Affordable

Housing
in Chennai

Calibrating the ticket size

 Affordable Housing - Chennai
Executive Summary
• Chennai’s residential market can be segmented
into six different micro-markets—premium,
central, off-central and the northern, southern
and western suburbs.
• According to the 2001 findings of the Census
of India, the overall population of Chennai
Metropolitan Area (CMA) grew by 1.93%
per annum between 1991 and 2001. The
population, which is currently at about 7 million,
is likely to touch 12.5 million by 2026.
• The percentage of the working population in
Chennai was about 35% as per the census
in 2001. We estimate this percentage to have
increased to more than 40% in recent times,
with the number of migrant working population
in Chennai on the rise.
• Most of the housing demand arose from workers
in the services industry such as IT/ITES. Close
to 48% of the total non-working population in
Chennai falls under the age bracket of 15–59.
We foresee a large proportion of this non-
working population to graduate and commence
working. This will lead to an increase in the
number of double income no kids (DINK)
families in Chennai and will result in a rise in
housing demand over the same period.
• India’s Rising Disposable Income at CAGR
of 17% gets dwarfed when compared to a
whopping rise in residential capital values at
40% CAGR in Chennai in the period 2005 to
2008.
• A sharp rise in property prices in Chennai has
led to a steep decline in affordability.
• Today, the affordability quotient of end-users in
the annual salary bracket of INR 3–8 lakhs is in
the range of INR 1,700–2,600 per sq ft.
• Pragmatic approaches such as the reduction in
unit sizes, investment on amenities like libraries
instead of club houses and schools instead
of swimming pools and focus on maximising
efficiency of the carpet area to the built-up area
will help optimise project costs.
• Reserve Bank of India’s (RBI) move to give
’priority sector status’ to home loans less than
INR 20 lakhs will help drive demand for homes
in Chennai.
• Government initiatives such as speedy project
approvals can reduce project costs and
maximise internal rate of returns (IRRs).
• Cross subsidies in the form of optimal floor
space index (FSI) provision or transfer of
development rights (TDRs) will act as growth
pills for the affordable housing sector
• Value engineering (VE) with optimal construction
cost and enhanced quality will make homes
technologically affordable.
• All three stakeholders—developers, regulatory
authorities and the government—must come
together and develop a common agenda to
make the dream of owning an affordable home
a reality.
 Affordable Housing - Chennai 

Introduction
Over the years, Chennai City has geographically expanded, and developers have contributed to the growth of the
city to a large extent. The residential landscape that was restricted to the Chennai metropolitan limits underwent a
rapid expansion phase and now includes suburban areas towards the periphery of the city. The city map in Table 1
details Chennai’s residential market landscape along with its micro-market definitions.

Chennai’s residential market can be segmented into six different micro-markets - premium, central, off-central
and the northern, southern and western suburbs. All these residential micro-markets have witnessed tremendous
demand and growth in the past three years. Since 2005, each of these micro-markets has more than doubled in
terms of capital values.

Table 1: Chennai Residential Market Segmentation – Key Locations by Micro-Market

Premium Boat Club, Poes Garden, Chetpet, Nungambakkam
Central Abhiramapuram, Adyar, Alwarpet, Anna Nagar, Besant Nagar, Egmore, Kilpauk, Kotturpuram,
Mandaveli, MRC Nagar, Mylapore, Nandanam, Poonamallee High Road, RA Puram, Santhome,
Shenoy nagar, T Nagar,
Off-Central Kodambakkam, Thiruvanmiyur, West Mambalam, KK Nagar, Velachery, Kodambakkam,
Rangarajapuram, Ashok Nagar, Vadapalani, Triplicane, Koyembedu, Virugambakkam, Nelson
Manickam Road, Purasaivakkam
Southern Suburbs Adambakkam, Chrompet, East Coast Road, GST Road, Jamin Pallavaram, Kelambakkam,
Madipakkam, Medavakkam, Nanganallur, Navalur, Neelankarai, Old Mahbalipuram Road (OMR),
Oragadam, Pallikaranai, Selaiyur, Sholinganallur, Siruseri, Tambaram, Thiruporur, Thoraipakkam,
Urapakkam.
Western Suburbs Ambattur, Avadi, Chennai Bangalore Highway (NH4), Kattupakkam, Kolapakkam, Korattur,
Madhuravoyal, Mogappair, Mugalivakkam, Nolambur, Padi, Porur, Ramapuram, Sriperumbudur,
Thirumangalam, Valasaravakkam, Vanagaram
Northern Suburbs Ayanavaram, Kolathur, Madhavaram, Perambur, Puzhal, Redhills, Royapuram, Sembium,
Thiruvattriyur, Tondiarpet, Villivakkam

Source: Real Estate Intelligence Service, Jones Lang LaSalle Meghraj Research

The Chennai residential market during 3Q08
witnessed the approval of the second master plan
for Chennai Metropolitan Area (CMA) by the Tamil
Nadu government. With a focus on Vision 2026,
the Chennai Metropolitan Development Authority
(CMDA) has devised a strategy around the second
master plan to develop the metro as a more
liveable, economically vibrant and environmentally
sustainable place. Key salient features of the plan
that have direct impacts on the residential sector
include the following:
• Allowing a 0.25 additional floor space index
(FSI) to private promoters developing housing
projects for low-income groups (LIG) and
economically weaker sections (EWS) by
providing for 10% reservation of land where the
site exceeds 1 ha.
• The above-mentioned provision also includes
the development of LIG/EWS housing with flat
size not exceeding 484 sq ft (45 sqm) each,
either within the site or on a separate site within
a radius of 2 km.
 C D

CHENNAI
 Affordable Housing - Chennai

A ROAD
AD

Northern

MA

ET
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TTUR HIG UT

STRE
AMBA
Madhavaram

DHAV
H RO
AD SO
Milk Indian

PARTHSARATHY
ARA
Colony Organic
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MHIG
MANALI HIGH ROAD Odeonmani
N

H R
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REET
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Suburbs

OA
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AD
RO
D

I ST
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CH
TELEPHON

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ROAD
EN ANDE POWD AD
NA RSON
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GE
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AD

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PULIANT

BA
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AD

STREET
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WA

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REET
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ROAD
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ROAD
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D
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BR
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ID
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A D
6TH AVENUE

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Chennai

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va

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ET

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AN
RE

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ST

ET
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LA
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Rajankuppam Inter State Netralaya

HIR JA
RO
IL

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KO

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N

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3RD MAIN ROAD

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D
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TRIPLICATE
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BAY
NNA

ROA
Taj ROAD Royapettah
RO
L

WHITES

INA
Vanagaram Coromandel
UR

NT

MAR
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OU Satyam
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ALAPPAKKAM MAIN ROAD
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(M Tiruvallikkeni
The AI PETERS
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PE
D

A OY RO
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N ROAD
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Nagar Palmgrove Royapettah AD

CA

DS
Dental
I R

RO
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TH

Anna
ROAD

HABIBIULLA AD
PILLA

H ROAD
LAI
OF
Flyover
ED

NATESA

SA
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ROAD

NSK
Gopalapuram
RA

Thyagaraya
AI

Light

KAMARA
UMAL

AD
MAIN

Nagar
MAN

Central
DR AM

AVVAI SHANMUGAM SALA

House
RO
RO

I
1ST

THIR

TY
AD

Alwar
AD

AVM ET
H US

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RO

Thirunagar Chola RADHA

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AD

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Premium
N Sheraton
AG

BRINDA
A RO

G LA
NORT

VAN STR I
BO

AI
AI

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SA
KA SAL
NORTH

ANG

N
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AD
AR SA
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E

BENGAL
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EN

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ROAD
AV

A
THIRU VI
D

KK ROAD
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VE
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Ashok ELDA
4T

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AR

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BAZAR

AD
KA

CHU
ANNA
WD

RCH
TA

ROAD
I
GO

LA

Teynampet
N

ANNA
Ramapuram Mambalam Alwarpet
AR

MAIN
ARYA

ROAD
ROAD
SA

AN
AY

SANTHOME BEACH ROAD

NA BHARATHIDAS
SA AN ROAD
AN

Thriu
K
SOUTH

LA
AD

I 10TH AVE
CP RAMASWAMY

BURKIT ROAD
TT

NUE
A

Mayila
RO

Jaffarkhanpet
RO

APPU STREET
PH ROA
VIEW

BEACH

Udayam
AD

Park
ROAD)

RANGA ROAD Thriumayila

GO Sheraton
USMA

BHAR
LAKE

VIN
CENOTA

ATHI SA DA
Porur LAI KAMARAJAR SALAI N
ROAD
Kapaleeswarar
ROAD

SANTHOME
BOAG

CHAMIERS
N ROAD
ING

ROAD A D
Nandanam ST MARY’S RO MANDAVELI ROAD
Saidapet
AD

r
RR

r Rive )
Adya
W

MO AD
RO
NE

RO Kaliappa Mandaveli
NE

Mandaveli
UN VENK
TIRUVALLUR TP NT ATAKR
(IN

CHAM
H

OU ISHNA
D

IERS ROAD
OO Saidapet
HIG

ROAD
ROA

NA (M
NEHRU ROAD

MA
I

SOUTH CANAL BANK

LA

E
KANCHIPURAM
ROAD
LL Cosmopolitan M
KAMA

EE
SA

HO
T
KANCHIPURAM

RO Club
T

SIDCO NT
4 4
M ROAD
NA

MU

A Ekkadu Raja
D Golf Links
r

RAJ

Industrial SA
ive
AN
CHENNAI

Thangal AD
Annamalai
Estate
RK

RO
rR

SALA

GR Puram
EE
R

MANDAPA
ZA

NW
ya

AY
BA

S
Ad

VEMB
AL

RO
ADI AD
VINAY
D
RL

AKAR Kottur
OA

KOIL Puram
Mugalivakkam STRE
AHA

HI

ET
MUKH R

Durgabai Greenways Road

ND

Guindy Kottur Deshmukh

GA
JAW

Industrial Puram Adyar

Manappakkam Estate
DURGABAI DESH
D

River
A

Buckingham Canal

Nandambakkam
RO

ROAD
BAKKAM MAIN
R

GURUKKAM AD
DU

RO Anna
AN

U NT University Kasturba
AL

MO
CLRI Nagar Theosophical

Kanchipuram
Society
Kathipara I Kasturba
Malar
Junction LA Nagar BESA
A SA Raj NT AV
BUTT ROAD ANN ENUE
Bhawan SARDAR PATEL ROAD
Le Royal Guindy
Cancer
Meridien
AD
AD

Arudra Institute
Chennai
RO

I RO

Industries Rukmani
Adyar
E

5TH
SE

Race
U

Nagar AV
EN

Guindy EN
AD

COUR

UE
UE

Course
AV
RO

ER
ROAD

Parangi Malai
DELHI AVEN

Adyar
D

1ST
ACH
KN

CH

AVEN
3R

River
CE

UE
M

Indira Chennai
2ND MAIN ROADS
RA

LA
LINK

CT
STATION R

S BE

Nagar Snake Indira

VE

Cam

Southern
UE

Park p Besant
Nagar
6TH AVENUE

us
AVEN
DR MUTHULAKSHMI ROAD

Nagar
OT’

Guindy
CANA
OA

Indira
National
D

Nagar
ELLI
2ND
UE

MKN ROAD Park E MAHATMA

GAND
St. Thomas NU HI ROAD
AVEN

L BA

VE
DA
Mount VANDIKKARAN STREET 4TH CROSS ROAD 2N 7TH AVENUE

AD Radisson
NN
KARUNEEKAR STREET

NK RO

Suburbs
Indian
KR
BO

U N Institute of
AD

TR
KANAGAM ROAD

Technology
RO

N
ER
AD (W

Trident
AIN

H Adambakkam
UT
TM

SO
1S

EST)

T
kkam

EA Velacheri Eri
GR MGR
Chennai Airport WEST AVENUE
Eri mba

LAKE VIEW ROAD Film City

Pazhavanthangal
Ada

E ROAD

GAND

Off Central
HI
2ND MAIN ROAD

ROAD
CSIR ROAD

Domestic VSI Thiruvanmiyur

S ROAD

BRIDG

Taramani
AD

Estate

BAY OF BENGAL
RO

American
5
Thiruvanmiyur
5 E
BYPAS

International
IN

IC
World
ROAD

Dhandeeswaram TT
MA

International Minambakkam Balaji

School Bank LA
TARAMANI ROAD
1ST MAIN ROAD
Nagar
Airway
M

VELACHERI
KA

BALAJI NAGAR MAIN

Perungudi
NEHR

AK

Perungudi Valmiki
AV

Nagar
D
U MA

Velacheri
6TH MAIN ROAD
ME

I
3R

NA
D

MGR MAIN ROAD

M
IN RO

EN
MA

RA
Nanganallur
ANNA ROAD
IN

CH
5
T ROAD

-4
Ullagaram
PU
AD
RO

Tirusulam
H I
AD

PERIYAR SALA

CH
l

N
na
m Ca

Panchapandava
AN
D

Vijaya
OA

Malai AD
Nagar Ambedkar
COAS
AD

RO
K
OAD

ingha

AH
RG Nagar
IR

Kannan Nagar
M RO
PONNIAMMAN KOIL STREET

DA
ER

MR

Buck

Puludivakkam ET
RA

EAST
CH

Tirusulam RE
URA

ST
L PU
LA

IN
MUVARA
Ram Nagar MA Palavakkam
KOIL
CANA
VE

SAN
IP

PATTU
MAIN ROAD
R

Telephone
BAL
YA

Velacheri
LA

Nagar
Pallavaram
PIL

HA

CHENNAI MRTS ROUTE PLAN

ANNA SALA

PILLAIYAR KOIL STREET

MA

SABARI SALAI
Seevaram
N
Muvarasanpattu
EXISTING ROUTE MAP NOT TO SCALE
OLD

Eri Madippakkam
Eri
Jones Lang LaSalle Meghraj
I

COMPLETED BY END 2005 © Copyright. All rights reserved.

No part of the map may be reproduced or copied without
STATIONS written permission from Jones Lang LaSalle Meghraj.

PROPOSED STATIONS

A B C D
 Affordable Housing - Chennai 

Demographic Overview
Chennai, the capital of Tamil Nadu that was once
only the home of Tamils, has taken a paradigm
shift to gain a cosmopolitan outlook through the
increasing migrant population over the years.
According to the census of India survey in 2001,
the overall population of CMA has grown by 1.93%
per annum between 1991 and 2001, and it is likely
to touch 12.5 million by 2026. Against the overall
CMA, Chennai City’s population has grown by
1.23% per annum between 1991 and 2001. The
population of the city was estimated to be at 4.3
million during 2001 and is likely to touch 5.851
million by 2026.
The primary growth drivers of Chennai’s
residential market have been the IT/ITES and the
banking, financial, services and insurance (BFSI)
sectors. Chennai’s working population was about
35% of the total population of India as per the
census in 2001. Recent reports estimate that the
total population in Chennai has increased to about
8.3 million as of September 2008 from about 7
million in 2001. This can be mainly attributed to
the rise in migrant population that is attracted by
in the working population of Chennai, especially in
the last five to six years.
Figure 1 shows Chennai’s population by age
group and worker/non-worker. While 100% of the
working population falls under the age bracket of
15–59, close to 48% of the non-working population
also falls under the same age bracket. This non-
working population comprises students and non-
working homemakers, of which a larger proportion
makes up the students. Over the next decade,
this student population will start working and have
families. Therefore, we foresee the demand for
homes in Chennai to rise over the next 10–15
years. Also, most of this demand will arise from
workers in the services industry such as IT/ITES,
where family members will be working. Such a
phenomenon is not new to India as the number of
double income no kids (DINKS) families is on the
rise throughout the country.
Figure 1: Chennai’s Population by age group and worker/non-worker.
3,000,000
Age Group
2,500,000

the growth in the services industry. The migrant 2,000,000 0 to 4

population can be mainly categorised as working 1,500,000

5 to 14

population in the age bracket of 23–45. Thus, we 1,000,000 15 to 59

estimate the percentage of working population in > 60
500,000
Chennai to have increased from 35% as per the
0
census in 2001 to more than 40% in recent times. Full Time Workers Part Time Workers Non Workers
Demand for housing can be attributed to the rise
Source: Census of India, 2001

1
Volume I, Vision, Strategies and Action Plans, Second Master Plan for Chennai Metropolitan Area, 2026, September 2008
 Affordable Housing - Chennai

Is Chennai Affordable Today?

India’s Rising Disposable Income at a CAGR
of 17% was dwarfed when compared with the
rising residential capital values in Chennai in
2005–2008.
Over the last five to six years, the disposable
income in India has been registering a double-digit
growth of about 15% y-o-y. In the last three to
four years, it registered a CAGR of about 17%, as
shown in Figure 2. This surge in India’s disposable
income has been primarily driven by the services
industry, especially IT/ITES. In this paper, we have
assumed that disposable income in Chennai has
grown at the same rate as that of India.
However, the growth in disposable income was
dwarfed when compared with the rapid growth of
capital values in the residential sector in Chennai
between 2005 and 2008, as shown in Figure
3. The disposable income in India has been
growing at a CAGR of 17% against a whopping
capital value growth across all micro-markets at
a CAGR of 40%. The sustained rise in property
prices throughout 2005–2008, coupled with
rising mortgage interest rates, has made housing
unaffordable for the common households.
Figure 3 clearly shows the capital value growth by
micro-markets as of 3Q08 and the average CAGR
for capital values for the overall market against the
CAGR in disposable income in 2005–2008. Home
buyers in the last three to four years have had to
spend a higher proportion of their annual income
or savings to purchase their house. Individuals or
households aspiring to purchase their residential
house saw prices grow by an average CAGR of
40% across all micro-markets in the last three to
four years compared with their income level rise of
an average CAGR of 17% within the same period.
This made houses increasingly unaffordable year
after year.

Figure 2: India’s Rising Disposable Income

Personal disposable income(INRbn)

60,000
CAGR 05-08 is 17%
50,000
40,000 Personal
disposable
30,000
income(INRbn)
20,000
10,000
0
2003 2004 2005 2006 2007 2008

Source: Census of India, 2001

 Affordable Housing - Chennai 

Figure 3: Growth in Disposable Income Vs Residential Capital Values in Chennai 2005 – 2008

60.00% Average Capital Value

Growth between 2005 -2008
50.00%

40.00%
CAGR(%)

30.00%

Southern Suburbs

Northern Suburbs
Western Suburbs
20.00%

Off-Central
Disposable

Premium
Income

10.00%
Central

0.00%

Source: Real Estate Intelligence Service, Jones Lang LaSalle Meghraj Research

After the global financial crisis and the slowdown
in the off take of high-end residential projects
(greater than INR 50 lakhs), Chennai’s residential
market has started witnessing a new buzz phrase
called ’affordable housing’. Although the city has
started attracting investor class in recent times,
traditionally, the Chennai residential market was
predominantly driven by end-users. Apart from
an individual’s aspiration or need to buy a house,
key drivers of demand for housing earlier in the
decade included low home-loan interest rates and
affordable price per square foot of a housing unit.
The macroeconomic pressure stemming from
surging inflation and rising home-loan interest
rates in the past few quarters had a negative
effect on selected micro-markets at varied levels
during 3Q08. Demand for housing in Chennai is
believed to be alive, but only within realistic price
points. Chennai developers have already started
evaluating the viability of developing affordable
housing projects.
What is Affordable in Chennai?
Land prices, government subsidies, construction
costs and improved efficacies such as approvals
can impact the base price per square foot of a
housing unit. A developer’s margin is another
component that is added to the base price to
arrive at the selling price of a dwelling unit. Each
of these parameters is in direct correlation with
the affordability of a house. The land prices
constitute close to 50% to 60% of the selling price
of an apartment depending on the location of the
project. According to CII, current land prices in the
central micro-market of Chennai is in the range
of INR 5500 to INR 6600 per sq ft and the those
in the suburbs of Chennai is between INR 1000
– INR 2100 per sq ft.
Figure 4 shows various factors that impact the
base price per square foot of a housing unit.
Figure 4: Factors impacting price of a residential
unit
Effective Construction Government
Tecnologies Subsidies
Affordable
Housing in
Real(i)ty
Land Improved
Prices Efficacies
Source: Jones Lang LaSalle Meghraj Research
Affordable Housing – Developer Perspective
To understand the concept of affordable housing
from a developer’s standpoint, in-depth interviews
were conducted with prominent developers. The
objective of the study was to understand various
construction technologies to minimise construc-
tion costs and developers’ expectations in terms
of subsidies and incentives from the government
and finally, to know about their ongoing affordable
housing projects in Chennai, if any.
 Affordable Housing - Chennai

Affordable Housing – End-User Perspective

Some of the key findings of the in-depth interviews
with the developers in the city include the
following: More efficient and quick regulatory
approval process to ensure timely commencement
and completion of the project. This would reduce
developer’s holding cost and in turn improves
project Internal Rate of Return (IRR).
• Subsidies on service tax, registration charges,
stamp duty, and VAT
• Provision of additional FSI for building
affordable homes
• Use of more effective construction technologies
by use of pre-cast construction techniques to
reduce construction time.
• Developers are actively considering reducing
the unit sizes to increase affordability
• Infrastructure initiatives such as road
connectivity, water, electricity by the
Government to support housing projects.
Apart from the above inferences, majority of the
developers interviewed also offered to curtail
their margins by a moderate percentage upon the
government’s attention to their proposals.
Affordable housing has always been on top of
any home buyer’s priority list. In order to delve
deep into the mind of customers and identify their
aspirations of buying a home, an online survey
was conducted by Jones Lang LaSalle Meghraj.
With the increasing number of nuclear families and
the DINK population against the overall population
in Chennai, there has been a paradigm shift in
home-buying behaviour in terms of preferences,
amenities, locations etc.
A questionnaire was designed to be used as a
market research tool to analyse the home-buying
scenario in Chennai. The following factors were
considered:
• Apartment Type (one-BHK / two-BHK / three-
BHK or more)
• Size of the unit
• Location
• Amenities
• Budget
• Salary bracket

Figure 5: End User Preference - Unit Size Vs Salary Bracket

21%
13%
33%

42%
>three-BHK one-BHK
25% 62%
67%
100%
37%

Salary Bracket (INR) <3 Lakhs 3-5 Lakhs 5-8 Lakhs 8-10 Lakhs

Source: Homebay Residential, Jones Lang LaSalle Meghraj


Based on the survey, it was found that 100% of
respondents earning less than INR 3 lakhs per
annum preferred only one-BHK apartments. While
62% of respondents who preferred two-BHK units
were found to be earning between INR 3 lakhs
and INR 5 lakhs per annum, 25% and 13% of
respondents interested in two-BHK were under
the annual salary brackets of between INR 5
lakhs and INR 8 lakhs and between INR 8 lakhs
and INR 10 lakhs, respectively. Interestingly,
42% of respondents who prefer three-BHK units
were found to be under the salary bracket of INR
8–10 lakhs per annum. This is against the 37%
of respondents in the INR 5–8 lakh annual salary
bracket and 21% of respondents in the INR 3–5
lakh salary bracket who also aspire for a three-
BHK apartment.
Respondents who were earning above INR 5
lakhs were the ones found to be interested in
an apartment that is higher than the three BHK
category. Out of the respondents who opted for
more than three-BHK apartments, 67% were
earning between INR 8 lakhs and INR 10 lakhs
per annum, while the remaining 33% accounted
for respondents in the annual salary bracket of
INR 5–8 lakhs.
Some of the other key inferences from the study
include the following:
• 95% of the respondents prefer two-BHK or
three-BHK apartments ranging from 800 sq ft to
greater than 1,000 sq ft;
• 85% of the respondents thought that they will be
comfortable with a loan amount of INR 20–40
Affordable Housing - Chennai 
lakhs at current salary levels;
• 96% of the respondents were in the salary
range of INR 3–10 lakhs, wherein more than
60% of them were in the range of INR 5–10
lakhs.
Chennai Affordability Quotient
We believe that only if affordability returns to
Chennai’s residential market will we witness
large-scale demand in the property market. We
highlighted two different scenarios to recognise
how various factors such as salary levels, house
prices, home loan rates and unit sizes can impact
the affordability quotient in Chennai. Following
each scenario is a figure depicting a pictorial view
of the affordable housing price band.
We have considered some assumptions for our
Affordability Quotient Analysis
1. Majority of home purchasers in Chennai are
IT/ITES employees;
. Majority of home purchasers in Chennai will
either earn individual annual salary of INR 3–6
lakhs or a combined household salary of INR
8–10 lakhs;
3. The disposable income available to pay the
home loan EMI has been calculated after
deducting taxes, basic household expenses
and investment of up to INR 100,000 from the
monthly salary;
4. The home-loan interest rate has been
assumed at 11.5% for a 20-year loan tenure;
5. The pictorial representation is for the purchase
of two-BHK housing unit only.
10 Affordable Housing - Chennai

Home Buyers Affordability Quotient Analysis

Case 1: Base Case calculating affordability quotient in today’s scenario

Unit Sizes - one-BHK size is 700 sq ft, two-BHK is 1000 sq ft and three-BHK is 1500 sq ft.
Annual Salary 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000
Monthly Gross salary 25,000 33,333 41,667 50,000 58,333 66,667 75,000 83,333

Monthly Maximum Diposable 5,750 9,333 13,750 18,000 24,500 28,667 36,000 41,667
Income after taxes and basic house-
hold expenses*

Max. EMI Affordability ~5700 ~9300 ~13500 ~17000 ~23000 ~28000 ~36000 ~41000
Max. Loan eligibility at 11.5% inter- 500,000 850,000 1,250,000 1,500,000 2,210,000 2,500,000 3,300,000 3,800,000
est rate for a 20 year loan plan
EMI for the loan amount mentioned
above 5,404 9,187 13,511 16,213 22,698 27,022 35,669 41,073
Size of a typical three-BHK 1500 1500 1500 1500 1500 1500 1500 1500

Affordable price of a house per sq ft 333 567 833 1,000 1,400 1,667 2,200 2,533

Size of a typical two-BHK 1000 1000 1000 1000 1000 1000 1000 1000

Affordable price of a house per sq ft 500 850 1,250 1,500 2,100 2,500 3,300 3,800
Size of a typical one-BHK 700 700 700 700 700 700 700 700

Affordable price of a house per sq ft 714 1,214 1,786 2,133 3,300 3,571 4,714 5,429

* Grocery 24%; Investment19%; Taxes 10-30%; Misc expenses 5-10%. All unit sizes are in sq ft and prices are in INR

End users of salary band INR 3-5 lakhs can afford a one-BHK house up to INR 1,786 per sq ft
End users of salary band INR 6-8 lakhs can afford a two-BHK house up to INR 2,500 per sq ft
End users of salary band INR > 8 lakhs can afford a three-BHK house up to INR 2,533 per sq ft

The figure below shows that average prices across all micro-markets in Chennai fall outside the affordability price band. Chennai
today seems unaffordable.

8500

7500 Central Avarage Capital Values

6500
Capital Value (INR per sq ft)

5500 Off-Central

4500
Northern Southern Western
3500 Suburbs Suburbs Suburbs

2500
Affordable
1500

500
Micro Markets

Source: Real Estate Intelligence Service, Homebay Residential, Jones Lang LaSalle Meghraj
 Affordable Housing - Chennai 11

Home Buyers Affordability Quotient Analysis

Case 2: Calculating the affordability quotient after reducing unit sizes

Unit sizes – one-BHK unit is 550 sq ft, two-BHK unit is 850 sq ft and three-BHK unit is 1,150 sq ft.
Annual Salary 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000
Monthly Gross salary 25,000 33,333 41,667 50,000 58,333 66,667 75,000 83,333

Monthly Maximum Diposable 5,750 9,333 13,750 18,000 24,500 28,667 36,000 41,667
Income after taxes and basic house-
hold expenses*

Max. EMI Affordability ~5700 ~9300 ~13500 ~17000 ~23000 ~28000 ~36000 ~41000
Max. Loan eligibility at 11.5% inter- 500,000 850,000 1,250,000 1,500,000 2,100,000 2,500,000 3,300,000 3,800,000
est rate for a 20 year loan plan
EMI for the loan amount mentioned
above 5,404 9,187 13,511 16,213 22,698 27,022 35,669 41,073
Size of a typical three-BHK 1150 1150 1150 1150 1150 1150 1150 1150

Affordable price of a house per sq ft 435 739 1,087 1,304 1,826 2,174 2,870 3,304

Size of a typical two-BHK 850 850 850 850 850 850 850 850

Affordable price of a house per sq ft 588 1,000 1,471 1,765 2,471 2,941 3,882 4,471
Size of a typical one-BHK 550 550 550 550 550 550 550 550

Affordable price of a house per sq ft 909 1,545 2,273 2,727 3,818 4,545 6,000 6,909

* Grocery 24%; Investment 19%; Taxes 10-30%; Misc expenses 5-10%. All unit sizes are in sq ft and prices are in INR

End users of salary band INR 3-5 lakhs can afford a one-BHK house up to INR 2,273 per sq ft
End users of salary band INR 6-8 lakhs can afford a two-BHK house up to INR 2,941 per sq ft
End users of salary band INR > 8 lakhs can afford a three-BHK house up to INR 3,304 per sq ft

The figure below shows that average prices across the suburban micro-markets in Chennai fall inside the affordability price band.

8500

7500 Central Avarage Capital Values

6500
Capital Value (INR per sq ft)

5500 Off-Central

4500
Northern Southern Western
3500 Suburbs Suburbs Suburbs
Affordable
2500

1500

500
Micro Markets

Source: Real Estate Intelligence Service, Homebay Residential, Jones Lang LaSalle Meghraj
12 Affordable Housing - Chennai

Home Buyers Affordability Quotient Analysis : Key Inferences

Table 2: Affordability Quotient

Scenarios Case 1* Case 2**
Salary Bracket Apartment Type Unit Price INR per Affordable Budget Unit Price INR per Affordable Budget
(INR Lakhs) sq ft (INR Lakhs) sq ft (INR Lakhs)
3 to 5 one-BHK 1,786 11.6 - 13.4 2,273 11.3 - 13.6
5 to 8 two-BHK 2,500 23.75 - 26.25 2,941 23.5 - 26.5
8 to 10 three-BHK 2,533 36.7 - 37.3 3,304 36.3 - 39.6
*one-BHK - 650 sq ft to 750 sq ft; two-BHK - 950 sq ft - 1050 sq ft; three-BHK - 1450 - 1550 sq ft
**one-BHK - 500 sq ft to 600 sq ft; two-BHK - 800 - 900 sq ft; three-BHK - 1100 sq ft - 1200 sq ft
Source: Real Estate Intelligence Service, Jones Lang LaSalle Meghraj

Table 2 shows that the affordability levels of home buyers between different salary brackets increase upon reduction in unit sizes.
Reduction in units sizes leads to an increase in affordability by as low as 17% to as high as 30% (depending on the apartment type)
to own a house. With such configurations as mentioned above, even the LIG (Lower Income Group) and EWS (Economically Weaker
Section) dwellers get motivated to afford a house. It also encourages people who are in the rented accommodations to come out of
their unaffordable mind set to aim at owning homes.

Additionally, based on the end-user survey conducted by Jones Lang LaSalle Meghraj, respondents with a salary of above INR 8
lakhs expressed interest in purchasing a two-BHK house on a better location at a higher price compared with a three-BHK house on
an inferior location at a lower price.

Other than the reduction in unit sizes in housing projects as shown in Case 2, the increase in income levels in the future and the
softening of home-loan interest rates for budget homes will increase the affordability price band and will likely cause a spurt in housing
demand.

Few of the developers have been proactive during the current challenging market conditions and have initiated projects that are
strategically priced in order to target home buyers within different salary brackets. These projects are affordable because of the fact
that they are competitively priced lower than the prevailing average price in their respective micro-markets. Table 3 gives a snapshot
of a few affordable projects as of December 2008.

Table 3: Key On-going Projects in Chennai within Affordability Bracket

Project Sreshta Retreat Dugar Homes Hansa Courtyard Metro Nest
Developer Sumanth Constructions Dugar MME Hansa Estates True Value Homes
Location Avadi OMR – Kanagapattu Thiruvottriyur Sriperumbudur
Number of Units 118 500 268 TBA
Unit Sizes (sq ft) 985, 1025, 1425, 1450 489, 683, 777, 921, 1000 511 – 1000 565, 665, 885, 1085
Unit Type two-BHK, one-BHK, two-BHK, one-BHK, two-BHK, one-BHK, two-BHK,
two-BHK+Study three-BHK three-BHK two-BHK+Study
Rate per sq ft INR 2,300 INR 2,150 INR 2,450 INR 2,400
Source: Homebay Residential, Jones Lang LaSalle Meghraj Research

One Indiabulls Centre, Lower Parel, Mumbai


Mortgage Finance Market Dynamics
As part of this paper, we spoke to two private
banks to understand the change in mortgage
finance market in the last 9-12 months.
Some of the key findings of the interview with the
private banks reveal the following:
• The overall loan disbursements in 3Q08
onwards have been substantially lower than the
ones in the previous six to eight quarters;
• The first two quarters of 2008 were positive and
saw an equal number of loan disbursements
compared with that in the same time last year;
• The percentage of loan disbursements less than
INR 30 lakhs and below has increased from
about 50% in 1H08 to above 70% in 3Q08.
Recently, the Reserve Bank of India (RBI)
announced the ’priority sector status’ for home
loans less than INR 20 lakhs, which is subject to
a ceiling of 5% of any housing finance company’s
total priority sector target. This move of RBI is
expected to increase the flow of funds into the
housing sector and will also drive the demand
from the middle-income group (MIG). Public
sector banks are brainstorming to come up with
a package for borrowers or home buyers. They
are likely to classify home buyers based on their
buying capacity (e.g. for loans of up to INR 5 lakhs
and between INR 5 lakhs and INR 20 lakhs). This
will, to a large extent, motivate home buyers in the
LIG as well as in the EWS.
Recommendations
Government Initiatives
Speedy Approvals to Make Housing More
Affordable
The government’s efforts to ensure faster
approvals of affordable housing developments will
help reduce a project’s gestation time and holding
costs. This will in turn help control costs, which
can escalate due to delays in formal approvals
from regulators. Such an initiative will not only
make affordable housing an attractive project in
terms of viability from a developer’s perspective,
Affordable Housing - Chennai 13
but also cater to the rising demand for inexpensive
housing. The time to get approvals for projects
affect the completion time of the project, which is
in turn directly linked to project costs and IRRs.
A consortium of government-certified or
government-approved architects can be appointed
by private developers to ensure timely approvals
of project plans. This is similar to certified
professional chartered accounts that prepare and
advise clients on their income tax returns and
issues.
Public Private Partnership – Win-Win Situation
A joint venture or a public-private partnership
(PPP) could also be a lucrative option for both
the government and developers. Apart from
partnerships, initiatives in the form of waivers or
subsidies on sales tax, registration and VAT and
stamp duty could help bring down the total unit
cost by nearly 10–15%. The government could
facilitate partnering with public sector banks to
provide mortgage products at lower interest rates
to the weaker classes.
Such moves will lead to a win-win situation from
the perspective of both the government and
private players. Developers could leverage this
public-private partnership advantage and pass
on the benefit to end-users and hence become
successful in selling affordable homes in reality.
Provision of Optimal Floor Space Index (FSI) with
Requisite Infrastructure Initiatives
To promote affordable housing, the provision
of optimal FSI by the regulatory authorities for
such projects could help developers in building
more homes in the allocated land. Efforts like
proper infrastructure developments such as
road connectivity, water supply, power etc will
encourage customers to migrate to newer and
farther locations that are away from the city centre.
On the other hand such improved infrastructure
would also motivate the developers to come up
with affordable projects at far off locations from the
city center.
14 Affordable Housing - Chennai
Cross Subsidy Model - Growth Driver to Affordable
Housing Sector
From the government’s side, as an initiative to
promote affordable housing in Chennai, cross-
subsidies could be given to developers to attract
them to build affordable housing projects. Cross-
subsidies can be in the form of additional FSI or
transfer of development rights (TDR), which can
be used elsewhere for the development of any
other type of project.
The slum rehabilitation programme in Mumbai
is a classic case of cross-subsidisation in India.
According to this programme, the government will
allow private developments on land occupied by
slums. In exchange for the land’s development
rights, developers are invited for a private-public
partnership to provide new housing to existing
slum dwellers, while the remainder of the site is
made available to developers for them to develop,
sell and profit from.
Developer Initiatives
Effective Scheduling and Execution of Project
Developing affordable homes depends a lot on
effective planning and scheduling of various
project timelines along with a prompt delivery. As
the rates of raw materials such as steel, cement
and other building materials like tiles and fit-outs
continue to fluctuate depending on the demand–
supply situation in the commodities market and the
overall macroeconomic weather; these can impact
the delivery schedule of projects. Therefore, it
is highly imperative for developers to ensure
adherence of schedule to control costs.
Making Houses Technologically Affordable
The cost structure of the construction industry is
dominated by raw material and subcontracting
costs. Raw material cost, which is the major
cost, accounts for 40–50% of the total cost.
Meanwhile, subcontracting cost accounts for
about 20–40%. Major raw materials consumed by
the construction industry mainly include cement
and steel. The unprecedented rise in the price of
these two raw materials during 1H08 has a direct
impact on the cost of projects and in turn on the
margins of construction companies. Incorporating
the best practices across the globe to minimise
construction costs will facilitate developers to offer
more lucrative housing deals to end-users. Some
of the commonly used best practices include the
use of pre-fabricated structures to build high-rise
buildings, optimal flooring using ceramic tiles
instead of glossy vitrified tiles, cellular light weight
concrete (CLC) etc.
Value Engineering to Ensure Optimal Cost with
Enhanced Quality
The objective of value engineering (VE), apart
from reducing cost is also to enhance the design,
operations and maintenance. VE is carried out
during all stages in a project, especially during the
design, procurement and construction stages. VE
can be achieved by practicing the following:
• effective usage of locally available materials
including marginal and industrial waste for the
reduction of cost, yet maintaining the functional
requirements of end-users;
• rainwater harvesting, low-cost sanitation,
waste-water management, and landscaping with
recycled water
• solar-operated street lights;
• main electrical equipment to be located
together, which helps in further cost reduction;
• trenches for electrical, data etc and cabling to
take the shortest route possible;
• passive cooling, providing adequate natural
ventilation systems to avoid forced ventilation/
pressurisation systems;
• avoiding lifts and fire protection systems by
keeping the lesser height of the buildings;
• cement concrete pavement roads are at par
with the conventional pavement; they are lower
than the conventional flexible pavement if
maintenance cost is also considered and whose
bitumen top is to be renewed every five years.
 Affordable Housing - Chennai 15

Prudent Positioning Congruence – an Affordable Consensus

Keeping in mind the ’real’ demand for housing
from varied income levels of end-users, develop-
ers can adopt a need-based pragmatic approach
to minimise the gap between the aspiration of
home buyers and the current market offerings.
Developers could build affordable homes by
ensuring smaller unit sizes, investing on amenities
like libraries instead of club houses and schools
instead of swimming pools, which will lead to
much easier maintenance. Developers can also
focus on maximising efficiencies of the carpet area
to the built-up area to offer cost-effective housing
in reality.
Is Chennai all set for the historical congruence of
developers, regulatory authorities, government
and home buyers? The answer to this question is
‘Yes’! Having identified the affordability bracket for
home buying in Chennai for home buyers with an
income range of INR 3–10 lakhs per annum, it is
time for authorities and developers to streamline
their offerings to arrive at an affordable consensus.
Chennai government, regulatory authorities and
developers must come together to reach a com-
mon agenda to make affordable housing in Chen-
nai to become a reality and facilitate end-users to
own their dream home at an affordable cost.

Authors

Hariharan Ganesan
Senior Analyst, Research & REIS
Jones Lang LaSalle Meghraj
hariharan.ganesan@jllm.co.in
tel +91 44 42993061
Hariharan Ganesan joined the Jones Lang LaSalle Meghraj Research team in April 2008 and is
responsible for the Indian Real Estate Intelligence Service (REIS) publications. Based in Chennai, he
contributes to research deliverables on industrial, commercial, retail and residential real estate markets
in the country. Prior to joining the Firm, Hariharan worked on research in different fields for two years in
India. He holds a dual degree from Bits Pilani and an MBA from IIPM, Delhi.

Abhishek Kiran Gupta

Associate Director, Research & REIS
abhishekkiran.gupta@jllm.co.in
tel +91 22 66581000
Abhishek Kiran Gupta leads the Jones Lang LaSalle Meghraj India Research team and is based in
Mumbai. He manages research operations on a Pan-India level and is responsible for the team’s
outputs, including research reports such as topical white papers, property market digests and bespoke
research projects based on specific client requirements. Prior to joining Jones Lang LaSalle, he had
seven years of experience in market research, business analysis and market strategy consulting,
servicing diversified industries including pharmaceutical, software publishing and insurance.
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tel +91 80 4006 6100 tel +91 20 40196100 Chandigarh 160 017 Chennai- 600 028
fax +91 80 4006 6101 fax +91 20 40196101 tel +91 172 3047 651 tel +91 44 4299 3000
fax +91 172 3044 212 fax +91 44 4299 3001
Gurgaon Mumbai
Level 9 3rd Floor Khanna Construction Kolkata
Tower A Global Business Park House Berger House
Mehrauli Gurgaon Road 44 Dr. R.G. Thadani Marg Worli Premises No. 129 3rd Floor
Sector 26 Mumbai 400 018 Park Street Kolkata 700 017
Gurgaon 122 002 Haryana tel +91 22 2497 2652/2496 2427 tel +91 33 2227 3294
tel +91 124 460 5000 fax +91 22 2494 5612 fax +91 33 2227 3297
fax +91 124 460 5001
Level 13 Express Tower Kochi
Building Operations Nariman Point Mumbai 400 021 Business Communication Center
403 4th Floor Tower A tel +91 22 6658 1000 Chiramel Chambers
Signature Towers fax +91 22 6658 1003 Kurisupally Road
South City 1 NH-8 Ravipuram Kochi 682 015
1st Floor 2 Brady Glady’s Plaza
Gurgaon 122 001 tel +91 484 301 8652-55
1/447 Senapati Bapat Marg
tel +91 124 4083 336-8 fax +91 484 301 8656
Lower Parel Mumbai 400 013
fax +91 124 4083 339
tel +91 22 2482 8400
fax +91 22 2494 1321

REIS India
REIS India is a subscription based research service designed to provide you with cutting edge insights into India’s diverse and
challenging real estate markets through collation, analysis and future forecasts of property market indicators and trends across Real Estate Intelligence Service India

all major Indian markets across variosus real estate asset classes - office, retail, residential.
REIS empowers you with consistent and complete market data and analyses for all real estate indicators by specific micro
markets. It is supplemented by value added services including client briefings, presentations and rapid market updates.
For more details, contact Ananthanarayanan at n.ananth@jllm.co.in or +9198840 21335

Acknowledgements
We would like to acknowledge the contributions of our Homebay Residential team based in Chennai for sharing their knowledge and expertise.

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COPYRIGHT © JONES LANG LASALLE MEGHRAJ 2008 All rights reserved. No part of this publication may be published without prior written permission from Jones Lang LaSalle Meghraj.
The information in this publication should be regarded solely as a general guide. Whilst care has been taken in its preparation no representation is made or responsibility accepted for the accuracy of
the whole or any part. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties. The process
of making forward projections involves assumptions regarding numerous variables which are acutely sensitive to changing conditions, variations in any one of which may significantly affect the outcome,
and we draw your attention to this factor.