Chiranjeevi's powerful political entrance. Will he shake things up?

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1.0 The Launch

The launch of Prajarajyam on 26th August was a statement of commitment and possible political power. If Chiranjeevi is able to pull masses from other regions and all casts and creeds (Andhra & Telengana) like he did in Rayalaseema, then he could have a strong shot at the CEO's chair.

Recent months have seen weakening and erosion of support for TDP. Though many may sympathise with Mr. Naidu and would want him back in power, it looks like he has not been able to keep his sway over the masses. Also his recent tie up with the likes of Mayavathi, has done little service to boosting his image.

2.0 Policy Direction

Though there was no direct reference to large scale Industrial Development, in his speech, we can safely assume that the point has been underplayed since the Chief was facing the grass root political workers, whose first priority is basic livelihood. AP has fallen from the top investment designation to number fourth in four years.

There is degeneration all around except for the hard work and toil that private entrepreneurs have been putting up (including Airport, IT Parks, Malls, etc). Public amenities remain in shambles, roads, water supply, irrigation, power, sanitation…………..AP requires fresh ideas to make it come out of the rut. Its great to see opposition to Govt Land Sale mentioned as a key differentiator by Chiranjeevi.

3.0 QUOTE FROM Chiranjeevi's Speech:

" Earlier, we used to depend on our land for our livelihood. But now we are simply selling it away. Sadly, the government, which is supposed to be the protector of land (dharmakarta) is turning into a broker and selling it away for short-term gains in the name of budgetary support. We are against it.

Prajarajyam will not allow selling of government land. In the name of setting up of special economic zones, the government is selling away land belonging to farmers thus snatching away their livelihood. It is benefiting some rich groups but is killing our food providers. Land is our future and it belongs to our children. How can we simply sell it off? Isn't that outright injustice? We oppose selling of cultivable land in the name of SEZs"


4.0 What does this mean?

These are points which we have been raising all along and many of you have conveyed your opinion too. Govt land belongs to the public, who have given it to Govt. for safe custody. Its to be used for building public utilities and amenities or if required only LEASED but NEVER SOLD. Its to be kept for use of future generations and not to be cut and sold to private companies. Instead Govt. is selling land just to meet revenue expenditure. Its absolutely stupid and can never be justified.

Land is no Akshaya Pathram. It's a limited, rare commodity to be safe-guarded. Land used for large SEZs, should be dry lands not fertile land. Govt should extend connectivity, water and power to set up SEZs on dry lands. Converting fertile land of thousands and thousands of hectares into dry land, will put food security of future generations at risk.

5.0 Telengana

On Telengana, Chiranjeevi said "It has some of the finest cultural and literary heritage. Yet, it also has problems, exploitation and tears. Above all, it has backwardness which is the creation of the misrule of the past governments.

Telangana's problem today is an issue of self-respect. We respect the sentiment. If separation is the only solution and becomes inevitable, we will facilitate and support that." Its clear that separation is the last option for the Party. Well that is the same policy as Congress and TDP. We need to wait for more clarity on this matter.

6.0 What can be expected?

There is no doubt that a major realignment of political affiliation will take place among large sections of the public, before the upcoming election. This will directly impact the grass root level reach of both Congress and TDP.

They will be under pressure. In a three cornered fight, who will become winner ……only time can tell! From a reading of Chiranjeevi's speech, it can be seen that the thrust of this Party will be on development and generating revenue for economic activity to meet social obligations. Not short cuts like selling land. Unless there is industrial, commercial and IT growth, the Party's objective's can not be met.

If it has to see progress in rural areas, general economy will have to prosper first. Short cuts like free power, and free land distribution, free rice etc can not be long term solutions at all, since Govt. treasury will dry up and then the struggle will start as is happening today. As long as there is focus on need of economic development to generate more revenue, we can safely expect sustained growth, which will have positive impact on Real Estate. All political parties will change color within few years. But under current circumstances looks like Prajarajayam could be the answer, if its able to pull together people from all casts, into one cohesive group.

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UNITECH in HYDERABAD. HUDA has sold Assigned Land. UNITECH almost duped of Rs.160 Crore. 160 Acre Hotel Corridor Project goes for a toss.

1.0 Background

The rising expenditure due to subsidies and other populist policies, coupled with diversion of funds by contractors, politicians and others puts State Govts in financial mess. The negative trend in Real Estate transactions have added to Govt's woes, with revenue collection by way of registration charges and stamp duty, falling drastically.

Increasing Registration Charges and Approval fees have only been counter productive with fewer projects being planned by developers. The easiest way out of financial mess seem to be to sell off land and use the cash for expenditure! In their eagerness to meet strict Govt. target for revenue, set for various departments, HUDA, APIIC, APHB have been auctioning off land with doubtful legal lineage. The history of much hyped Golden Mile Auction (Kokapet -Hyderabad) is all too well known with buyers left with nothing. Neither land nor money they paid. Once money goes into starving Govt treasuries, its almost impossible to get it back. Unfortunately, bidders were pushed into paying large advances even before possession.

2.0 Budwel Auction Details

HUDA(Hyderabad Urban Development Agency) had widely publicized its Hotel Corridor Project in Shamshabad. Since the land identified was in conservation Zone, HUDA was forced to look for alternate land. Within few weeks HUDA came up with 164 acres of land in Budwel. The land was peddled as a fantastic business opportunity. We had commented on the risk involved, in report released in January 08, before the Auction. (Click to View) Bids were called by HUDA in January 2008 for 164 Acres at base rate of Rs.4 Crore per Acre while market rate for small pieces of GOOD LAND was only Rs.2 Crores per Acre in that area.

3.0 Bidders

Hyderabad based Companies including IVRCL, GVK, GMR, LANCO, Maytas and others, stayed away. But the upcountry Real Estate Majors DLF, UNITECH and ANSAL Group placed bids. Unitech offered Rs.4.02 Crore per Acre and bagged 160 Acres of illegal land! The Terms of payment required successful bidder to pay 25% (Rs.160 Crore), even before Letter of AWARD! In the bid terms no commitment was given that the land is freehold and is free of any litigation. However, UNITECH thought it fit to handover 160 Crore to HUDA!

4.0 Status.

160 Acre Hotel Corridor Project goes for a toss. Since the land was NOT FREE HOLD and actually "Assigned Land" (land Assigned by Govt to the poorest of the society for agriculture) being enjoyed by peasants over 50 years, they rightly went to Court which rejected Govt right to sell land for private purposes.

In this regard, recently the CM himself was forced to surrender Assigned Land to avoid controversies. The stated policy of the Govt. is that Assigned land shall not be sold by Assignees and if sold Govt. will take over and either return it to Assignees or could use it for public purposes like, building Govt schools, Govt hospitals etc.

5.0 While this being the policy of the Govt, how could HUDA have sold Assigned Land to Unitech?

Obviously due to pressure from Govt with regard to revenue target. By hook or crook money had to be made! Investing Companies now look upon HUDA with suspicion. The biggest dis-service done by the Govt. is creating Credibility Loss for HUDA, by pushing it to sell land, in as-is-where is condition, without clearing litigations and before ground development.

6.0 Why did Unitech and others bid for Assigned land which has no commercial value?

Why did Unitech Agree to pay 25% (160 Crore) upfront, with no surety on possession or ownership of land? Answer is simple and easy. Large Developers have all raised Crores from public by way of IPOs. Its easy Money with lakhs of small investors contributing their life's savings, hoping to get rich.

The Companies have got riches, by tapping the market and they have nothing to lose in bidding and handing over Crores to Agencies like HUDA for worthless land. Its not their money after all and they find no need to do a proper Title Survey or Legal Verifications! If the Money was hard earned, these companies will never take risks like these.

7.0 UNITECH may not learn from the mistake

HUDA has offered to give 40 Acres said to be non Assigned Land to UNITECH, to settle the Rs.160 Crore paid! Its most unlikely that the 40 Acres is a single bit. It could be scattered over 160 Acres! There is every chance that the land offered could have legal issues or could be under FTL which again makes the land worthless, commercially.Even otherwise, the location of Budwel is land-locked with no good, direct access to city at all.

A 40 acre project in Budwel, will be a commercial disaster for any Investor. But however, if Unitech can pay Rs. 160 Crore advance with nothing in hand and no legal protection, it could be expected to throw the money away, by grabbing the GREAT OFFER by HUDA!

8.0 Wrap-up - Auction of Land -Hyderabad

Developers have to appreciate the fact that during the last 2 to 3 years, HUDA, APIIC, APHB etc have been putting up land for auction, before its 100% legally cleared. The lands lack clear Title but buyers are asked to pay, sometims 100% UPFRONT!! Developers do not seem to be carrying out serious due diligence exercise before committing crores to the Agencies of AP Govt. Individual buyers beware!

Planning to buy in any new layout from HUDA? If it can cheat powerful corporate entities of hundreds of crores, its no great task for it to cheat individual buyers and dump assigned land or shikham land, on their head. Unlike earlier, when people used to blindly believe HUDA, it would now be necessary to do detailed legal verification, before buying any new auctioned plot, from HUDA.
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Hyderabad- Apartment Rate Review & Report on Property Exhibition at Taj Krishna-18 to 20th July

The market remains tight but the large developers are holding-on to price levels. Under normal circumstances, a low demand should have resulted in overall price correction, of significant nature. However no appreciable correction is seen. In fact, new projects like PBEL at APPA and Sunway Properties at Borampet are quoting unbelievable rates at these locations .

>>All about Price Trend, Demand, Potential -Hyderabad Real Estate
1.0 Factors influencing price.

There are several factors in the market which makes price to remain high. This include overall inflation, rising raw material costs (Especially Cement & Steel)and shortage of labor force. The high inflation should automatically make a rate of Rs. 3000/sft to increase to 3300/sft in a year (10% rise) but developers who commit price of Rs.3000/sft has to hold it, whatever be the inflation and increase in cement /steel prices.

This situation exposes projects to under recovery risk and obviously, to mitigate this, developers are forced to quote price, with LARGER Margins. In addition to this, the Govt. has been increasing approval fees, drastically and all increases have to be borne by Developer once price is committed.

The above factors have made it impractical for developers to offer considerable reduction in price. However, developers who bought land early, at cheap rates should in fact pass on benefit to buyers. But this is not happening at all.
2.0 Major Property Expo by Times at Taj Krishna

On July 18th to 20th a major Property exhibition was held at Taj Krishna. Times had given wide publicity over last 3 weeks. The News paper carried list of participants with full page ads over several days. Since this was a big effort, we decided to check out the scene and get a low down on Rates and marker response.
Major Participants:

• Aparna Nallagadla - Base rate of 3500/sft + Extras
• Aliens Tellapur - Base rate of 3500/sft + Extras
• SMR (Miyapur) - Base rate of 3200/sft + Extras
• SMR (Guchibowli) -- Base rate of 5500/sft + Extras
• Sunway Properties, beside Borampet - Incredible 3600/sft with 400 Rs/sft special discount at Borampet in 2008 July? Hope sense will prevail. Wonder wthere any Hyderbadi got wooed by Malaysian girls whi manned teh sales desk! We are sure people here are smart enough, to see through he scheme of things. (The price is unusally high considering the location. Definitely this Company is not passing on low land acquisition rate, to buyers instead, its asking for extremely high premium even if quality is outstanding)
• PBEL, at APPA - Rs.3500/sft at APPA in 2008 with Express Highway still in early stage of NON-COMPLETION?! Wonder whether people would run and buy, at APPA at 3500/sft while apartments are available at lower prices near Narsingi, Tellapur, Nallagdla and even all around Kondapur, Nanakramguda etc The price is a bit unusual considering the location and status of Express Highway. Buyers may review quality/amenities, density (flats per acre) etc and reach own conclusion.
• Maytas at Hill County -Rs.3400/sft. So over-confident earlier, now even Maytas is forced to particpate in Property Shows to try and get odd bookings.
• Giridhari Constructions at APPA - Rs.3200/sft is asking price. This is said to be negotiable down to 2800/sft
• Aditya Tellapur - Villas -Above 225 Lakhs

There were several smaller firms all quoting Rs.3000/sft and above, even in Kukatpalli, Chanda Nagar and beyond. Indu was around with its project near Nagole. The new "kid" on the block, BHARAT was not at Exhibition. But they are quoting 3600 to 5600/sft opposite to Guchibowli University! Its going to be an uphill task for it too.

3.0 Market Response:

2 or 2.5 years ago, property Exhibitions were hot bed of action with buyers swarming the counters. Many Counters used to Display SOLD-OUT boards within hours! The Visitor Card Boxes would over-flow. Guest books would have little space to sign. However, recently, Property Expos have been virtual disasters for Developers. Only the organizers made money.

The current Exhibition has been no different. Even with high profile Ad campaign, it has flopped badly. Even at peak time, there were only some 50 people around the spacious hall. Some of the Sales Executives confided the fact that not a single booking has taken place. And with a wink they added that their competitors, were in the same boat! Even casual visitors who used to come with wife and kids in tow, to enjoy 5 star ambience and partake snacks and coffee, were conspicuous by their absence! Obviously hearing rates above 3000/sft is an irritant, even to those who come for time-pass!

We have commented extensively in the Annual Trend Report, on Price Vs Demand situation and have projected when demand could meet prices of around 3500/sft to 3900/sft, in prime areas like Hitec City, Guchibowli, Nallagdla, Tellapur etc. The New developers like PBEL, Sunway, Bharat etc are rushing with their projects in far off suburbs, at very high rates. They may get the quoted rates after quite sometime; Definitely not in 2008 when such rates are not seeing booking, even in prime central localities.
4.0 What will happen to these New Projects:

Those who book unknowingly in Projects like PBEL and Sunway, are definitely going to face long delay in delivery. Also the developers are going to construct only one or two blocks, instead of 10 or 15. This results in very bad environment for early buyers, with the whole place around dug up with construction continuing for may be 5 more years, after they occupy.

Obviously older Projects with Approval in hand, like Aparna, have better chance of delivering in time, without exposing buyes to project risk.
5.0 Vanishing Plot Developers

The most striking feature of the exhibition apart from low turnout, was absence of plot layot developers. Earlier, layout developers would book all stalls, leaving little space to Builders. This time around, except for one brave soul, who was reduced to squatting flies, there were no layout developers anywhere around! (By the way, do note that a Company from Nagpur had come all the way to sell his non-moving plots in Nagpur...pity him! )
>>All about Price Trend, Demand, Potential -Hyderabad Real Estate

Hyderabad Real Estate Review. Apartment Price Trend and Investment & Buying Opportunities. July 2008

>>All about Price Trend, Demand, Potential -Hyderabad Real Estate

1.0 Current Scenario

There has been definite and discernable down trend in Real Estate Transactions all over India. Last 6 months has seen gradual tightening of situation with builders observing very little booking interest.The sudden and fast increase in apartment rates during 2005-2006 and partly during 2007 has resulted in high overall cost of possession of Apartments.

Coupled with inflation, high interest rates, upcoming elections, reports of job cuts, reduction in salary increments, ever increasing registration charges and crippling approval fees, buyers are forced to rethink.

- Forget it! No more rapid residential construction growth, in prime areas.

Slowly, its becoming very clear that prime areas of Hyderabad like Banjara Hills, Hitec City, Kondapur, Guchibowli, Nallagadla, Tellapur etc will not see rapid residential growth any more. The construction of small stand alone apartments which were booming couple of years back, has totally stopped. There will be fewer new projects and even those will get initial booking slowly. But in the long run the above areas will see terrific pricing.

With current cost of 75 Lakhs to 150 Lakhs and above for reasonably sized apartments, there are just not sufficient people with large budget to buy. Most of the people with such budgets have already bought in projects like Lanco, Aparna, Aliens, Aditya, Ramky, Nagarjuna etc.

Initial Hesitation to move out and buy.

Due to high cost, rest of the potential buyers have no other way but to look at areas like Narsingi, APPA (Bandalaguda), Chanda Nagar, Mallampet etc. There is initial hesitation in moving out. But its only a matter of time before there is large scale booking in outer areas, if builders can offer Rs.1000 to 2000/sft discount compared to rates in Hitec City and surrounding areas.

It takes time for people to understand and appreciate that there is no point in waiting for large fall in rates, to book in prime areas. The initial inertia and hesitation is very much evident in the market. But ultimately people will move out and buy. The early movers who are able to judge the market dynamics and buy in emerging areas, will benefit due to better pricing.

In couple of years, the increase in property rates in such emerging prime areas, will push people farther out…it's a cycle and this happens in all cities. For example, in Mumbai even at 50 Km from say Dadar, buyers pay Rs.3500 to 4500/sft!

2.0 People with investment interest and money to invest, should pick properties in prime areas of Hyderabad.

In Hyderabad even in the most prime areas like Kondapur, Nankramguda etc which are within 5 Km from Hitect City/Guchibowli areas, Apartments are available from 3200 to 3600/sft! The Luxury Apartment rates in Banjara Hills has hit above Rs.10,000/sft.

Since Hitec City, Guchibowli, Nanakramguda etc will see slower growth of construction and hence low availability in future, there is huge investment potential, if you can make strategic investments in good Projects.But one has to be careful in picking the right property. Its should be at very good relative pricing at carefully chosen location.

Often the micro level location of a project can make or break the investment even if its otherwise within a hot zone.

3.0 New Projects with relatively high prices. Will they get through?

Almost all the projects launched since last one or two years, have under booked. This is true of very good projects like Ramky Towers, Nagarjuna, Aditya Homes, Sarover, Space Station etc. The issue as explained is the non availability of critical mass of buyers who can afford rates above 3500/sft today.

While these projects remain unsold, a new one called Bharat has started near Guchibowli University with rates from 3800 to 5500/sft. We are sure it would take inhuman effort to get sufficient booking for a new project, which still may take more than an year to kick-off, when there are top quality projects available around the same locality, with approval. Most of the developers have postponed their plans and rightly so.

Isn't it foolish to pile up costly inventory, in a locked-out factory? The slow growthin addition of apartment units in these areas, is what would help investors in making very good gains.

4.0 Delay, Postponement , Downsizing

Those who had booked in large projects have to gear up for delayed deliveries. Since booking is incomplete, unless there is large external funding, projects will find it hard to complete constriction. The cash flow from people who have booked would be insufficient to meet construction costs. With banks tightening credit lines to Real Estate Developers, its not going to be easy any more, for large projects to get through.

PE funds are also aware of the downtrend and lack of booking. Obviously, they would rather sit on cash than help developers tide over cash flow problems.Some projects can get postponed or downsized. We are already aware of downsizing of a major Apartment project from 40 acres to just 9 acres.

5.0 Get ready for lower sized Apartments

We had predicted the upcoming trend towards lower sized Apartments in Hyderabad in the annual Real Estate Report of 2007. The first large project with 850 sft to 1300 sft apartments has been thrown open for booking near APPA (Bandalaguda) by a company called PBEL with investment from Israel.

The sad part of the story is that the Company wants to rip people by asking for Rs.3600/sft in that location in July 2008!! This is incredible when there are very good project available at Rs. 2800/sft in that area.The pricing is absolutely bad and we are sure they would reach no where!

When there are few takers at 3300/sft to 3800/sft nearer to Guchibowli, who would be out of his mind to pay similar price at APPA? Otherwise, APPA is a very good strategic location being midway between Airport and Hitec City. Its Accessible easily from Banjara Hills (13 km or so) .

6.0 Is Further Correction Possible?

The rates have corrected. There is no doubt about that. For example a high profile project which was quoting 3800/sft is available at 3300/sft today. The market has been slow since 2007 and the correction reflects long period of waning interest.
Existing projects seem to have reached the lowest point. And new project openings would be very few till market looks up. So prices should stagnate at current levels for sometime.