Chennai Real Estate Market

Real estate is a sector that is growing very rapidly in India. The rise in Chennai real estate market construction can be compared closely with the stock market indices, which are high. The year 2006 saw the Government of India opening the construction and development sector in February 2006. Government also allowed 100% foreign direct investment (FDI) under the 'automatic route’, which spurred investment in infrastructure sector.

Post relaxations of FDI, many foreign construction companies have started investing in India. There are companies from Dubai, US and other places showing interest in Indian real estate market. For example, Vancouver-based Royal Indian Raj International Corporation (RIRIC) is planning to invest a staggering $ 2.9 billion, over a period of 10 years, in a single real-estate project named Royal Garden City in Bangalore. Morgan Stanley Real Estate has also announced that it has invested around $ 68 million in Mantri Developers Private Ltd, a private Bangalore-based real estate developer.

The development of Chennai real estate market focuses on two primary areas: retail (official) and residential. Knight Frank, global real-estate consulting group, has given India the 5th position in the list of 30 emerging retail markets and predicted that the country will see a growth of 20% in the organized retail segment by the year 2010. But the sector that is growing leaps and bound is the residential one.

IT, e-commerce and other segments of the growing economy are giving the common man more money power. This is resulting in increasing buying power and the foremost necessity for a man is to buy a house. People who have smaller house are buying bigger ones and those who have one house are buying the second one. This is resulting in more and more residential properties being developed. Home owners are definitely very pleased since the Budget ensured that interest on home loans remains one of the best ways to save taxes.

Mumbai, Delhi, Bangalore and Chennai are mainly attracting interest from IT and ITES companies who are either establishing base in these places or are looking for expansion. Availability of land, construction of larger floor plates and built-to suit facilities are making the suburban locations of Chennai, Delhi, Mumbai and Bangalore attractive.

There is a buzz in the Chennai real estate market, where the consultants are saying that Finance Minister P Chidambaram's decision to levy a 10% service tax on construction will surely lift prices of residential property by 4-5%.

About Chennai, the commercial as well as residential market is growing. If we look at the commercial real estate market, it is facing shortage of quality space in the city.

About 1.13 million square feet of office space was added in the year 2003, which seems to be far less when compared to other major cities. However, this shortage is going to be overcome because of the significant construction activity on Old Mahabalipuram road (IT corridor) and more than 2.5 million square feet are being developed for targeting IT/ ITES companies. Velachery and Mount Poonamallee Road are the other preferred destinations for IT companies.
Around 0.6 million square feet was planned under a joint-venture development at Ambattur, an industrial estate.

IT/ ITES sector continues to drive demand and have located themselves in areas where maximum office space was available. Ready to move in buildings get booked within a very short time and demand to build more facilities surface very fast. Demand for commercial office space continues to be for quality buildings and is concentrating around South Chennai, i.e., Guindy Old Mahabalipuram Road, Taramani etc. Most of the landowners are opting for joint development with various developers to address the demands. The CBD has also witnessed increasing demand.

Capital and rental values have risen in CBD due to lack of adequate new buildings. The value of property in the suburbs have remained either stable or gained marginally. Rental and capital values of buildings in non-CBD areas of Chennai real estate market have increased marginally due to shortage of ready to move-in space.

The main demand drivers for commercial space in Chennai are expected to be IT/ ITES companies. Capital and rental values in the suburbs are expected to remain stable due to a constant flow of demand and supply.

As other metros and tier 2 cities, there is a strong residential demand in all segments in Chennai too. Much of the demand is for budget segment in suburban areas of Velachery, Mogappair, Gowriwakkam, Moffusil bus stand and Koyambedu. Being close to the emerging work centres of south, these locations are highly preferred by IT/ ITES company employees. Areas of T Nagar, Anna Nagar, Adayar, Besant Nagar have significant new supply for mid-end segment apartments. Premium locations comprise of R.A Puram, Boat Club and Roes Garden where high-end luxury apartments with ultra modern fittings and additional facilities of swimming pool, club may be provided and are preferred by expatriates as well. There is significant short supply of independent bungalows for leasing and more so as several transactions took place during Q1, 2004.

Values have shot up due to increasing land values and spiraling cost of construction. While a budget flat costs Rs.900 - 1000 per sq.ft., a mid - end apartment in south Chennai is in range of Rs.2,000 - 2,500 per sq.ft.. A high - end luxury apartment at premium location is in the range of Rs.2,800 - 3,500 per sq.ft.