Bangalore, Chennai realty markets show stability

Community living as a concept has seen greater acceptance and adoption in Bangalore than in Chennai

Bangalore and Chennai have emerged as stable markets for real estate development in South India with Bangalore showing more maturity than Chennai.

According to Jones Lang Lasalle India, a global real estate services firm specialising in commercial property management, leasing, and investment management, the growth of the real estate sector in both Bangalore and Chennai has been exponential in the recent years.

“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 lower,” Badal Yagnik, managing director, Chennai & Coimbatore, Jones Lang Lasalle India said.

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, he said in a latest report.

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, the report said.

Due to limited availability of suitable plots, land prices have increased manifold in Chennai, 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, the 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 home buyers in these locations.

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, Yagnik said in his report.