Telangana effect: Brace for a rise in Hyderabad property prices

Now that the creation of a separate Telangana state is announced, real estate developers in Hyderabad can heave a sigh of relief.

Despite competitive capital values compared with other metros, the Hyderabad real estate market was down in the dumps for the last couple of years with builders holding back projects and property buyers holding out on purchase decisions due to political instability over the bifurcation issue.

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While other cities entered a resurgence phase after the 2008 slump, recovery in Hyderabad was marred by political uncertainty and characterised by fewer launches and declining capital values.

Since the residential sector is highly sentiment driven, the Hyderabad market failed to attract buyers.

According to property research firm Knight Frank Hyderabadwill take more than two years to absorb the current unsold inventory of33,000 housing units.

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Nearly 8,500 units were launched in the second half of financial year 2013, showing an increase of almost 33 percent compared with the second half of financial year 2012. However, nearly 28% of the total launched units till date are unsold. Hence a steady absorption rate is required to sustain the prices.

“Largely an end-user market, Hyderabad has witnessed an extended slump due to the prevailing political uncertainties. Weakened consumer sentiments have affected the market deeply with no signs of recovery since the past two years,” said Knight Frank India chief economist and director research Samanthak Das.

But now that the prolonged indecision has finally come to an end, developers expect Hyderabad’s construction sector to once again get back on the growth trajectory.

On Tuesday, the Congress, which is the dominant partner in the ruling United Progressive Alliance government at the Centre, gave its nod to carve out a separate Telangana state from the existing state of Andhra Pradesh. This makes the creation of Telangana now a mere formality as almost every political party of significance in the state is agreed on the demand.

This brings to an end the political uncertainty that has gripped Hyderabad for over four years now and prevented the Hyderabad real estate market from growing in line with real estate markets in other competing cities such as Bengaluru, Pune and Chennai. Residential capital values in Hyderabad are yet to cross their H1 2008 peaks whereas they have crossed those levels in most of the top 7 cities of India," said Crisil Research in a report today.

The fact that the city will become the joint capital for the next 10 years is also encouraging for its real estate market since it implies there will be no sudden pull-outs by investors and developers. In other words, the prices will move up.

[caption id=“attachment_1000275” align=“alignleft” width=“380”]  Now that the creation of a separate Telangana state is announced, real estate developers in Hyderabad can heave a sigh of relief.
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Also, people are going to stay put in Hyderabad, after division, the real estate demand will continue and would only increase with the absence of uncertainty.

“The decision is good for the Hyderabad real estate market, as it has been hanging fire for the last 3-4 years. This state of affairs had given rise to a lot of doubt in the minds of residential end users, investors as well companies that were considering Hyderabad’s for its unique business potential. Investors who had been playing with the notion of pulling out of Hyderabad because of the unresolved political climate there will now have the requisite level of assurance that they had made the right decision, and more investments will now pour in. All said and done, this decision has been long awaited and will prove to be a game-changer for Hyderabad real estate.,” said Sandip Patnaik, Managing Director - Hyderabad, Jones Lang LaSalle India.

EvenAndhra Pradesh Real Estate Developers’ Association expects a positive impact on real estate prices in Hyderabad due to the formation of Telangana.

“As there was suspense all these days, investment flow into Hyderabad was not up to the mark. With a clear picture emerging now, a positive sentiment will prevail and as real estate prices are cheaper in the city, activity will pick up now,” the association’s president Dasarath ReddyReddy was qupted as saying by PTI.

The land price along outer ring road will also increase substantially since base rates are low even now, in most parts..Exclventures, a real estate advisory and research firm expects land prices to triple along Outer Ring Road from the current Rs 1 crore to Rs 3 crore.

While therewon’t be any drop in prices as prices here are already at rock bottom compared with other metros, ashort-term stagnation in the realty market cannot be ruled out.

“It is unlikely that end-user demand will increase immediately. However, within the next 2-3 months, demand will start picking up considerably and this will lead to better appreciation in many areas. The locations which will see the fastest uptick include those on and around Outer Ring Road, the CBD area of Banjara Hills and Jubilee Hills, and areas such as Gachibowly, HiTec City, Kukatapally, Miyapur and Chandan Nagar,” said JLL’sPatnaik.

Prime residential locations of Jubilee Hills and Banjara Hills in Hyderabad have already seen an increase of about 7-10% during FY13 due to limited supply.

Following the resolution of the Telangana issue, Crisil expects residential capital values to grow at a faster pace in 2013 and 2014 vis–vis 6-7 percent envisaged earlier.

Even commercial realty is bound to see a boost ascorporate clients who were earlier sitting on the fence will now feel encouraged to enter or expand in this market.

“During 2013 and 2014, with an increase in investor demand, we expect residential real estate demand to grow annually at 8-9 percent vis–vis a growth of 6-7 percent envisaged earlier. Capital values have already been on the rise in select pockets of the city (after bottoming out) since the last few quarters on the back of signals that the issue was close to a resolution,” said Crisil.

Commercial lease rentals are likely to increase only marginally in 2013 and 2014 due to a large planned supply of commercial office space, according to Crisil.