, Chennai has always been consistent and a stable market due to restricted supply level”, said N Nandakumar, Secretary, CREDAI - Tamil Nadu and Managing Director, Devinarayan Group.
The Chennai Metropolitan Development Authority (CMDA) has estimated the city's population to touch 12.5 million by 2026 and the housing demand at 15.46 lakh units necessitating a supply level of 58,700 units per year up to 2026. However, the current supply is not even exceeding 30,000 units, thanks to the archaic development control rules, rigid norms and bureaucracy that deter housing development and contribute to soaring housing cost.
The inherent strengths of the city like infrastructure and availability of skilled manpower in luring enterprises to its fold have earned it a place among the three fastest growing cities in the country. The city which attracted Rs 60,000-crore investments, has already become the Detroit of Asia and is poised to turn out close to 1.5 million vehicles a year as auto majors Ford, Hyundai, Nissan, Renault SA, Daimler AG, BMW AG and others have made Chennai their home.
The city's three growth corridors have been clearly earmarked for different sectors. While the six-lane 20-km stretch from Madhya Kailash to Siruseri is already bristling with IT companies popularly known as IT corridor, the second phase of the project from Siruseri to Mahabalipuram involving a distance of 23.5 km will drive the housing development. An estimated 150,000 people are employed now and an additional 250,000 will be employed in the next two years, say market sources. Despite the rapid growth, social infrastructure is yet to gain momentum. MARG Group has recently launched a mall on Old Mahabalipuram Road spread over 1.83 million sq ft and this is considered as the city's largest mixed use development.
The East Coast Road (ECR) will continue to remain as major entertainment corridor. Due to coastal zoning restrictions and rigid FSI norms, housing development has been restricted in the vicinity.
The GST Road (NH45) houses some of the SEZs and is bristling with activities due to establishment of large industrial parks like Mahindra World City and Shriram Gateway. Projects like Aerens Gold Souk and upcoming mall in Mamandur will contribute to the social infrastructure. Mega housing projects like L&T Arun Excello, Akshaya Belvedere, Hallmark County and SIS Safaa, will partly meet the housing needs in the area. Corporates owning tracts of land in the area have also ventured into housing development.
The Singaperumal Koil-Oragadam Road has already witnessed several industrial major auto units including the testing centre on a sprawling area. “An estimated 120,000 people are employed by various companies operating in Oragadam (30,000), Irungattukottai (40,000) and Sriperumbudur (50,000). It is expected to touch 200,000 soon as more and more companies are becoming operational,” said M Velmurugan, Executive Vice-Chairman, Guidance Bureau, Industries Department, Government of Tamil Nadu. Due to surge in demand for land, the government is in the process of acquiring land area of 1,700 acre in Vallavadagal. The total employment potential is likely to touch 300,000 people within the next four years. As the housing supply level has not even touched 10 per cent of the workforce, employees are compelled to live nearby towns like Kanchipuram and Sriperumbudur and commute to the work spot.
After the slowdown in 2008 that necessitated revamping of the entire operations, property developers are now back in business with renewed vigour and enthusiasm. They have a valid reason to do so. The quantum of sales has picked up across all micro markets. There are new entrants from neighbouring cities gearing up to get a slice of the market pie. The competition is virtually hotting up now and homebuyers are sitting pretty with the emergence of quality products, furnishings, amenities hitherto unheard of, improved transparency level in documentation and adherence to delivery schedule.
Right from getting ISO accreditation to Crisil rating, property developers are keen to avoid the stigma that was attached to the sector during yesteryears. Involving international architects, creating ambience that will enable homebuyers to spend more quality time with family, healthcare, education, entertainment, retail and other facilities will be a virtual boon to tomorrow's homebuyers. Moreover, international brands in property management services like Red Sky and RE/MAX have entered the market to provide property management services to retail clients, a long-felt need of NRIs to manage their properties during their sojourn abroad.
On the flip side, there is no respite for homebuyers as land and construction cost is soaring with the government levies alone constituting over 30 per cent of the housing cost. The Budget has dealt a severe blow to the housing sector with a little encouragement to affordable housing sector alone. Even after three years of policy decision, the much touted PPP model in Tamil Nadu Housing Board that owns lands at strategic locations in Chennai, Coimbatore and Madurai, is yet to take off the ground despite the genuine efforts made by the yesteryear government officials.
In Chennai, the demand for housing is not only confined to affordable housing but there is a growing market for luxury housing. Affordability, improved lifestyle and exposure to international standards have made senior executives and entrepreneurs to opt for luxury housing that redefines the lifestyle in the city. A few developers are always ready to undertake luxury housing due to consistent demand for units priced beyond Rs 4 crore. These are by invitation only and do not usually appear in the print media for marketing. “Chennai has got a wide spectrum of housing demand ranging from Rs 15 lakh to over Rs 6 crore. For luxury housing, the supply is being made cautiously but there is a consistent demand for such asset categories that remains at any time in city areas”, said VS Suresh, Chairman and Managing Director, Real Value Promoters Pvt Ltd, which is due to undertake a high-end luxury housing on Greenways Road. “The demand pattern in housing has been consistent due to surge in job opportunities in Chennai and the market is also transparent”, said A Mohamed Ali, Managing Director, South India Shelters Pvt Ltd.
According to industry sources, there is a robust growth in demand for housing units in the price range of Rs 16-35 lakh. While there is a moderate demand for units in the price range of Rs 35-45 lakh, there is price resistance for units priced beyond this range, say industry sources. Affordability, home loan lending rates and prices are major deterrents that necessitate homebuyers to postpone the buying decision. The housing demand also varies depending on the location. For instance, industrial clusters like Oragadam and Sriperumbudur are specific areas where property developers are not keen for housing units beyond Rs 50 lakh price range.Lack of social infrastructure, delay in implementation of infrastructure and government apathy are major factors that discourage many developers from venturing into housing in the area.
Due to prohibitive land cost and acute shortage of land, supply level in city areas is less nowadays, say realtors. As a result, major housing development revolves around areas like Old Mahabalipuram Road till Thaiyur, GST Road, Oragadam and Sriperumbudur. Improved connectivity levels and the metro construction are encouraging more people to shift to suburbs and peripheral areas. A number of amenities ranging from school, gym to retail mall form an integral part of housing development on the development of large land areas of over 5 acre. A few developers are even bringing the walk-to-work concept into reality.
Plotted development projects are up in suburbs and peripheral areas. The price hike ranges from 5 per cent and above depending on the location and type of development. The demand is growing as middle-income group people who are unable to mobilise savings opt for medium-term investment in plotted development in order to have a hedge against inflation.
The unorganised sector is slowly getting organised with the formation of CREDAI - Tamil Nadu. The membership in Chennai and Coimbatore has notched up a robust growth of 300 per cent from 76 to 253 now. Those who have agreed to follow a code of conduct and ethics have joined together and CREDAI - Tamil Nadu is now part of the all India CREDAI organisation which has 6,000 members across the country. “Tamil Nadu leads in terms of the total number of developers in signing the code of conduct”, said T Chitty Babu, President, CREDAI - Tamil Nadu and Chairman and Managing Director, Akshaya Pvt Ltd, adding, “And in Chennai, real estate growth has been in the region of 15-20 per cent per annum.” Earlier, only Coimbatore was part of the association.” Plans are ahead to include Trichy and Madurai as well.
CREDAI which organises annual show titled Fairpro drew sales of Rs 150 crore, last year and this year, sales touched Rs 210 crore, said Suresh Krishnan, Convenor of Fairpro. The CREDAI's Fairpro 2011 displayed properties in the price range of Rs 15 lakh to Rs 5 crore at the Chennai World Trade. This is the first time 54 CREDAI developers joined together from Chennai and Coimbatore to display 215 projects under one roof listing them area-wise and price-wise for quick reference.