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.