Hyderabad Realty: Developers wary; yet to embark on future projects
The general health of business prevailing in a city has a direct impact on the real estate health of the city. In this context, it can be said that the general business culture prevailing in Hyderabad has flattered to deceive. This has had a direct bearing on the realty investment culture of the city in recent times. Many major infrastructure companies have been shying away from investing in projects in the city since they feel that other cities present a more lucrative proposition, with less risk involved.
Premium residential units most affected:
The sluggishness in the realty market of the city can be attributed to the general sense of apprehension that has pervaded investors with regards to what the future holds. The premium residential segment of the city has borne the brunt of the crash in the realty market, with many units left unsold, and prices falling to an all-time low. However, developers of projects in the mid-segment have been able to sell most of their surplus inventory, even though at lower margins. But they are skeptical about embarking on new projects as they are waiting for prices to stabilize so that their margins won’t be affected.
Higher costs, lower prices affect investor margins:
The current residential market trend supports residential sale pricing only in the Rs.45-60 lakh category, beyond which there is a stagnation in inventory. The slump in prices of residential projects in recent times has had a major impact on developers who have bought land at prices that were existing in 2007. Land was bought by developers in high-end Hyderabad at the rate of Rs.20-35 crore per acre in 2007. This coupled with the increase in construction costs has made selling of projects at current rates unfeasible.
Commercial projects also bear the brunt:
The same is the case with commercial office space in the city. Land was bought for the Knowledge City project at the rate of Rs.18-20 crore per acre. At current rates, the rentals for IT companies here are around Rs. 40 per sq.ft., which have become unviable for developers considering the investments they had made. Moreover, the government has not done much in terms of boosting investor confidence to the extend that investors are considering the city as a viable investment destination. In such a scenario, it is imperative that more national and MNC companies enter the Hyderabad market with higher space requirement. The onus is on the government to facilitate this, without imposing too many restrictions and regulations.
Global private equity funds distance themselves from city:
Most of the buyers in the Hyderabad reatly market today are genuine home buyers. Buyers looking for property in the city as an investment have almost vanished from the market. Besides, global private equity funds which are an important component of property markets in metro cities have distanced themselves from Hyderabad due to the adverse realty situation prevailing in the city. There are many major developers with liquidity who are scouting for land deals in the city. However, they are treading cautiously as they do not intend to jump in impulsively and burn their fingers.
Ideal time for buyers to invest:
It is expected that the prices will fall further given the current scenario prevailing. But this possibility is very unlikely, since the margins at which the realty market of Hyderabad is operating is already very thin. However, from a buyers point of view, this seems to be an ideal time to invest in realty to get good value for money. The bifurcation of the state, as and when it happens, will not have such an adverse impact on realty values in the city. Other factors like excellent infrastructure and the recovery of the global economy will enable prices to hold fort.
