Knight Frank India launched the 12th edition of its flagship half-yearly report – India Real Estate: H2 2019- which presents a comprehensive analysis of the residential and office market performance across eight major citiesfor the July-December 2019 (H2 2019)period. The report establishes 2019 to be a year of much-awaited stability and recovery for Chennai’s residential real estate, with sales rising by 6% YoY to 16,959 units in 2019 and launches rising by 11% YoY to 11,542 units.
Office transactions in Chennai were at an all-time high of 0.5 mnsq m (5.2 million square feet (mnsqft)) in 2019, registering a 50% YoY increase. Supply went up by 31% YoY in 2019 as a total of 0.2 mnsq m (1.7 mnsqft) new office space entered the market.
RESIDENTIAL MARKET HIGHLIGHTS OF CHENNAI
• Residential launches in Chennai grew by 11% YoY to 11,542 units in 2019. This growth momentum was marginalised in H2 2019 as launches dwindled to -2% YoY on account of the credit crunch being faced by developers and slow demand.
• 59% of the total launches in H2 2019 fall in the sub-INR 5 million categories. As demand remains concentrated in the affordable housing segment, many developers appear to be making a shift and venturing into this high traction market.
• Residential sales in Chennai increased by 6% YoYto 16,959 units in 2019, and by 8%YoY to 7,980 units in H2 2019.
• South Chennai which includes Perumbakkam, Chrompet, Sholinganallur, Guduvancheri and Kelambakkam, accounted for the highest number of launches as well as sales at 9,145 units (49% YoYincrease) and at 11,409 units (9% YoYincrease), respectively, in 2019.
• The sub-INR 3 million (INR 30 lakh) ticket sizesegment has been and continues to be the most transacted residential segment in the Chennai market.
• The stilt plus four apartment structures, locally known as special buildings, have regained the favour of homebuyers as they fail to find comfort in high rises. High maintenance costs and the high risk of delivery delays are key reasons for the discomfort of homebuyers with tall, multi-storeyed buildings. For developers, these special buildings are low-risk projects that potentially offer relatively quicker exits with decent profits. Accordingly, developers too are preferring to launch such projects, especially as more and more high storey projects are getting stuck due to the ongoing liquidity crunch.
• Launches were also low due to some regulatory changes, for which developers have to revisit their plans of launching new residential units.
• Implementation of RERA Act in the state was simply to protect the interests of the buyers. With RERA now homebuyers are confident and assured about their investments.
• As per Tamil Nadu Government Combined Development and Building Rules, 2019, premium Floor Space Index (FSI) has been charged at 50 percent over and above the normally allowed FSI if the road width is 18 metre and above and 40 percent if it is below 18 metre and above 12 metre. For the road width of below 12 metre and above nine-meter, 30 percent premium FSI will be charged.
• Unsold inventory in the Chennai residential market went down by 28% YoY in H2 2019 to 13,610 units as a significant portion of the ready-to-move-in unsold inventory got consumed.
• Weighted average home prices in Chennai showed an effective correction of 5% YoY in H2 2019 to INR 44,883 / sq m (INR 4,170 /sqft).
• On the positive side, lower number of launches have revised the quarters-to-sell(QTS) from 4.83 quarters in 2018 to 3.3 quarters in 2019.
• A new trend seems to be shaping up in Chennai residential market where developers are giving out an entire block from their constructed residential project to co-living players. This arrangement is helping developers bring in cash flow for the time being.
Srinivas Anikipatti, Senior Director – Tamil Nadu & Kerala, Knight Frank India, said,“2019 has been a year of much-awaited stability and recovery for Chennai’s residential real estate backed by the commendable performance of the Chennai Office market this year. Primary drivers of the residential demand have been the ready-to-move-in units and the affordable housing segment. It is therefore not a surprise that many developers are shifting to the high traction affordable housing market. While the nationwide credit crunch faced by the real estate sector and the economic slowdown impacting job growth pose as challenges, Chennai’s increasing Office market activity will continue to aid the growth momentum in residential real estate.”
OFFICE MARKET HIGHLIGHTS OF CHENNAI
• Office transactions activity in Chennai was at an all-time high of 0.5 mnsq m(5.2 million square feet (mnsqft)) in 2019, registering a 50% YoY increase.
• In H2 2019 as well, office transactionsgrew by 95% YoY to 0.3 mnsq m (3.4 mnsqft), the highest volume recorded ever for a half-yearly period in Chennai.
• Share of IT/ITeS sector in total transactions increased from 42% in H2 2018 to 53% in H2 2019, a jump of 0.1 mnsqm(1 mnsqft). BFSI sector’s falling share in the total transactions pie has in fact recovered to a substantial 13% in H2 2019 from the meagre 2% in H1 2019.
• Peripheral Business District (PBD)–Old Mahabalipuram Road (OMR) and Grand Southern Trunk Road (GST) and PBD–Ambattur witnessed a significant growth in H2 2019, 370% YoYand 235% YoY respectively.
• The Chennai office market has been weighed down with the lack of quality office space for more than three years now. In 2019, supply went up by 31% YoY as a total of 0.2 mnsq m (1.7 mnsqft) of new, quality office space entered the market.
• Majority of this new supply came online in H2 2019 as 0.1 mnsq m (1.5 mnsqft) was added this half-year, registering a significant 872% YoY jump.
• Weighted average rentals grew by a modest 2% in H2 2019 to INR 644 / sq m (INR 60 /sqft) for the overall Chennai office market.
• Vacancy in Chennai market went down from 10.6% in 2018 to 8.8% in 2019.
Srinivas Anikipatti, Senior Director – Tamil Nadu & Kerala, Knight Frank India, said, “Chennai office market performance in 2019 has been exemplary. Transaction activity was at an all-time high of 0.5 mnsq m (5.2 mnsqft) this year. Even in terms of half-yearly transactions, H2 2019 recorded the highest transaction activity Chennai has seen so far. Chennai’s longstanding problem of quality supply crunch is also beginning to be addressed. 0.1 mnsq m (1.5 mnsqft) of new supply entered the market in H2 2019 itself and a total of 3.2 mnsq m (35 mnsqft) have been planned for phased launch until 2021-22. As IT/ITeS activity continues to grow and as new supply keeps coming, theChennai Office market’s present growth momentum is slated to continue.”