Explained: What Keeps Chennai's Cost-effective Housing Market Afloat?

The Knight Frank India's Affordability Index has been out recently. Based on the index, Chennai remains one of India's most inexpensive housing markets, ranking among the top eight cities. While Ahmedabad ranks first in India in terms of residential affordability, Chennai ranks third nationally, next to Pune. However, in South India, it tops the charts.

The Chennai residential market has been gradually improving since H2 2020, with progress in sales gradually increasing to 6,951 units sold in H1 2022, a 21% YoY increase.

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What distinguishes Chennai and keeps it on the list?

In almost every sector, including the housing market, there has been a rising trend toward premiumization in Indian cities. According to industry experts, Chennai employs a different perspective and approach. Home builders highlight the city's mixed economy and low cost of living compared to other Indian metros as predominant factors motivating individuals to relocate here. Therefore, Chennai's real estate market has performed admirably over the years.

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According to Rajesh B. Lund, Joint Secretary, Confederation of Real Estate Developers' Association of India (CREDAI) South, the city thrives in manufacturing, particularly the automotive industry. Hence, it serves as a hub for IT and logistics, with its well-spread out and improved infrastructure providing tens of thousands of jobs, attempting to make it an ideal choice. Lund also stated that most residential properties in Chennai include most of the facilities and services in premium properties, like more open spaces, swimming pools, etc. These are typically priced between 60 lakh and 1.2 crores. Upmarket, on the other hand, range in price from 1.2 crores to 5 crores. The demand for ultra-luxurious properties has begun to rise. Above all, the housing sector in Chennai is primarily an end-user market.

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Buyers consider the quality of living and have a wide range of criteria. Simultaneously, builders strive to include amenities comparable to those found in premium markets, which is feasible due to competitive costs. According to media reports, the average property price for apartments in Chennai is higher than in Bengaluru. There are currently no apartments in the city that start at 4,000/sq ft and go up to 30,000/sq ft.

Effect of inflation on the housing plan

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The industry is also concerned about inflation and the RBI's repo rate hikes, which have increased the cost of home loans. The market has been stagnant for the last three months due to employment uncertainty and a rise in home loan EMIs.

To combat inflation, the central bank has raised the benchmark repo rate by 190 basis points since May, and it is expected to increase rates further until March. Only during the first quarter of the next fiscal year is the inflation rate expected to fall within the RBI's tolerance band of 4-6%.

On the other hand, there is no immediate impact, and inflation will return to normalcy within the next six months. Builders are also cautious and make calculated decisions based on an understanding of the external environment by committing to only a few projects to keep demand and supply stable.