Chennai Residential Hotspots by JLL -

Chennai Residential Hotspots by JLL

Chennai Residential Hotspots by JLL

Chennai, the city which embodies a perfect amalgamation of rich cultural heritage with modern technology, is the subject of our second edition in the series JLL’s Tour of India’s Top Residential Hotspots. The metro’s strong manufacturing base, along with the development of IT/ITeS spaces is etching a new skyline on its urban landscape. Large infrastructure developments (including Chennai Metro Rail, Chennai Suburban Rail, flyovers, bridges and radial roads), a well-diversified demand base and stable polity are some of the drivers for real estate growth in the city.

Chennai Residential Hotspots by JLL
Chennai Residential Hotspots by JLL

Within this macrocosm, a few micro-markets are emerging as preferred residential destinations in the city. Typically, home buyers evaluate surrounding social and physical infrastructure, affordability, the supply of high-quality housing stock, timely delivery and future potential for price appreciation, before arriving at the big decision of where to buy a house. So which locations in Chennai are currently looking attractive on these parameters? This edition of JLL’s Tour of India’s Top Residential Hotspots attempts to evaluate various locations through multiple-criteria-decision-analysis and arrive at the two top residential hotspots in Chennai. Offering a wide spectrum of residential spaces, Chennai caters to high-end IT population fuelling demand for mid and high-end homes. At the same time, it also caters to a traditional manufacturing class, with limited affordability. This gives rise to the demand for affordable housing. Moreover, two distinct cultures flourish in the city side by side. Local culture and cosmopolitan culture. This unique culture of Chennai is often reflected in the architecture of homes in the city.

Traditional designs incorporated with new technology and high-rise residential towers with traditional interior designs, characterize the unique features of Chennai’s residential market. Increased activity in office markets has also acted as a spur for enhanced residential absorption. The city regained its importance on the radar of institutional investors in 2018 and Mapletree as well as Ascendas-Singbridge Group has made some large investments in office assets indicating confidence in real estate markets in the city. With continued stability of the ruling party in the state, there is hope that under-construction infrastructure projects will see timely completion. We do hope the report provides new interesting insights to both homebuyers and developers. The evaluation matrix should assist homebuyers looking for a suitable location. We hope that it will also benefit developers who are looking for new locations for their future investments.

Diverse economic base propels residential demand
Chennai is a key economic powerhouse of India with a diverse economic base of manufacturing and service industry. It is the base for 30% of India’s automobile manufacturing and 40% of India’s auto component industry. The metropolis is the second-largest city in terms of IT exports in India after Bengaluru. Along with this, the Chennai port has India’s second-largest container facility that drives the development of oil refineries and the ship-building industry, essentially contributing to the city’s economy. In addition to this, healthcare, tourism and Tamil film industry are other important industries that contribute to the city’s economy. This clearly explains that Chennai is a residential market for all segments of the economy, from affordable to luxury. According to Oxford Economics, Chennai’s economy is expected to grow more than 7% every year between 2017 and 2021, and it is going to be the third fastest-growing city in Asia after Delhi and Ho Chi Minh City. This is further promising for the growth of its residential sector as economic growth attracts migrants into the city and also improves the buying capacity of the city dwellers.

Diverse economic base characterizes Chennai’s cosmopolitan culture
The diverse economic base of Chennai not only attracts people from all parts of the country, but also from different parts of the globe. Expats and technology professionals from all parts of India have settled in Chennai. Therefore, the city holds its local culture and cosmopolitan culture parallel to each other. This diverse culture of Chennai reflects in the architecture of houses in the city. Traditional designs incorporated with new technology, high-rise residential towers with traditional interior designs characterise the unique housing requirements of today’s homebuyers in Chennai’s residential market.

New linkages pave way for emerging residential markets
The city bus service network in Chennai is operated by the Metropolitan Transport Corporation (MTC) Limited, while Chennai Metro Rail and Chennai Suburban Railway form the key Mass Rapid Transit System (MRTS). The city has an intricate road network of 2,780 km connected by MTC. These roads are further extended by the development of radial roads spreading across 250 km in and around Chennai Metropolitan Area (CMA). Chennai Metro Rail is partially operational covering 45.1 km with 32 stations. It is proposed to cover a total distance of 164 km with 158 metro stations. All these services – MTC, Chennai Metro Rail and Chennai Suburban Rail along with upcoming link roads and ring roads (planned or under construction) have opened up new locations for residential development in the city.

Infrastructure development drives price northwards
Chennai also witnessed price appreciation in various locations due to inception or operation of Chennai Suburban Railway project and Chennai Metro Rail project. A few examples: After the announcement of Chennai Metro Rail Phase II in 2016, Perambur in north Chennai witnessed a price appreciation of 5-6% year-on-year and Poonamallee in the west of Chennai also witnessed a 2-3% price appreciation year-on-year. Infrastructure has been the only growth driver for property prices in the last two years in Chennai. However, it was observed that only a few key suburban locations have witnessed a price increase due to the announcement of metro rail links. In 2018, the green line connecting Chennai Central to St Thomas started operations. But these locations did not witness any significant price appreciation due to this infrastructure development.

Gaining importance on the radar of institutional investors
Institutional investment in real estate plays a key role in the development of a city. Chennai regained its importance on the radar of institutional investors in 2018.

Mapletree Investments bought SP Infocity – jointly owned by Canada
Pension Plan Investment Board and Shapoorji Pallonji Investment Advisors for INR 24 billion. SP Infocity is a 2.7 million sq ft office asset, located in Perungudi. Another large investment includes Ascendas-Singbridge Group acquiring a 531,432 sq ft land parcel in Pallavaram-Thoraipakkam road to build an IT Park with 2.3 million sq ft of built-up space. This trend is likely to continue as Chennai has a few other quality office assets with high occupancy that are being assessed for investment purposes. Such investments indicate positive sentiments in the city and this consequently rebuilds the homebuyer’s confidence to invest in Chennai.

Office and manufacturing sector growth drives residential demand
Chennai is the second in India in terms of IT exports, after Bengaluru. This clearly indicates that the city has a strong technology base driving the growth of office real estate. Chennai has an office stock of over 61.2 million sq ft. The city witnesses an average annual net absorption of 3 million sq ft, creating new and improved opportunities for employment. This strong employment and income dynamics are key demand drivers for the city’s residential market. Chennai also witnessed strong growth in the manufacturing sector in 2018. Large automobile and auto component firms along with oil refineries, shipping industry and Chennai port, all these contributed to strong residential demand in the city. Chennai witnessed a slight slowdown in the residential market due to the uncertainty brought in by the implementation of Real Estate (Regulation and Development) Act (RERA) and Goods and Services Tax (GST), in 2016 and 2017. However, in 2018 the city witnessed a strong increase in launches and sales. This was also due to infrastructure developments in the suburban areas having good access to IT hubs in the city. It opened up new opportunities for residential development.

More than 14,000 units were launched in the suburban areas of Chennai in 2018. Locations close to the key IT hubs and a few emerging locations were the best-performing markets of the city. They saw quarterly sales rate (percentage of units sold against units available for sale) of 10-12%, which is higher than the quarterly sales rate across other parts of the city that were at 6-7%. Affordable housing also performed well in Chennai. Most affordable housing projects located in the southern and the western suburbs of Chennai witnessed good sales in 2018.

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