In the recent past, growth of the real estate sector in both
Bangalore and Chennai has been exponential. This is largely because they are
among the most prominent cities in South India in terms of generating new
business.
Of the two, Bangalore has gradually evolved into a more
matured real estate market, since the market growth there preceded that of
Chennai.
Residential property sales in Chennai and Bangalore have
been more or less stable of late, with the Chennai market displaying marginally
greater buoyancy than Bangalore. The absorption of residential property units
in Chennai this year has been almost equal to that seen in 2011. In Bangalore,
this year’s absorption has been low.
Bangalore has gradually evolved into a more matured real
estate market, since the market growth there preceded that of Chennai.
Capital and rental values in city-centric locations are on
the higher side in Chennai when compared to those of Bangalore. This is
primarily because of the limited supply of city-based residential properties
and lack of social infrastructure in Chennai’s suburbs. This has caused an
escalation in demand for purchase and rental apartments in the city-centric
locations.
Here lies an interesting variant in the demand drivers of
these two cities. Residential property capital values as well as rentals in
Chennai are driven by location – the specifications and amenities provided in
projects do not figure significantly in the decision matrix of customers.
Conversely, capital values and rentals in Bangalore are driven primarily by
specifications and amenities.
In Bangalore, the residential supply is well-distributed –
Bellary Road, Hosur Road and Whitefield account for over 68% of the supply for
this year. Unlike Chennai, each micro-market within Bangalore competes with
others. This has resulted in residential real estate development that is
typified by more innovative products and has kept competition intense.
Community living as a concept has also seen greater
acceptance and adoption in Bangalore than in Chennai. This is owing to the fact
that Bangalore has a number of locations which are supported with good social
infrastructure – an aspect wherein Chennai falls shorter.
This is one of the most important reasons why Bangalore has
already seen a number of well-executed township projects with superior
amenities. In contrast, Chennai has yet to see a large, fully executed township
project.
Apart from IT/ITeS and financial services, Chennai’s economy
is driven by the automotive, manufacturing, telecom and semi-conductor sectors.
However, the residential property market is primarily driven by IT / ITeS,
which is concentrated in certain locations that axiomatically see the highest
demand and therefore supply. This has resulted in the city’s Southern and
Western suburbs accounting for more than 70% of the residential real estate
supply.
Unfortunately, these suburbs still lack proper social
infrastructure and land availability is limited, resulting in a paucity of
schools, malls, multiplexes, restaurants and supermarkets. This factor has
acted as a major deterrent for demand increase in these locations. The highest
demand for homes in Chennai is still for city-based properties.
Due to limited availability of suitable plots, city center,
land prices have increased manifold in the city, where demand for residential
units has always far exceeded supply. This has made city-based properties
expensive for new buyers. By the same coin, investments made into this asset
class have yielded rather attractive returns in terms of capital value and
rental income.
That said, Chennai’ real estate market is currently at an
inflection point, and the next 6-12 months will see large-scale migration to
suburban locations. This will result in a lot of project completions in the
suburbs, and therefore the promise of a better lifestyle for homebuyers in
these locations. On the heels of this, these suburban locations will start
seeing investment appreciation while city-based properties will begin to
stabilize.
Badal Yagnik, Managing Director – Chennai & Coimbatore,
Jones Lang LaSalle India
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