By Mr. Simon
Selvaraj, JLL India
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, education, opportunities and lifestyle are magnets that keep
pulling people into Chennai from all directions of the country.
This naturally has a
profound impact on the demand for rental housing in the city.
High
Levels of migration..!
Massive churn in urban area has turned out to be an
intrinsic part of life for most of the city’s residents today. The total
migrants into the urban areas of Tamil Nadu, as per 2011 census, accounts to
12.3 million - of this around 47% have duration of residence between 0-9 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 lakh, while a person earning about Rs.
10 lakh per annum can afford a home costing Rs. 60 lakh 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 denizen of the
MIG (middle-income group) to live in a HIG (higher-income group) flat, while
the and 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..!
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| Mr. Simon Selvaraj, JLL India |
Offering
greater flexibility and requiring less of a financial stretch than
homeownership, 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 at about 1.5% of the
property value and the regular maintenance and repair costs which 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 work place, quality of neighbourhood,
connectivity to other parts of the city, adequate living space, amenities,
owners’ rulebooks and also certainly the budget and value for money being paid
play a significant role in sound decision-making while searching for a good
rental flat.
Narrowed down to the
important rental housing hotspots of the city, here are the trends being
currently observed in 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 average, Shollinganallur, Perumbakkam, Perungudi, Siruseri and Taramani retain
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.
Contrasting GST and
GNT corridors
Dotted with apartment
complexes, educational institutions, SEZs and retail outlets, 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 also witnesses tremendous infrastructure activities with rail overbridges,
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.
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 has
encouraged leading industries to set up their bases along GNT Road.
However, there is
currently 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 in 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/month for 2 BHK flats and Rs.10,000-16,000 per month for 3 BHKs.
Pulsating 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 (average unit size 550 square feet) 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-type apartments to 3BHK
flats, villas, and row houses, the average rental values in this micro-market
falls between Rs.10,000-15,000/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 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 3 BHKs between Rs.15,000-25,000 per month.
A Winning Scenario
Rental housing not only
addresses housing needs but also helps to reduce the completed unsold
residential inventory on the market.
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
unsold inventory after 1 year.
Apart from the fact that
rental Housing is affordable and offers a better living standard, it is also
correctly viewed as a solution 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 monthly income below Rs. 7000
per month.
With budget provisions,
residential REITs and the growing demand for rental housing 2017 will witness
the rental market finding its place in the real estate scenario, opening more
options for the rental occupiers and assured returns for owners.
About the author..
Mr. Simon Selvaraj, Local Director - Strategic Consulting (Chennai) JLL India
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