Chennai real estate market peaks

The real estate market in Chennai is passing through a phase that it has never witnessed in the past. The residential properties are getting much costlier than office properties in the city. The sale price of residential apartments, both in the primary as well as secondary markets, has almost doubled over the past 12-15 months in the city. On the other hand , the sale price of office space has increased just 20% - 30% on an average, during the same period. The flare-up in residential prices is mostly attributed to the demand outsmarting the supply, besides the increasing cost of land acquisition. The increased demand is mostly driven by the growth in the IT/ITES sector in the city, which has also been attracting large investments in the manufacturing sector. According to industry sources, the current capital value for office space ranges between Rs 4,500 per sq ft and Rs 7,000 per sq ft in the CBD (central business district), Rs 3,500 - Rs 5,000 per sq ft on OMR (IT Corridor) and Guindy, and between Rs 2,500 - Rs 3,000 per sq ft in suburban Ambattur. On the other, the capital value of residential apartments ranges between Rs 4,500 per sq ft at the low-end areas and goes up to Rs 12,000 per sq ft. It even goes more in places like Poes Garden, where the prices had never crossed Rs 5,000-mark. “While acquisition of commercial space is driven by average rate of return (ARR) on investments, the buying of residential units is mostly driven by aspiration. If someone is keen on buying a residential apartment in a certain area, he buys. In such cases, the logic takes a back seat,” says Sanjay Chugh, vice president – Transaction Management Services. In the case of the emerging OMR, the prices range between Rs 2,800 and Rs 4,000 per sq ft for newly-launched residential units. The price ranges between Rs 2,500 - Rs 4,000 per sq ft in suburban areas like Perambur and Ambattur. “Today, the affordability of home buyers has gone up. Also the supply coming into the market is much less than the demand. Hence, builders are getting premium price and are also able to afford premium quality buildings," V Jagannathan, managing director, Ramaniyam Real Estate, a leading property developer said. T Chitty Babu, MD, Akshaya Homes, termed this as a cyclical phenomenon. "An emerging market will first witness demand for 'work space', and the higher earning executives then drive the demand for residential units, which in turn will catalyse the demand for retail, food and entertainment spaces," he said. "Chennai is now in the residential segment of the cycle. And I am sure, 6-9 months down the road, there will be increased demand for commercial space catering to the requirement of retail, entertainment and food categories," Mr Chitty Babu added.