Chennai's Residential Market Faces Sales Decline Amidst High Prices
Despite substantial demand for residential flats in Chennai, sales figures are experiencing a downturn due to escalating property prices. This situation poses a considerable challenge for middle-class families, the primary segment of potential homebuyers in the city. Given the current market rates, a significant portion of salaried individuals may find it difficult to purchase a flat within a 30-km radius of Chennai's city center.
Price Range and Affordability Concerns
In many areas across Chennai, the cost of apartments in newly constructed complexes typically falls between ₹70 lakh and ₹1 crore. In neighboring suburbs, prices generally range from ₹40 lakh to ₹50 lakh. For example, ongoing real estate development projects situated along the Madurai Highway have set prices at ₹45 lakh and above. Along the IT Highway, prices climb even higher, with flats priced around ₹1 crore. Further exacerbating the affordability concern is the fact that builders have established a minimum floor space of 1,400-1,500 square feet per flat.
This requirement has increased overall costs significantly, impacting even areas where land prices remain relatively low. Such high prices make these properties accessible primarily to businessmen and traders.
Financial Implications for Salaried Homebuyers
To acquire a flat valued at ₹50 lakh, a salaried employee would typically need to make an upfront payment of ₹7.5 lakh. In addition, a substantial monthly EMI of ₹50,000 would be necessary to service a home loan of ₹42.5 lakh over a period of 20 years. According to bank eligibility criteria, an individual would require a monthly salary of ₹1 lakh to qualify for a loan enabling such a high EMI. Understandably, individuals with such high salaries form a limited group, occupying the upper echelons of the corporate structure.
Builder Preferences and Market Dynamics
At the core of the issue is the reluctance of builders to undertake the development of affordable housing stock, given their marked preference for premium projects that yield higher profit margins. Considering that a low-cost housing project often demands a comparable level of development effort as a premium project, with minimal difference, builders are inclined to pursue high-end residential development instead of focusing on serving the affordable housing needs.
This inclination was particularly apparent during the peak of the real estate boom, when numerous developers reaped profits ranging from ₹2,000 to ₹4,000 per square foot by constructing premium apartment blocks. Currently, many builders appear to be holding back on further investment in affordable housing units, likely anticipating a resurgence in property value appreciation in the near future. The market dynamics appear to be contributing towards increased profits for these developers.