#DemonetisationAnniversary: Economic, political and natural upheavals disrupt Chennai’s realty


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Demonetisation story Chennai

Demonetisation, an instrumental move taken by the government to crack a whip on black money last year, brought businesses to a standstill, overnight. Real estate, too, witnessed a sudden downfall as sales and new launches suffered. One year later, 99acres.com attempts to analyse the long-term impact of the currency ban move on real estate markets of metro cities.

Chennai’s realty landscape, a rather resilient one otherwise, has witnessed one of the most turbulent phases in the last two years. The caveat for a slowdown in the city’s real estate sector started with the 2015 floods, which made buyers shelve their home purchase decisions and developers, defer new launches. As the market approached the festive season towards the end of 2016 and hoped for a revival, it met the biggest ever crackdown on black money in the form of demonetisation of 500 and 1000 rupee notes. The currency ban hit several businesses severely, including the cash-driven real estate sector. Almost immediately, home sales plunged by a whopping 31 percent in Oct-Dec 2016, as against Jul-Sep 2016.

Being an end-user laden market, Chennai was expected to recover fast from the cash-crunch. However, the slowdown was soon reinforced by the double whammy of Cycle Vardah and the demise of the then-CM Jayalalithaa. These events further distracted the cash-strapped buyers and brought real estate activity to a grinding halt.

Post demonetisation, the premium housing segment was the first to register a slowdown due to the higher incidence of cash transactions. Demonetisation played a limited role in suppressing demand for the home loan-dependent low and mid-income segments. However, these pockets, too, felt the heat as soon as the market met with other interruptions in December 2016. Uncertain buyers withdrew from the market and attempted to negotiate. While a few desperate-to-sell owners offered discounts up to 20-25 percent, developers, too, were seen reducing property rates by a margin in order to offload their existing stock which had reached a lag of 45 months. As a result, Chennai displayed a notable downfall in average weighted prices in the first two quarters post demonetisation, before the rates stagnated in Q2 2017.

The slash in property rates in Chennai was also a result of the unrealistically high valuations and mounting unsold stock. Several far-flung developing areas in Chennai including Rajiv Gandhi Salai reported a mere 60 percent occupancy with the rest lying vacant and witnessing meek to no demand.

The developer community, too, had taken a backseat in construction and new launch activity after the currency ban move. The supply of fresh residential apartments in the city dipped by a mammoth 55 percent in Oct-Dec 2016, as against the same quarter previous year. The quarter witnessed an addition of only 757 housing units, in comparison to the 1,673 units that were added to the market in Oct-Dec 2015. Liquidity constraints as well as heavy losses during the cyclone played a major downer for developers. The impact of hike in sand prices owing to the Cauvery Water row with Karnataka was also at play here. Low lying areas of Anna Nagar and Kilpauk witnessed steep fall in prices post the torrential rains and cyclone.

By the second quarter of 2017, when enquiries, sales and even new launches had started gaining momentum, the city was swept away with the implementation of the Tamil Nadu Real Estate (Regulation and Development) Act (RERA) and Goods and Services Tax (GST). The two radical reforms changed the modus operandi of the industry and the buyers further waited for the full impact of the reforms to unfurl. Amid dwindling buyer sentiment and excess residential stock, the realty landscape hit stagnancy.

Deferred purchase decisions led buyers to shift focus towards the rental market, which witnessed a marginal hike of two percent, YoY. The IT corridors in the South and West; and areas connected by the metro recorded maximum rental demand.

Overall, Chennai went through the bumpiest of roads amongst all metro cities in India. The market succumbed to the exigencies and has now stabilised at an all-time low. Experts anticipate a revival in the market post a notable reduction in home loan interest rates and clarity over RERA norms.

Market Analysis

Chennai Story_demonetisation

Impact of Demonetisation

Primary Residential Market

The primary real estate market of Chennai although heavily driven by home loans, was significantly impacted by the currency ban move. Subdued buying sentiment and negligible enquiries brought sales to a grinding halt in Oct-Dec 2016. The lull in this period was also a function of the other market distractions in the form of a catastrophic flood and political instability.

Demand for under-construction units suffered as buyers withdrew due to lack of confidence towards timely completion of residential projects. Enquiries for under-construction properties witnessed a 40-60 percent drop post demonetisation. Several deals were reportedly cancelled on the same pretext as buyers decided to defer purchase decisions and wait for the market to stabilise.

The developer community, too, reacted to the liquidity crisis that resulted from currency ban. They halted ongoing projects and postponed new launches, accounting to a 55 percent dip in supply of fresh units in Oct-Dec 2016 against Jul-Sep 2016. The implementation of RERA further exacerbated the construction business. The cumulative impact of all the policy reforms led to a 10 percent reduction in the supply of under-construction apartments in the last one year.

Pressurised by the mounting under-construction stock despite restricted number of new launches, developers offered some discounts, which reflected in the marginal price fluctuations in the quarter post demonetisation. The market seems to have stabilised over the year, however, sales continue to remain meek and concentrated towards areas offering competitively priced homes and seamless road and metro connectivity.


NJ Quote


Secondary Residential Market

By the virtue of being largely cash-dependent, the resale market in Chennai was the worst hit by the demonetisation move. While buyers completely waned from the market, owners offered hefty discounts up to 20-25 percent in a desperate bid to exit realty investments. Despite heavy concessions, cash crunch subdued sales and soon, owners too withdrew from the market and instead put their properties on rent. Overall, the average weighted prices of resale properties displayed significant fluctuations in the short-term and stability over the mid-term.

The worst-hit markets included the inventory-heavy locales of South Chennai such as Kotturpuram, Egattur, Pallikaranai, Vengaivasal and Velachery where capital ‘asks’ witnessed a price correction to the tune of 5-15 percent. The presence of the IT industry and the expanding metro network could do little to lift sentiment, improve sales or prevent property prices from dipping.

Prices trends in the popular micro-markets of Chennai


Current ‘ask’ rates*

Capital Growth**

Growth Drivers

Anna Nagar



  • Poor buying sentiment for premium locations

T Nagar



  • Planned development under the Smart City project




  • Availability of affordable, new residential stock
  • Metro connectivity and proximity to workplaces




  • Proximity to IT hubs




  • Presence of IT companies and seamless connectivity links
  • Poor buying sentiment

* Current ‘asks’ are median rates for listings in the respective localities posted on 99acres.com in Jul-Sep 2017 – both resale and new projects

**Capital growth is calculated basis the changes in average weighted ‘asks’, YoY – Jul-Sep 2016 vs. Jul-Sep 2017

Rental Market

The rental market of Chennai, although primarily driven by the migrant population, registered a slight improvement on the back of increased demand from homebuyers who deferred their purchase decisions for at least six months after demonetisation. The average weighted rental ‘asks’ posted marginal hike of two percent between Jul-Sep 2016 and Jul-Sep 2017. The meek price growth is attributed to the excess housing stock, especially across the IT corridors in the South, one of the most popular amongst the end-users.

Demonetisation rental graph Chennai

National Outlook

National Outlook_Demonetisation

Chennai’s realty landscape has been through one of the roughest phases in the last one year. With all equally-adverse factors working against the market, the downfall was imminent. However, the city has been fast in getting acquainted to the multiple challenges thrown at it and trying to reach stability. Going forward, the market is expected to witness a revival if it does not meet any major hiccups in the mid to long term. Efficient implementation of RERA could play a major role in inducing growth in Chennai’s realty sector.

Expert Opinion

By Ashish R Puravankara, MD, Puravankara Ltd

By Niranjan Hiranandani, Founder & CMD, Hiranandani Communities

By Aaron Solomon, Partner, Solomon & Co

By Saurabh Jindal, JMD, SVP Group

By Sanjay Jain, Group Managing Director, Siddha Group

By Arjunpreet Singh Sahni, Executive Director, Solitaire Group

By Pankaj Kumar Jain, MD, KW Group

By Mukund Patel, MD, Rutu Group

By Shishir Baijal, Chairman & MD, Knight Frank India

By Manju Yagnik, Vice-Chairperson, Nahar Group

By Aashiesh Agarwaal, Founder & Managing Partner, Pinakin Advisors LLP

By Anuj Puri, Chairman, ANAROCK Property Consultants

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. 99acres does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.

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  • Comments
  • Jayasankar November 9, 20173:37 pm

    Demonetisation had slowed down the real estate market. Now IT and ED Raids will stabilize the Real estate prices, which were artificially escalated by builders. Chennai and Tamil Nadu suffered on account of these factors.

  • Younameit November 9, 20179:51 pm

    Well.. It is a good reason for the buyers to buy the apartments/houses now..

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