Chennai realty sector gearing to catch up

Chennai is gearing to catch up with the lost momentum in investments when compared to its cousins in South.  The real estate market is predominantly driven by end users constituting 75-85 per cent and their typical investment ticket size has been estimated at Rs 40-60 lakh.  However, the pent-up demand is slowly entering the market now.

In a panel discussion on aiding real estate growth in Chennai, Credai –JLL initiative has analysed with industry captains consisting of leading developers, international property consultants and HFCs and banks, on factors ailing the realty sector in and around Chennai and the remedial measures needed to revive the sector.

Chennai is the preferred destination for corporate occupiers due to availability of skilled professionals and Tamil Nadu accounts for more than 30 per cent of the engineering talent available in the country.  The city which has been awarded India Today Best City Award 2014, also boasts of the highest number of chartered accountants in the country.

The city is witnessing growth in IT/ITES along the OMR, GST, Mount-Poonamallee road and Ambattur.  The NH-4, Oragadam (SH57) and NH5 are also emerging as hot spots for manufacturing, warehousing and logistics related infrastructure.  Hence the surrounding areas near the growth corridors would be good investment choices.

The panelists agreed that the key demand drivers for the revival of realty sector are implementing infrastructure projects, reduction in lending rates, introduction of reforms and legislating appropriate policies to rejuvenate the ailing real estate sector. Chennai’s Outer Ring Road (ORR), Metro Corridor 2 and Corridor 1 will go a long in improving connectivity to different parts of the city and the metropolitan area.  Further reduction in the lending rates would boost the homebuyers’ sentiment to plunge into investment.  It is expected that REITs, relaxation in FDI and Real Estate Regulation Bill would bring in further changes to streamline the largely unorganised sector.

Currently land prices have reached astronomical levels.  There is consensus among the panelists that with no correction in land prices impending and with limited supply of land with clear title, residential property prices are unlikely to see major correction.  However, the demand for residential units is expected to pick up, given the increasing positive investor sentiment.  Expected increase in salary levels and increased employment opportunities are likely to restore investor confidence and push residential sales.

Lack of infrastructure, policy paralysis in the state government and delay in planning approval process are major deterrents in real estate sector in Chennai. For launching a project, at least 58 clearances are needed even today.  Even after project implementation, it takes 9-12 months to get the nightmarish completion certificate.  If a single window clearance system is introduced and sanctions expedited, on an average property prices would cost Rs 400 per sq ft less on account of efficiency in the system.

The approval process is the key to keep the supply side open, reducing the cost of operation to the developer and thereby benefiting the consumers.

Housing sales improved by 5.5 per cent q-o-q in fourth quarter last year and improved home buying sentiments along with developers offering festive discounts supported the housing sales. A significant development is that research reports in the last two months have revealed that global PE funds are planning to invest US$6 billion predominantly in the residential sector.

Source: Times of India / V Nagarajan Magicbricks