Hyderabad: Waiting for a sense of direction
Nov 26, 2013
Source : The Times of India


HYDERABAD: The health of real estate cannot be different from the health of businesses. The health of business has a lot to do with the sense of a well- governed city, and a population that is positive about the future. “I can’t see enough mature sense of direction in this state separation and its long term impact oh Hyderabad city, there are so may unanswered questions,” confides one of India’s top infrastructure company CEO’s. “People we approach for investment, though very pleased with what we have to offer, simply say, its just seems a less risky option to invest in another city.” The inflow of new businesses has slowed down, in a city that has been preparing for exactly that for years now, and has planned huge tracts of land area only for that purpose.

“A great deal of this comes from perception, and fear of what may come, but we have done very little as a city to explain, clarify such natural questions from investors,” says a brand head of marketing at one of Hyderabad’s best premium gated communities. All these factors are now having a measureable impact on the markets.

On the real estate front, it is well known, that the premium segment Hyderabad buildings have been experiencing sluggish growth. While the top 20 middle-rung builders in the core city area have sold a majority of their inventory, they are waiting and watching before begining new projects, as pricing has become a big factor in closing projects in time.

Other than the current political environment, a great deal of the sluggishness in Hyderabad’s property market is due to the fact that the market currently supports 45-60 lakh bracket housing. With a lot of land bought at the 2007 prices of 20-35 crore per acre in high-end Hyderabad, and the rise in construction costs, these numbers become unviable.

Even in commercial office space, take Knowledge City for example, where land was bought at 18-20 crores per acre, the bare minimum rents needed have become unviable with IT rents hovering around Rs 40 psf currently. (The Knowledge City has the clause of 60% space for technology companies). “Somebody has to take the call,” says Veera Babu, Head, Cushman & Wakefield, Hyderabad, “we can’t make one policy and sit on it, when its obvious its not doing the good it is supposed to be doing.” Companies worldwide wait and watch to see governments behaving in a responsive way to changing situations. We are not doing enough to make it obvious to the world that we will do what it takes to keep the city a viable destination.

The buyers in the Hyderabad market today are only genuine home buyers, or genuine CRE users. People parking money for further investment have almost disappeared form the market. Also, global PE Funds, which have become a big aspect of the property markets in metro cities, are interested in India, but not in Hyderabad, say industry insiders.

Just recently, an established builder of 15 years, with no stock available, had been scouting for PE equity, and inspite of reaching out to 17 PE Funds, could not solicit interest in even one. “According to me, the risk in this case is zero. But there is a mindset to avoid the city, at present,” Veera Babu states. Some national builders with liquidity have been scouting for land deals, but plan to keep it quiet till there is a clearer market demand.

Some people assume that the prices will somehow still fall because of this sluggishness, and that is unlikely. The margins at which Hyderabad is operating are already pretty thin. The experience of many builders is that the cost of holding stock waiting for a market that would reciprocate to value appreciation is high, and therefore the industry is waiting for better timing to explore new ventures.

If one is a buyer, this is the best time to get a valuefor-money deal. The fears about an uncertain future have kept many families from investing in a residence. However much Hyderabad city may be impacted with the bifurcation, when it happens, it will not go down in value drastically. We still have excellent infrastructure, and remain a cosmopolitan capital, and with the world economy engines begining to slowly come back to life, the IT/ITES companies should be back to taking up higher space.

For real estate to get back to its prime, it is vital that new national and global companies come in, as many of the the existing companies that grew from, say, 50,000 to one million square feet, cannot now grow much more in terms of space requirement. The likelihood of that happening is directly linked to the perception of Hyderabad city and clarity on the governance side.

It’s necessary that our politicians make statements that would not make any reasonable mind question the stability and maturity of future governments. Its clear that it will take more than a “things should be ok after 2014″ attitude to bring the city back to her active, vibrant, global self.

Still, people in the city are not giving up on it. It remains the among the best metro cities to live in the country, and the impact at the level of individual life is still minimal. Anant Shah, a mid-level manager from Mumbai who has been int he city fr the past six years, sums up the sentiment of many professionals who migrated to Hyderabad for work, when he says “I have grown to like this city. My company has slowed down its growth here in Hyderabad, and it will effect my increments. I am mentally prepared for a 10% lower increment than my company colleagues in other cities, I do not want to move out of Hyderabad.”




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