By Mr.
Badal Yagnik, Jones Lang LaSalle India
In the recent past,
the growth of the real estate sector in both Bangalore & Chennai cities has
been exponential. This is largely due to the fact that they are among the most
prominent cities in South India in terms of generating new business.
Of the two (2),
Bangalore has gradually evolved into a more matured real estate market, since
the market growth there preceded that of Chennai.
 |
Mr. Badal Yagnik, JLL India |
Capital
& Rental Values.!
Residential property
sales in Chennai and Bangalore have been more or / less stable of late, with
the Chennai market displaying marginally greater buoyancy than Bangalore.
The absorption of
residential property units in Chennai this year has been almost equal to that
seen in 2011. In Bangalore, this year’s (2012) absorption has been lower.
Capital and rental
values in city-centric locations are on the higher side in Chennai when
compared to those of Bangalore.
This is primarily
because of the limited supply of city-based residential properties and lack of
social infrastructure in Chennai’s suburbs. This has caused an escalation in
demand for purchase and rental apartments in the city-centric locations.
Here lies an
interesting variant in the demand drivers of these two cities. Residential
property capital values as well as rentals in Chennai are driven by location –
the specifications and amenities provided in projects do not figure
significantly in the decision matrix of customers.
Conversely, capital
values and rentals in Bangalore are driven primarily by specifications and
amenities.
Innovative
Products..!
In Bangalore, the
residential supply is well-distributed – Bellary Road, Hosur Road &
Whitefield account for Above 68 per cent of the supply for this year (2012).
Unlike Chennai, each
micro market within Bangalore competes with others. This has resulted in
residential real estate development that is typified by more innovative
products and has kept competition intense.
Community living as a
concept has also seen greater acceptance and adoption in Bangalore than in
Chennai. This is owing to the fact that Bangalore has a number of locations
which are supported with good social infrastructure - an aspect wherein Chennai
falls shorter.
Superior Amenities..!
This is one of the
most important reasons why Bangalore has already seen a number of well executed
township projects with superior amenities.
In contrast, Chennai
has yet to see a large, fully-executed township project.
Apart from IT / ITeS
& financial services, Chennai’s economy is driven by the automotive,
manufacturing, telecom &
semi-conductor sectors.
However, the
residential property market is primarily driven by IT / ITeS, which is
concentrated in certain locations that axiomatically see the highest demand
& therefore supply. This has resulted in the city’s Southern & Western
suburbs accounting for more than 70 per cent of the residential real estate
supply.
Plot of
Land Availability..!
Unfortunately, these suburbs
still lack proper social infrastructure & plot of land availability is
limited, resulting in a paucity of schools, malls, multiplexes, restaurants
& supermarkets. This factor has acted as a major deterrent for demand
increase in these locations. The highest demand for homes in Chennai is still
for city-based properties.
Due to limited
availability of suitable plots, city centre, land prices have increased
manifold in the city, where demand for residential units has always far
exceeded supply. This has made city based properties expensive for new buyers.
By the same coin, investments made into this asset class have yielded rather
attractive returns in terms of capital value and rental income.
Suburban
Locations..!
That said, the
Chennai’ real estate market is currently at an inflection point, and the next 6
to 12 months will see large scale migration to suburban locations. This will
result in a lot of project completions in the suburbs, and therefore the
promise of a better lifestyle for house buyers in these locations.
On the heels of this,
these suburban locations will start seeing investment appreciation while city
based properties will begin to stabilize.
About the author..!
Mr. Badal Yagnik is
Managing Director – Chennai & Coimbatore, Jones Lang LaSalle India
Contact:
Mr. Badal Yagnik
Managing Director – Chennai & Coimbatore
+91 44 4299 3000
badal.yagnik@ap.jll.com
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