High Times for the Chennai Real Estate Market

High Times for the Chennai Real Estate Market

Sarita Hunt, Managing Director – Chennai & Coimbatore, JLL India

2016 was year of many big announcements. From the Smart Cities mission to demonetization, there were several headline-making events that would change the face of Indian real estate in the times to come. Chennai embraced these changes and lived up to its reputation of being a city that bounces back, regardless of the odds.

High Times for the Chennai Real Estate Market

Chennai is among those metros which has a healthy diversification of economic growth driver. Its economy has a broad industrial base, with Chennai’s port and its thriving IT/ITeS and BFSI sectors contributing to its growth. The city’s manufacturing sector includes the automobile, computer, technology and hardware industries.

This diverse economic base ensures that the city continues to attract new businesses and industries, guaranteeing sustained and robust demand for both commercial as well as residential projects. Also, being one of India’s IT hotspots, Chennai has witnessed a steady influx of talent and skilled workforce.

In 2016, over 70% of the office space absorption in the city was from the IT/ITES sector. The city also witnessed a record gross absorption of 6 million sq. ft. This is a 20% increase over the previous year. With limited availability of ready-to-move-in office spaces, occupier demand is only expected to rise.

The steadily-improving office market scenario will have an obvious positive impact on residential demand, as well. This means that locations in Chennai where office space market activity is higher – such as the Southern suburbs - will see significantly increased traction.

The Government’s recent demonetization move has resulted in more money being pumped into the banking system, and this will make substantial funds available to banks for lending to businesses, construction, infrastructure development, and home buyer financing. Chennai, with its massive development and growth potential, will be certainly among the chief beneficiary cities.

On the manufacturing front, the Government has signed 8 MOUs with various industries from the auto, auto-ancillary, light engineering and telecom sectors. The warehousing sector has also seen new launches of Grade A space supply. Consequent to these favourable developments, there has been keen interest from private equity players who are looking for ideal properties in and around Chennai for investment. The Central Government’s move to implement GST has added momentum to the growth of this sector.

With affordable housing now having been granted infrastructure status, this segment is expected to receive cheaper sources of financing, including external commercial borrowings. Chennai’s developers, who have always been highly attuned to the budget housing segment, will continue to stay invested in affordable housing projects in anticipation of vastly increasing demand.

With the economy now firmly on a growth path post multiple changes through 2016 - RERA, GST, FDI reforms and demonetization – there will be increased inclination to invest in real estate, which still remains the preferred investment asset class in India. For Chennai’s property market, the prospects for the future have never been better.