Strong rental market is key to Chennai Realty’s growth

CHENNAI: Chennai has grown exponentially in recent decades. It attracts an endless sea of people who keep moving in to the city, primarily for career and educational prospects. Employment and education opportunities and lifestyle prospects, are magnets that pull people into Chennai from all parts of the country.

Impact on the demand for Rental Housing in the city

High level of migration: The total migrants into the urban areas of Tamil Nadu, as per 2011 census, accounts to 12.3 million. Of this, around 47% have a duration of residence of up to 9 years.

Thus, a fair portion of citizens in Chennai are tenants, who do not necessarily want to buy a flat to live in the city.

Better quality of living: Rental housing allows residents to opt for a higher standard of living than their property purchasing power.

A new apartment in the CBD of Chennai would cost around Rs 75 lakhs, while a person earning about Rs 10 lakhs per annum, can afford a home costing Rs 60 lakhs in the more affordable suburban location. However, such an individual can afford a CBD-based home on rent within the same annual income. This makes it possible for a MIG (middle-income group) individual to live in a HIG (higher-income group) flat, while the LIG (lower-income group) individuals can comfortably afford to live in a MIG flat.

Increased affordability: Chennai continues to be an expensive city to buy a property. An average increase in property prices by 6%-7% from last year, has further constrained the affordability of owning a house. However, the rental trends in Chennai have seen only 2.5%-5% annual increase over the past 4-5 years.

Tax benefits: Rental paid saves taxable income, as almost the whole portion of the rent paid can be saved by claiming it under Section 10 as HRA.

Flexibility: Offering greater flexibility and requiring less of a financial stretch than home ownership, renting is most common among young adults, in whose lives changes in work and relationships are frequent.

Lower additional costs: Owning a house involves a down payment for the loan to the tune of almost 20% of the property value and the EMI to be paid is often 40%-50% of the monthly income. Property taxes are about 1.5% of the property value and the regular maintenance and repair costs account for 40% additional charges, as compared to a simple monthly rental for the same property.

However, hunting for a suitable rental house does come with its own set of challenges – not only to outsiders but also locals. Accessibility to the work place, quality of the neighbourhood, connectivity to other parts of the city, adequate living space, amenities, owners’ rulebooks and the budget and value for money being paid, play a significant role in while searching for a good rental flat.

Trends in the important housing rental hotspots of Chennai

IT Corridor-Old Mahabalipuram Road

OMR continues to thrive as one of the preferred destination for the city’s infotech population, due to its proximity to various IT business parks and dedicated SEZs. With a slew of residential apartments and studios for singles coming up along this corridor, the burgeoning population of IT professionals has a logical influence on real estate and rental accommodations in this locality. Being majorly occupied by bachelors (sharing accommodations) as well as families of 4 to 5 members on an average, Shollinganallur, Perumbakkam, Perungudi, Siruseri and Taramani, have average residential rental values ranging from Rs 12,000-18,000 per month for 2-BHK flats and Rs 15,000-30,000 per month for 3-BHK individual houses.

GST and GNT corridors

Dotted with apartment complexes, educational institutions, SEZs and retail outlets, the Grand Southern Trunk (GST) Road – the stretch between Perungalathur and Guduvanchery – is densely populated by a mix of working people and students. Being well-connected by road and rail to the southern cities of Tamil Nadu, this stretch is also witnessing tremendous infrastructure activity, with rail over-bridges, a proposed new mofussil bus terminus and a planned elevated 8-lane corridor.

The average rental values of spacious houses in this residential neighbourhood, with quality educational and healthcare institutions in close proximity, range from Rs 7,000-12,000 per month for 2-BHK flats and Rs 10,000-20,000 for 3-BHKs.

The Grand Northern Trunk Road – a 10-km drive down the stretch from Madhavaram Bypass to Red Hills – is strikingly dissimilar to the GST Road. This corridor is more about container terminals, warehouses and some realty activity. The steady growth in infrastructure and connectivity, as well as availability of water resources, have encouraged leading industries to set up their bases along GNT Road.

However, there is a lack of road infrastructure projects and a perception of north Chennai and the IT hub at Ambattur, as having very little impact on this stretch. This has led to comparatively less enthusiasm among people to move to this location. As a result, employees working in the industries along this stretch can find more affordable rental housing, in the range of Rs 5,000-8,000 per month for 2-BHK flats and Rs 10,000-16,000 per month for 3-BHKs.

Pallavaram-Thoraipakkam Road

Connecting the key corridors of OMR and GST, the Pallavaram-Thoraipakkam Road has vast employment opportunities and residential rental affordability. 1-BHK developments (with average unit size of 550 sq ft) account for about 8% of the total housing supply in this area. The yield rate in this micro market is 2%-3%. Offering a number of rental options, ranging from studio apartments to 3-BHK flats, villas and row houses, the average rental values in this micro-market falls between Rs 10,000-15,000 per month for 2-BHK flats, while 3-BHK options are rented out for Rs 12,000-25,000 per month on an average.

Moving westward

The peaking residential rental values in city’s central locations, have led people to turn to the west for affordable living. The western quadrant is predominantly driven by business people, as well as industrial and IT employees, due to its excellent connectivity to Central Chennai, Mount-Poonamallee Road and Ambattur office districts. After construction of the Outer Ring Road, connectivity has improved significantly. Expected infrastructure projects, including completion of the metro rail corridors, revival of the Maduravoyal Flyover, etc., will keep drawing occupants towards the west.

Premium residential developments and the presence of multi-national companies in Sriperumbudur and Oragadam, have also been major demand drivers in these localities. The west zone, including Porur, Maduravoyal, Manapakkam, Thiruverkadu and Poonamalle, offers decent houses with average rents in the range of Rs 10,000-12,000 per month for 2-BHK flats and Rs 15,000-25,000 per month for 3-BHKs.

The importance of Chennai’s rental housing market

Rental housing not only addresses housing needs but also helps to reduce the completed and unsold residential inventory. The reduction in this number is a clear indicator that the market is maturing. With this in mind, the recent Union Budget has levied tax on developers on the notional rental income on completed and unsold inventory after the first year.

Apart from the fact that rental housing is affordable and offers a better living standard, it can also help to achieve the government’s vision of ‘Housing for All by 2022’. The growing shortfall in housing is a serious challenge and its scale makes the success of any single approach like buying/owning a house difficult. On the other hand, housing situated far away from employment hubs and social infrastructure, is unlikely to induce much demand. Through rental housing schemes, PPP model and government subsidies, housing for the EWS (economically weaker sections) and LIG can even be made available to people drawing incomes below Rs 7,000 per month.

(The writer is local director – strategic consulting (Chennai), JLL India)

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