Chennai realty rates in for a respite?

There is a lot of curiosity about whether realty prices in Chennai are moving up, down or staying stable. Industry analysts have noted a slump in sales, which has prompted buyers to entertain hopes that prices might soften. Property Plus spoke to industry watchers to gauge the prevailing mood in the residential realty sector.

What everyone agrees on is that Chennai is a stable market where prices are driven by the end-users. “Residential property prices move in accordance with actual sales,” says Badal Yagnik, MD, Chennai & Coimbatore, Jones Lang LaSalle India, adding that “residential property in Chennai is driven more by location than by specifications and amenities”.

Thus, prices have moved up based on the proximity to IT parks. “Many projects are coming up close to the IT parks, which are priced at a higher range,” says Aditya Verma, COO and EVP, Old Mahabalipuram Road, for example, has been influenced the most due to IT companies setting up base there. “The average price per square foot in this area has appreciated 29.57 per cent in the last one year, moving from an average Rs.2,715 in August 2011 to Rs.3,950 in August 2012,” says Verma. Other localities that have become popular because of the IT boom are BST Road, Sholinganallur, Tiruporur, Tambaram and Oragadam.

In other areas, however, real estate prices might have actually gone down. According to Price Trends, a tool that captures the property prices movement in major Indian cities, Chennai property prices have dropped by approximately 12.6 per cent in the last one year. The average price per square foot has dropped from Rs.4,437 in August 2011 to Rs.3,800 in August 2012. In the second quarter of 2012, prices appear to have stayed stable because of dampening demand.

One of the key reasons affecting realty prices in the city seems to be the scarcity of land and the high cost of premium FSI within the city. “The available options in these locations have shot way past the budgets of even the upper middle class,” says Yagnik. Within Chennai city, prices for a standard flat with minimum or no amenities can range from Rs.1.5 to Rs.5 crore. “Other factors driving capital values in the residential market are increasing construction costs and increasing borrowing costs,” says N. Hariharan, director, Chennai, Cushman & Wakefield.

Given this, developers are looking increasingly at suburban locations. Unfortunately, in these areas, infrastructure development has been abysmally poor. This could be one big reason why prices and sales have remained stagnant.

In the near future, prices do not show an inclination to rise. “In order to uphold sales enquiries, developers might refrain from increasing prices,” says Hariharan.

As Verma points out, developers in many markets such as Chennai, Bangalore and Mumbai are holding property prices to avoid panic among the investor community.

The next few months, before the festive season hits, might prove crucial for the Chennai realty sector. “The realty market is facing multiple head winds that will keep property prices under check at least in the medium term. However, a short-term correction is actually healthy for the market and could attract fence-sitters, thereby boosting sentiments,” says Verma. For buyers waiting for some indicators, this sounds like a small reprieve.