Looking for cheaper homes? Chennai sees price cuts, reduced unit sizes

New launches in the city during the first half of 2018 were the highest in 3 years; developers focusing on offloading existing inventories by re-launching old products at lower prices

Even as the country’s real estate market has been set back by a prolonged phase of demand slowdown, the residential property segment in Chennai saw some 6,520 units being launched during the first six months of 2018. This was the highest number in the past three years.

The year 2017 was a volatile one for Chennai’s real estate market, with the first half showing some green shoots. The second half, however, hit new lows in terms of sales and supply. But this again seems to have reversed in the early months of 2018, with the Chennai market now holding around six quarters of inventory, compared with seven previously. This might point to an improving demand scenario.

According to the latest Knight Frank report, the number of launches in the city, one of India’s prime real estate markets, rose by eight per cent in the first half of 2018, even as sales were down by three per cent to 8,580 units. The average price, meanwhile, came down by around four per cent to Rs 4,510 sq.ft. The unsold inventory was down by 20 per cent to 22,579 units during the January-June period of 2018.

The significant ramp-up in supply and shoring up of demand is good for the Chennai real estate market, which has been under pressure for some time. Besides the overall slow demand for properties across the country, Chennai has been marred by some of its own issues – from political uncertainty to building collapses (due to flouting of development norms) and the floods have hit the market in the past three years, according to the research report.

The report further says that the implementation of the Real Estate (Regulation and Development) Act, 2016 (RERA), and the launch of the Pradhan Mantri Awas Yojana in 2017 are yet to boost the sector significantly.

Factors like falling prices and the current bleak investment outlook for real estate, thanks to high prices and ticket sizes, have had a much greater impact on demand. "The unstable employment scenario, especially in the IT sector, has also hurt sentiment and encouraged the deferment of homebuyers’ purchase decision," the report states.

As far as growth in supply during the first half concerned, larger supply at lower prices also saw buyer interest increasing and the fall in sales getting stemmed to an extent – down from 14 per cent during second half of 2017 (year-on year) to three per cent during January-June 2018.

While the number of units launched during the period saw an increase, developers continued to focus on offloading existing inventories by re-launching old products at lower prices and in smaller configurations, wherever possible, to attract buyers. This resulted in a four per cent year-on-year reduction in the average asking price, besides a further 10-15 per cent drop on the negotiating table for aggressive buyers.

Office space

The transaction volumes during first half of 2018, were subdued during, down by almost nine per cent year-on-year, compared with a healthy 10 per cent growth in supply.

The Chennai office space market, which has been reeling from and acute supply crunch over the past three years, saw some respite during the first half of 2018, with 0.11 million sq m (1.2 million sq.ft.) coming online.

However, the information technology (IT) and IT-enabled services (ITeS) sector took up only 0.04 million sq m (0.47 million sq.ft), translating into 27 per cent of the total space transacted during the first half of 2018 – a significant and steady growth from the 43 per cent seen during second of half 2017. The sector, the largest consumer of office space in the city, is currently experiencing a slowdown and the effects are visible in its consistently reducing share of the total transaction pie.

The vacuum was somewhat filled by the banking financial services and insurance (BFSI) sector and other services, which continued to take the space in the past 18 months.

D&B TransUnion, Barclays Bank and Citibank accounted for more than half the 0.39 million sq ft space that was transacted by this sector.