Telangana State – Update on political developments – Impact on Hyderabad Real Estate Market – 08/08/2013

For more on the report contact: Marutish@gmail.com

Telangana State – Update on political developments – Impact on Hyderabad Real Estate Market – 08/08/2013

Ending the Period of uncertainty

The announcement of Telengana being the 29th Indian state of India happened on 30th July

2013. For the Hyderabad Real Estate Market his brings to an end a period of uncertainty

between the year 2010 to 2013. As a close observer of Hyderabad Real Estate Market, there

were many lows and only few highs in this period.

The previous announcement of a Telangana state on Dec 9 2009 by Union Home Ministry

caught many market participants in Andhra Pradesh by surprise. Many thought it will be a

temporary small blip of uncertainty for the market and had not bargained or planned their

business for a sustained agitation. With the Telangana agitation stretching for a period of

more than four years the market was bought to its knees. In this period, very few builders

launched new projects. Only builders from outside Hyderabad and large builders from Andhra

Pradesh launched new projects in Hyderabad. Many medium and small builders, who launched

their projects in this period, struggled to sell their projects with the lackluster market.

How will the announcement of a Telangana State impact the Hyderabad Real Estate

Market?

The last financial year of 2013 was an average year for the Hyderabad Real Estate Market.

Demand picked up moderately and customers too came forward to buying property. However

from the beginning of this financial year the sales in the Hyderabad Real Estate Market have

been sluggish. Customer walk-ins have declined and sales traction have been negligible. In

addition to the Telangana factor increased prices of apartments contributed to the declining

sales.

How much do Andhra and Rayalaseema Investors account for the real estate market

in Hyderabad

Builders from Andhra and Rayalaseema account for about 60-70% of the builders in

Hyderabad. However, investors from Andhra and Rayalaseema Region account for about 30-

40% of the new apartment or land sales in Hyderabad. With the announcement of new state,

we might see a temporary lull of about a year or two from this segment of the market in new

making purchases. Residents from Andhra and Rayalaseema will continue work in Hyderabad,

but they will think twice before making any investment decisions in Hyderabad and they will

plan to invest their savings in the new state capital of Andhra Pradesh.

The market sentiment is likely to muted in the short-term

The clarity on the Telangana state will improve the market sentiment and speculative activity

will increase over the next few years. I have spoken to many institutional investors from North

and West India who stayed away from the market and are willing to make a beeline to

Hyderabad in the coming quarters. Further investments from PE, NBFCs and other institutional

funding which were more or less stopped over the last few years will also begin again into

Hyderabad in the next few quarters.

To sum up the contours of the Hyderabad have grown well beyond to have a real term impact

in the medium and long term, while in the short term, there will be significant capital flight

from the city with investor eyeing speculative investment opportunities in the new capital state

of Andhra Pradesh. In the short term too, the impact can be curtailed if the new government of

the state of Telangana assures the industry, that existing policies would be continued.

Hyderabad Infrastructure:

Hyderabad with its fantastic infrastructure is competitive among leading Indian cities in

attracting capital from global and Indian companies based on various factor conditions.    The

last four years have been bad for Brand Hyderabad. In the period 2005-2008 Hyderabad was

almost closing the gap on Bangalore in terms of IT exports. While Hyderabad faltered in the

last four years, Bangalore has zoomed far ahead in this period.

With Metro Project ready to be launched in April 2015(Lane 3 first phase) the Hyderabad Metro

Rail project is keeping up with its timelines. This project along with the ORR which is likely to

be completed shortly will put Hyderabad among the best cities with world class infrastructure

globally. This infrastructure and access will provide a great fillip to the growth of new

residential and commercial townships across Hyderabad City.

When will the market pick up steam?

Hyderabad real estate market has been very sluggish in the last few years. Most of the

developers are sitting on a significant stock of unsold inventory. Builders too have been sitting

on the inventory with a hope that the market will recover. With an exception to few builders

such as My Home, Aparna, Aditya Construction and Mantri all the others have been facing

tough times in the last few years. Only few projects such as the following have done well in

terms of their sales velocity.

My Home Vihanga and My Home Abhra.

Aparna’s project new launches in Chandanagar and Nallagandla

Mantri Celestia

Aditya Construction projects in Shaikpet

In case of most of the other projects in Hyderabad the unsold inventory has stretched to more

than 16 to 20 quarters. The recovery of the Hyderabad market, which was earlier expected to

be in the second quarter of FY 2014, has been elusive and it is expected that the demand may

pick up steam by Jan 2014.

How will housing prices be affected in the short, medium and long term?

Yes, in the last four years FY 09 to FY13 (last year), there has been a dip in the top line of the

real estate industry in Hyderabad due to slack demand.   In the short term, the prices may dip

marginally because of unsold inventory and as demand is still sluggish and supply currently

overrides demand, while land transactions may pick up. While ready/constructed housing

prices may dip marginally, projects were construction is on and announced projects might see

prices dip by about 5-10%.

What will happen in the medium and long term: It will depend on policies of the

new government in the state.

Which Geographies of the market look good?

Hyderabad West market – with a strong access and connectivity to the IT Zones and

developments is expected to perform well in the next two years.

What can investors do?

The fundamentals of real estate industry in Hyderabad are sound with the IT and Pharma

industry in Hyderabad performing creditably in a difficult business environment in FY 2013.

Hyderabad today is a competitive among various cities in India and abroad. We expect that it

will continue for the time to come. Patience can be virtue in this market. Investors in

realty could look at bargains in the ready/constructed housing market in the next few quarters.

For more on the report contact: Marutish@gmail.com