CHENNAI’S REAL ESTATE MARKET – Hurdles To Optimum Growth

Ramesh Nair, Managing Director (Chennai), Jones Lang LaSalle Meghraj

Few cities in India have managed to maintain a more or less even keel in the recent market turbulences, but Chennai definitely numbers among them. Being an essentially conservative market, it has managed to maintain its inherent potential while many other cities showed some rather extreme variations.

Nevertheless, there is still potential for positive change, and quite a few come to mind while considering the roadblocks to further progress on Chennai’s real estate front.

ORGANIZED RETAIL

To begin with, organized retail space in Chennai is in short supply. The only additions scheduled to augment the current supply of full-fledged shopping centers (Spencers and City Centre) over the next one year will be Ampa Skywalk (450,000 sq.ft.) on Poonamallee High Road, Express Avenue (8 lakh sq. ft.) on Whites Road, Coromandel Plaza (250,000 sq. ft.) on the OMR and Spectrum Mall (1.2 lakh sq. ft.). in Perambur, North Chennai. All other supply will take at least two years.

The total incoming supply over the next year accounts for only about 1.5 millions square feet. Considering that all brands perceive Chennai as a high-potential market in terms of consumption given the high spending capacity, and that they are very bullish on expansion, this supply is indeed an inadequate trickle to fails to exploit Chennai’s fullest retail potential.

The city indubitably needs more organized retail. What stands between the current retail potential and vastly expanded one is the ongoing and seemingly chronic mismatch between developers’ lease rental expectations and the paying capacity of occupiers’ business models. This needs to be addressed by an open dialogue between developers and retailers about what works and what doesn’t in Chennai’s highly individualistic retail milieu. Until this happens, there will be no incentive for organized retail to make a bigger footprint in the city.

COMMERCIAL SPACES

In terms of Chennai’s commercial real estate sector, there is a huge oversupply of IT space. These projects cannot be reinvested into other formats, since the Government has stipulated a lock-in period of five years for projects built to the higher FSI allowances made for IT / ITES. Chennai’s developer lobby has made several representations to the State Government to have this lock-in period removed. For commercial real estate in Chennai to recover more decisively, this move should be put on fast track.

RESIDENTIAL SECTOR

Chennai’s residential sector was never a speculator’s market, and therefore, prices did not shoot up as much as in most other metropolitan cities in India. By that coin, the downward slide was not as severe either. Sales on a month-on-month basis are picking up, and affordable home projects have been announced by all developers. Since the manufacturing sector in Chennai is as fast-paced as ever, the demand for homes is bound to increase.

However, delivery of these projects is delayed because the granting of regulatory approvals takes too long in Chennai. Speeding up the process of granting project approvals would boost the city’s housing sector.

‘Most of the housing demand in Chennai comes from services industries such as IT/ITES. Close to 48% of the total non-working population in Chennai falls under the age bracket of 15–59. We foresee a large proportion of this nonworking population to graduate and commence working. This will lead to an increase in the number of double-income-no-kids (DINK) families in Chennai and will result in a rise in housing demand over the same period.’ (Affordable Housing In Chennai: Calibrating The Ticket Size – Real Estate Intelligence Services, Jones Lang LaSalle Meghraj).

MANUFACTURING

Finally, a thought on one of Chennai’s key growth areas – Sriperumbadur. This is a very important manufacturing location in Chennai. As an automobile hub, it already boasts of names like Nokia, Flextronics, Samsung, Dell and Hyundai. However, Sriperumbadur suffers from a lack of connectivity between its manufacturing nodes and also to the main city. The roads that exist are incapable of handling the demands of current traffic volumes.

This area has the capacity to be a major real estate driver for Chennai, but it needs proper Metro and road connectivity to integrate the manufacturing and hardware hubs to the main city and to each other. Providing this connectivity will also open up Sriperumbadur’s residential sector.

Luxury living catching on in India

Rising income levels in India is creating more billionaires every year and this has a direct impact on consumption patterns as well. A survey suggests that there are 1.6 million luxury households in India and each of these luxury household earns about Rs 45 lakh per year and they spend about Rs 4 lakh per year on luxury and 'very premium' goods and services. This development has created a spur in the housing demand as well.

Many developers are targeting High Net-worth Individuals (HNIs) to sell their premium properties. Magicbricks.com is organizing one such fair to bring developers of luxury properties together. Big developers like Emaar MGF, Unitech, Ambience, Parsvnath, Supertech and Assotech will display their property worth rupees one crore and upwards. The fair is being held in Hotel Shangri-la, New Delhi on Match 1 and March 2, 2008.

The response to this fair will determine how many of these luxe-living projects find spot takers among HNIs.

Contributed By : Yojana Sharma

China and India Country Overview, July 01, 2007

China and India are the two most progessive nations in Asia and also the world really, where high returns and booming economies are attracting more and more investors from accross the globe to earn high profits and also establish long terms businesses.

When from an Investor's point of view, the two countries are compared for the socio-economic factors, there are a few pointers that I have compiled that could be helpful.

Look through this report and I would love your comments on the same

Click here to download the report

Keep watching this space as I will be covering the risks that investors face in each of these two nations next, followed by similar analysis for many other countries

Contributed By : Kunal Kapoor

PropertyMixer and its need

PropertyMixer is the only real estate networking portal.

PropertyMixer offers a platform for estate agents, investors, investment consultants, bankers, insurance agents, developers, interior designers, architects and all those who ahve any interest in the Real Estate Industry to interact with each other and benefit from the relationships.

The portal is not restricted to any country or location but because India and Dubai are the two markets which are the focus of International Real Estate, we would encourage people belomging to these countries to definately take advantage of the platform.

Indian Real Estate is a very lucrative market, attracting a lot of Foreign Direct Investment, though this is also one of the most unorganised markets where for a foreign buyer to enter, they need help and advice a lot more for the channels to begin with are very unstructured. According to a research published by Deutsche Bank about the Indian Market,

• Above-average economic growth in India. Strong population growth, a large pool of highly-skilled workers, greater integration with the world economy and increasing domestic and foreign investment are expected to drive India’s real GDP by 6% p.a. over the next 10 to 15 years.
• Services outsourcing revving up office demand. India is the prime destination for IT services outsourcing. In the coming five years, at least 55 million m² of extra office space must be completed in the premium office segment alone.
• 600 new shopping centres by 2010. India’s burgeoning middle class will drive up nominal retail sales through 2010 by 10% p.a. At the same time, organised retail is becoming more important. At present organised retail accounts for a mere 3% of the total; by 2010 this share will already have reached 10%.
• By 2030 India will need up to 10 million new housing units per year. Rapid population growth, rising incomes, decreasing household sizes and a housing shortage of currently 20 million units will call for extensive residential construction. The financing of owner-occupied housing in particular holds out
  enormous market potential.
• Capital market still underdeveloped. The total stock of commercial property is estimated at over USD 300 bn. So far the invested market accounts for only USD 4 bn of this. Capital market products, such as commercial mortgage-backed securities or listed property vehicles are still almost entirely lacking.
• Heed risks. Property investments in India are not risk-free. Market transparency is far behind European or US standards. It is therefore vital for foreign investors to have a professional local partner. The lack of liquidity and upward pressure of pricing remain the main concern within the market.

Dubai is another very lucrative market which is attracting a number of foreign buyers. Dubai is strategically being developed as a tourism based economy and because of the exquisite infrastructure and interesting promotions, dubai is attracting people to buy real estate there.

The flattening world has given rise to a need within the Real Estate fraternity to conenct, to network, to know more people, to be resourceful, to be able to identify where lies a new opportunity and who will be able to help one capitalise that and this is where PropertyMixer has a big role to play.

Contributed By : Minal Arora