When small is big

Print edition : August 12, 2011

Residential apartments that have come up alongside the backwaters in Muttukadu near Chennai. - N. SRIDHARAN

Budget homes top the list of residential projects in Chennai's suburbs.

CHENNAI has always been a conservative market as far as residential real estate is concerned. It has two types of consumers first-time buyers and people looking for a second home (investors). Of late, a large number of people from other parts of Tamil Nadu and from other States have come to the city to take up a job or in the hope of getting one because opportunities abound. Obviously, this has created a demand for more homes. The ever-increasing rental values in the city have made people opt for outright ownership of property with the help of mortgage loans. As for investors, they prefer to invest in a plot of land or a house as its value will appreciate over the years.

The spurt in residential real estate has become inevitable owing to the shortage of homes across the country. A Central government report estimates that nearly 27.6 million homes will be needed by 2012. Of that, Chennai will account for 11 per cent, or three million homes. The majority of these homes will come up in the suburbs for a variety of reasons, the most important being affordability. The trend began in 2004-05, when new pockets came up close to the Old Mahabalipuram Road (OMR), the Grand Southern Trunk Road (GST Road), and in Oragadam, 45 kilometres from the city, and on the Chennai-Kanchipuram Road. The linking of the OMR-GST also increased possibilities. In 2008, when Mumbai, Delhi, Hyderabad and Bangalore felt the heat of the global recession, Chennai survived unhurt. The market in Chennai fell by about 10 per cent only. From the first quarter of 2009-10 onwards, it has witnessed a 10 per cent growth.

According to A.S. Sivaramakrishnan, vice-president (residential services), Jones Lang LaSalle Property Consultants, the growth in the Chennai market was driven initially by information technology (IT) companies. This changed with the entry of multinational companies in the automobile, telecom and engineering sectors. These MNCs have created new industrial pockets or special economic zones (SEZs) in the suburbs. These include the DLF SEZ, IT parks in Ambattur and Guindy, industrial parks in Poonamallee, Irungattukottai and Sriperumbudur, the ELCOT IT Park, the SIPCOT IT Park in Siruseri, and the financial city at Perumbakkam.

These industrial parks are bound to attract residential townships in and around their vicinities. Take Ambattur, for instance. The Tamil Nadu government has issued a directive to bring the area under the Chennai Corporation limits from October 2011, and the SIDCO industrial site there is now being transformed into an IT hub. These steps are expected to generate demand in and around Ambattur for residential areas of all categories. Similarly, industries in Irungattukottai and Sriperumbudur, it is hoped, will spur the creation of new townships in these locations. The Sriperumbudur region houses companies such as Hyundai, Saint-Gobain, Nokia, Foxconn, Samsung, Dell, and Motorola, which together have invested over $2 billion. In the south, the Siruseri IT Park on OMR houses numerous IT companies. This has attracted builders to set up a number of residential projects in the area.

The residential real estate development has happened in and around the four major corridors National Highway 4, OMR, GST Road and Outer Ring Road (emerging corridor). Among the residential projects coming up in these corridors are those of Mantri, Hiranandani, Puravankara, DLF, True Value Homes, Olympia and Akshaya Homes.

THE HIRCO TOWNSHIP under construction near Chennai.-BY SPECIAL ARRANGEMENT

Initially, builders thought there would be a demand for high-end homes. But the customers felt the prices were on the higher side. This forced builders to rejig their business plans and get into the construction of budget homes. Today, the Chennai residential real estate market is divided into luxury, premium and budget housing. The demand has been the highest for budget housing. Last year, nearly 13,000 units were delivered. This figure is expected to touch 18,000 this year.

The Chennai residential market is segmented into six major micro markets for studying the trends in capital values: premium, central, off-central, southern suburbs, western suburbs and northern suburbs. Premium locations include Boat Club, Poes Garden, Nungambakkam and Harrington Road. The average rate in these locations during the third quarter of 2010 touched nearly Rs.16,000 a square foot. The central locations are Adyar, Alwarpet, Anna Nagar, Besant Nagar, Egmore, Kilpauk, Kotturpuram, Mandaveli, MRC Nagar, Mylapore, R.A. Puram, Santhome and T. Nagar. The average price value in these areas is around Rs.10,000 a sq ft. The average price value in the off-central locations such as Kodambakkam, Thiruvanmiyur, Ashok Nagar, Koyambedu and Velachery is around Rs.7,000 a sq ft. In the southern suburbs such as OMR, East Coast Road, GST Road, Pallikaranai and Medavakkam and the western suburbs such as Ambattur, Avadi and Mogappair, the price is in the range of Rs.3,500 to Rs.4,000 a sq ft. In the northern suburbs, the average value is around Rs.3,500 a sq ft.

However, there are some areas of concern too. Main among them is the huge delay in delivering the homes to buyers. Builders blame it on manpower shortage, unprecedented rise in the prices of raw materials and non-availability of sand. Another challenge is to improve the occupancy rate in the completed projects. Improving transport facilities to and from the suburbs is one way of achieving this.

According to T. Chitty Babu, secretary, Confederation of Real Estate Developers' Association of India, this issue has to be addressed by the State government and city planners. Though it levies and collects impact and infrastructure fees from developers, the State has not deployed the fund in the same place from where the money has been collected. Had it done so, occupancy rates would have increased. It is clear that developers will provide only facilities within their purview and leave the rest to the government.

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