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Hyderabad realtors rejoice

Real estate developers in Hyderabad feel the decision of the Congress Working Committee and the ruling UPA coalition's coordination committee to accord statehood to the Telangana region will augur well for their business in the long run.

"The business will pick up, as there is an end to political uncertainty over the issue," Rajeshwara Rao, chief executive of the Hyderabad chapter of the Confederation of Real Estate Developers Association of India, told Business Standard.

He is confident Hyderabad, which has world-class infrastructure facilities, will be the most attractive destination for large global investors. "It (the decision on statehood) is good for everybody. There will immediately be an inflow of investments into the city," said Narayan Reddy, promoter of Lumbini Constructions.

The earlier ambiguity over bifurcation of the state had affected the real estate business here, he said. Research agency CRISIL stated after a four-year hiatus, real estate prices were set to rise at a relatively faster pace here. Due to the Telangana agitation, it said, residential capital values had stagnated since 2009 and driven investors to other cities such as Bangalore and Chennai.

In the immediate term, Crisil expects realty agencies to pick up with the buoyed investor sentiment. In the medium term, the resurgence in corporate investments will improve demand for commercial office space and, in turn, provide a fillip to job creation and boost residential real estate demand and prices. CRISIL had earlier envisaged that in Hyderabad, residential capital values would grow six to seven per cent annually in 2013 and '14. It now expects the growth in prices to be faster and the gap in residential capital values vis-a-vis cities like Pune, Bangalore and Chennai to narrow

Commercial lease rentals, however, will continue to see only a marginal annual increase due to the huge oversupply situation, it said. Real estates services provider Jones Lang LaSalle (JLL) also said the decision was good for the Hyderabad market. "Investors who had been playing with the notion of pulling out of Hyderabad because of the unresolved political climate will now have the requisite level of assurance that they had made the right decision, and more investments will now pour in.

The fact that Hyderabad will become the joint capital for the next 10 years is especially encouraging for this city's real estate market," stated Sandeep Patnaik, managing director of JLL Hyderabad. JLL said it was unlikely that end-user demand would increase right away.

Yet, it expects demand to start picking up considerably in two or three months, leading to appreciation in many areas. In this regard it named areas in and around the Outer Ring Road, the central business district area of Banjara Hills and Jubilee Hills, and places such as Gachibowli, Hitec City, Kukatapally, Miyapur and Chanda Nagar.

JLL expects increased action even in the case of commercial real estate, saying corporate clients which were sitting on the fence would now feel encouraged to enter or further expand in this lucrative market.

Global property consultant Knight Frank, in a recent report, stated of 118,000 housing units launched by developers over the past three to four years, 33,000 homes had remained unsold. The report, however, stated residential sales volume went up 11 per cent in the first half of FY13, compared with the same period in FY12. About 8,100 residential units were absorbed during this period, while 69,800 were in various stages of construction. Approximately 70 per cent of this is expected to be ready for possession by the end of 2014.

K K Reddy, a realtor, said from 2009 when the agitation for a separate state of Telangana intensified, investments in real estate in Hyderabad had dwindled. Instead of investing in the city, realtors invested in and around the headquarters of various districts, where land prices had shot up while they remained subdued in Hyderabad. For instance, land prices around the district headquarters of Warangal, Guntur, Prakasam and like places had gone beyond Rs 1 crore an acre from Rs 30-40 lakh a couple of years before.

Prices of home property did not rise much in Hyderabad from 2009 when compared with Chennai or Bangalore. "In 2005-06, the prices of residential properties were almost at par in Hyderabad, Bangalore and Chennai but they surpassed Hyderabad from 2008-09," he said.

This is also evident from JLL's July 2013 monthly real estate monitor. While the capital value of office space in key precincts of Hyderabad ranged from Rs 3,000 to Rs 7,500 a sq ft (sft), the prevailing prices in key precincts of Chennai ranged from Rs 3,250 to Rs 15,000 a sft and of Bangalore from Rs 2,800 to Rs 20,000.

Srinivas, the promoter of Reliance Builders, said there was hardly a 10 per cent rise in property rates in Hyderabad from 2008. "Nearly 90 per cent of the prime property in the state is available at a price of Rs 3,000-4,000 per sft," he said.

Ajay Reddy, a real estate dealer, said there could be stagnation in land dealings in Hyderabad for a couple of years.Thereafter, there was likely to be steady growth.

Y Kiran, chief executive officer of Suchir India, said the city would now receive quality investments. Big investors were awaiting clarity on the statehood issue and would now be ready to invest. "Investors are not bothered about regions. They only see whether there will be good returns on their investments," he added.