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Hyderabad Real Estate Market

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By : prakash varanasi    99 or more times read
Hyderabad Real Estate Outlook - May 2009

1.0 FY 2009 Year in review

Based on our interactions with the key market players in Hyderabad, the residential segment of Hyderabad real estate market is likely to recover by the third quarter of FY 2010.

Major residential property launches in FY 2009
In FY 2009, Hyderabad has seen significant investments into the residential real estate market from local players, national and international majors across various segments of the market including premium luxury, premium, affordable and low cost housing.

National real estate companies
In FY 2009 national real estate companies have launched the following large projects in the residential market of Hyderabad.

• Lodha Group has launched its premium luxury apartments named Lodha Bellezza at Eden Square - Kukatpally.
• DLF has launched its project - Lake District - The Summit at Kokapet in the affordable housing segment.
• Mantri Group has launched its Celestia a residential and commercial project near the financial district Gachibowli in the affordable housing segment.

Local real estate companies
Leading market players such as Indu Projects, Janapriya, Prajay, Aditya Constructions, Bharat, Ramky, Nagarjuna, PBEL, Sree Srinivasa, Sri Aditya homes, SMR Holdings, and others have launched many new large projects in FY 2009 across various segments of the market, while other major such as Aparna, Aliens, Jain. L&T and others have been executing their large projects.

Market size in FY 2009 has shrunk
In the last two quarters of FY 2009, residential property transactions have come to virtual standstill and have affected players across the Hyderabad market. We estimate that the market size for residential property in FY 2009 to have shrunk by about 60% as compared to FY 2008.

Builders going slow
Leading developers in the city have gone slow on their projects and have prioritized on a few projects due to tight liquidity and working capital issues. While large luxury segment builders such as Lanco are now building only 13 residential towers as against the stated 26 towers in their sales prospectus due slackening demand, others large builders have either postponed their construction activities by a few quarters, restructured their projects or have scrapped the projects altogether.

No significant unsold inventory
Most Local builders in Hyderabad use the JV route to build projects, while large local builders and national players buy land and build projects. In Hyderabad, builders presently do not have any significant unsold inventory of completely build projects. However, many of the projects which lie unsold are projects under execution and are likely to be delivered in the next two years or projects which have been announced and are still under the foundation stage.

Builders under stress to raise capital
Many Hyderabad builders have raised significant capital from VC, PE funds in the period between FY 2006 to FY2009. In most cases, valuation of projects has been very high and VC/PE funds today are stuck with the stock of unlisted companies/SPV vehicles, whose value has declined significantly. With bank credit tough to get in FY 2009, builders have raised capital by selling assets, tapping high net worth individuals, while few have raised capital from foreign friends and investors.

QIP route for Hyderabad builders – ruled out
With very few listed real estate firms in Hyderabad, raising capital through today’s favorite instrument qualified institutional placement (QIP) route for Hyderabad firms might be ruled out. With many builders/companies under stress, vulture funds/high net worth Individuals are on a look out for distressed asset sale.

Changing focus of builders
The focus of builder’s upto the first two quarters of FY 2009 has been on the premium luxury and luxury segment of the market. The market has changed by third quarter of FY 2009 and builders have realized that the market for premium segment has reached a dead end and have gone back to their drawing boards to launch new projects targeting the affordable segment of the market. DLF, which was one of the early entrants to tap the affordable housing market in Hyderabad, has managed to book more than 120 apartments as on April 2009, despite tough market conditions.

Residential Prices – Hyderabad – An analysis

2.0 Will the market recover in FY 2010?

Major Launches in FY 2010
Even in difficult market conditions, builders in Hyderabad have launched new projects in FY 2010. A few large projects launched include:

• Botanika by Koncept Ambience. – A premium luxury segment project near Botanical Gardens in Kondapur.
• Rainbow Vistas launched by Cybercity Builders & Developers Pvt Ltd and Ashoka Developers & Builders Ltd in the affordable housing segment of the market near Kukatpally.

FY 2010 Outlook: Pricing pressure on residential real estate is expected continue, while demand likely to firm up

Residential transactions improving: Builders are witnessing significant enquiries in Hyderabad after the new government formation at both the state and centre. After a long lull, in the month of May 2009, builders have been able to sell properties at new price points in the market for both affordable housing, villas and premium housing. Builders, who have offered value deals to customers, have been able to report best sales in the last few weeks.

Bank Lending rates – To dip further: While RBI has announced sweeping cuts in repo and reverse repo rates in the last two quarters, banks have been reluctant to cut their Prime Lending Rates (PLR) and have been lending to new customers at below PLR rates, while existing customers have been paying at PLR rates. With the likelihood of a further rate cuts by RBI in June 2009, home loan rates are like to soften by a further 50 basis points.

IT Outlook – Uncertain: The outlook for IT sector in FY 2010 and 2011 still remains uncertain on account of global recession and many IT customers who want to buy property are hesitating in view of the difficult market conditions and watch the market developments keenly.

Market Outlook: Industry players in Hyderabad hope for a revival of the market in FY 2010 on account of stable outlook for the Indian economy with a projected GDP of 6%. Likely recovery of the US economy, revival of global markets, stimulus packages to the real estate sector by both state and central governments and finally the likelihood of Telangana issue to be on the backburner for another five years are the other factors which might aid the revival of the market. As of May last week 2009, property prices across Hyderabad in the last one year have corrected by more than 25-35% and today are at December 2007 levels. With declining prices, demand is reviving slowly and is expected to firm up from the third quarter of FY 2010.
By Marutish Varanasi
(The author is with and has authored a comprehensive report on Hyderabad Real Estate Market focusing on residential, commercial, retail and hospitality segments of the market). His contact mail ID is

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