Chennai’s real estate market has definitely seen better times. As Natarajan S., head of sales, Navin Housing and Properties, says, “I used to sell as many as 100 homes per month in 2011. Now, I barely sell 20. The buyer has too many options. The economy isn’t at its best, the Government was recently in a bit of turmoil, and people don’t feel secure professionally. All this has impacted the industry. ”
N. Nandakumar, President – Tamil Nadu, The Confederation of Real Estate Developers Association of India (CREDAI), attributes the lack of demand to what he calls ‘densification’. “Every time a locality does well, all the developers scurry there. This leads to oversupply, as is presently the case in Sholinganallur, Padur, and parts of GST Road.” The most affected are medium and large units, as a recent RBI report shows.
Meanwhile, developers have found a novel solution to stay afloat — low-cost homes. It makes sense, with close to 65 per cent of buyers belonging to this segment. Says Kanchana Krishnan, Director, Knight Frank India, “This segment has an acute shortage, and it is in the interest of developers to tap into the demand.”
Also, the recently announced rule, as part of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), that stipulates that 15 per cent of all housing complexes above 1,000 sq.m. be reserved for the urban poor, is pushing developers to explore this market.
Nandakumar, who is also the managing director of Devinarayan Housing and Property, explains the allure of medium and large units. “We developers want to capitalise on luxury projects, as the profitability is high and they are easier to execute. The situation, however, has now forced us to enter the affordable segment, which has traditionally been dominated by small-time developers.” Devinarayan Housing’s upcoming project at Valarpuram, its first in this category, will have 975 units, all less than 900 sq ft in size, and priced under Rs. 27 lakh.
Similarly, Navin Housing’s Hill View Avenue at Thirumudivakkam, Chromepet, will be its first in the affordable segment. Constructed across 11.24 acres, it will have 630 units priced around Rs. 30 lakh each.
Says Natarajan: “A couple of years ago, as many as 7,000 home loans were being processed compared to 2,500-3000 today. That’s a drop of almost 60 per cent.” The low-cost trend, according to him, is advantageous for the buyer, “Some small-time builders make deviations in order to price projects attractively. Established developers come with a reputation to uphold and offer better quality.”
As developers have discovered though, it’s not all easy to execute these projects. M. Arun Kumar, founder and managing director, Casa Grande, says, “Trying to fit in as many as 200 units into, say, four acres can get quite complicated. We have to spend a lot of time planning the layout and accommodating facilities such as parking spaces.” Casa Grande, like many other developers, has traditionally been uninterested in this segment. “The market has now forced our hand.” Casa Grande now has a project in Nayapakkam, a few kilometres from Medavakkam, with units priced at Rs. 12-27 lakh.
Another problem is the mindset of the target demographic. “Some customers don’t understand that they have to pay a little extra to established developers, as we don’t resort to illegal ways of cutting cost,” says Natarajan. But Nandakumar disagrees: “As long as developers are willing to scale and innovate, profitability needn’t be a problem.” Natarajan points out another problem in this segment. “There is the possibility that banks might refuse loans to these customers.”
Nandakumar points to another worrisome trend: that of developers modifying unsold projects to include affordable units. “Projects with only 3BHK and 4BHK units are now suddenly adding affordable units. Customers need to be wary, as they will have to pay a maintenance fee for the top-end facilities in the project.”
Regardless of all these problems, the truth is developers have no choice, and if they are to bide time with minimal losses, they can only do so by stepping into a segment that has seemed quite unglamorous so far. But they won’t have to wait too long to see profits again, if Knight Frank’s research is anything to go by. “On the back of infrastructure developments on the Outer Ring Road, and progress on the Chennai Metro Rail project, we expect the market to stabilise and sales volume to pick up in the medium term,” says Kanchana. Until then, it’s the buyers wanting low-cost units who will be spoilt for choice… for once.
Box item
Unit preferences (in percentage)
Area Class | Q1: 14-15 | Q2: 14-15 | Q3: 14-15 |
Small | 22.6 | 21.9 | 48.9 |
Medium | 46.3 | 46 | 27.5 |
Large | 31.1 | 32.1 | 23.5 |
Source: RBI
Box item 2
Upcoming low-cost projects
Builder | Location | Total Units | Primary Price (Rs/sqft) | Unit Size |
Godrej Properties | Chembarambakkam | 272 | 4070 | 572-585 |
Amarprakash Group | Kundrathur | 600 | 2999 | 650-970 |
Harmony Eldercare | Potheri | 120 | 3080 | 600 |
Source: Knight Frank India
