The real estate market of Tamil Nadu is considered to be both stable and predictable. Chennai has a large migrant population and in terms of income, it has the second highest per capita purchasing power in India. Thus, the growth and demand for real estate sector in the state is broad- based and stable.
People perceive the real estate business as complicated. In fact, it is not. Delhi, Gurgaon and Noida in North, Kolkata in East, Pune and Mumbai in the West and Chennai, Bengaluru and Hyderabad in the South contribute 80 per cent of the demand in the country. If you understand these nine cities, you would do well across India. Amongst these nine, NCR region was contributing 42 per cent, followed by Bengaluru, Pune, Chennai, Hyderabad and Mumbai in terms of both office space and housing supply. In the last two years, NCR and Mumbai have been impacted by some of the fiscal measures.
The Tamil Nadu real estate market can be broadly divided into Chennai city and suburbs, Coimbatore, Madurai, Trichy and Salem.
Demand highest in Chennai
The property demand and price appreciation is the highest in Chennai and suburbs, where the market is performing in sync with location, logistics and infrastructure. Since a decade, there had been a heavy influx of corporates expanding their operations to Chennai, leading to a corresponding demand and growth for commercial and residential property markets. The city and its suburbs have a transaction volume, which serves 900 million people across the world through back office operations. Its economy is estimated at USD 78.5 billion (PPP GDP). Chennai is the third most productive metro area in India. It witnesses demand for the affordable and mid-market categories due to the city accumulating large proportions of its population.
In 2016 the Tamil Nadu real estate market had a transitory setback in sales and capital appreciation. This was due to political conditions of the state, a series of regulatory reforms and the catastrophic floods. But there had been a turnaround in 2017 with all stakeholders understanding the realities of the market post-policy changes and the improvement in transparency and accountability. The wait and watch mood has gone among homebuyers. Prices have stabilised across segments.
New launches will increase
Chennai and suburbs has been witnessing new supply of over 20,000 units each year over the last decade. But 2016 and 2017 witnessed a decrease in supply due to the effects of demand-supply mismatch, reform initiatives and policy changes. However, the number of new launches will increase in the coming years as reflected in the number of units launched during the half year ended 30 June, 2018, wherein the market has seen new launches of 8596 units, while 2017 witnessed launches of 9072 units.
The market has witnessed increased sales in the affordable and mid-market categories with market share at 82 per cent of sold inventory.
As of June 2018, Chennai had the lowest inventory overhang among the top seven cities. Increased sales in the second quarter of 2018 are to lead to further decreases in supply overhang.
As to Capital Value trends, Chennai’s residential market witnessed high appreciation across all sub-markets between 1 January, 2012 and 31 December, 2014. Since then the growth has been minimal due to high inventory overhang and competitive pricing among developers. The growth of new supplies has been minimal since 1 January, 2014. The CAGR of capital value over the last five years has been the highest in premium locations and northern suburbs, followed by central and off-central locations. However, over the last three years, suburban locations have started witnessing capital value growth.
Upcoming major IT developments are expected to create considerable demand for residences in the city. With major policy initiatives such as Tamil Nadu Real Estate Regulatory Authority, PMAY and GST, current outlook is positive with combined initiatives implemented at the central and state levels. Moreover, the upcoming commercial supply in micro markets such as Porur, Pallavaram-Thoraipakkam Road and Perungudi is expected to increase employment, which is expected to create housing demand in these micro markets and surrounding locations. The recent revision in the floor space index for residential projects from 1.5 to 2.0 upto four floors and 2.5 to 3.25 for multi-storied projects is expected to support developers and end users in terms of pricing in a big way.
Sub-market has potential for residential development
The operation of Outer Ring Road has supported real estate development activity in the Chennai sub-market, eg: high capital value appreciation at Porur and in areas along the National Highway 48 made it unaffordable to a large segment of buyers. This pushed demand to Mangadu and its neighbouring areas, which are satellite locations to Porur. This sub-market has potential for residential development due to the establishment of commercial and industrial developments along the National Highway 48. This sub-market also has the good physical and social infrastructure supporting the growth of real estate. Based on the capital value trends and the overall macro market scenario, an annual appreciation of approximately 8 per cent to 10 per cent is expected in the sub-market for the coming years, due to supply being led by graded developers.
Higher capital values in the sub markets like Porur, Sriperumbudur and Oragadam, region is expected in the coming days. These sub-markets are expected to have improved connectivity due to its proximity to the proposed Metro Corridor. Similarly Perungaluthur is an emerging IT hub in Chennai and is located in the southern suburban area of Chennai.
The commercial submarket primarily comprises captive built-to-suit office spaces. The GST Road has developed in the last 10 years as an IT growth corridor and accounts for approximately 5 per cent of the city’s non-captive IT Space. Currently, global IT majors such as Cognizant, Accenture and Infosys operate in Perungalathur. Perungalathur accounts for approximately 5 per cent of residential supply and 3 per cent of graded commercial/ office space of the city.
The proposed Chennai Mofussil Bus Terminus at Vandalur is expected to support real estate in a big way. The proposed flyovers at Perungalathur and Vandalur are expected to ease traffic congestion. The operational Metro Rail Project till Meenambakkam is also another advantage.
In the Real Estate map of Tamil Nadu, after Chennai and suburbs of Chennai, Coimbatore, Madurai, Trichy and Salem have the potential to be promising hotspots of Tamil Nadu real estates. Developments in these cities are primarily mid category and affordable housing developments.
Great potential of Coimbatore, Madurai, Trichy too!
Given the infrastructure and manpower availability, further supported by nearly 3 million square feet of IT stock and commercial space of a million square feet in prime areas, Coimbatore is sure to become another IT hub. Coimbatore is also one of the healthcare tourism destinations in India with its world-class healthcare facilities. The temple city Madurai, with proposed AIIMS, Madurai – Tuticorin Industrial corridor, Trichy with proposed food processing parks, development of 1000 acres industrial estate besides defence corridor, Salem with proposed Aerospace Park, express way to Chennai and defence corridor are other potential hotspots for real estate development in Tamil Nadu.
The uniqueness of Tamil Nadu is that it is a well-developed front line state with a distinct economic balance having service as well as manufacturing sector and not dependent on a particular sector unlike other states of the Indian Union. This augurs well for a balanced and stable real estate development in the State across various segments consisting of well-informed end-users and buyers.
