Hyderabad realty sector in doldrums
Even modestly-priced homes (anywhere between Rs 2,800 and Rs 3,500 per sft) waiting for takers
Oct 27, 2014
Source : The Times of India
Real Estate Projects

 

HYDERABAD: Six years post the global recession, Hyderabad's realty story continues to be bleak. In fact, in recent times, shutters have come down on over a dozen residential projects in the city, leaving customers in a soup even as roughly 6,000 units are crying for buyers.

While builders put the blame squarely on "unfavourable circumstances" -- first the meltdown and then the bifurcation keen observers of the sector tell a different story. According to them, the financial crisis that developers claim to be in, is in many cases highly exaggerated. "If it was true, how are they able to invest in projects outside Hyderabad?" asked a prominent realtor from the city, pointing out how many realty firms, including Janapriya Engineers Syndicate, Keerthi Estates Pvt Ltd, SMR Holdings and Aditya Infra among others, have entered the Bangalore, Chennai and Pune markets over the past one year.

This, despite some of them holding a vast number of unsold properties in Hyderabad. "The reality is that developers cannot sell these units because there is genuinely no demand. And that is not as much to do with pricing as it is to do with their inability to complete any venture over the last three-four years," sources said. The dwindling reputation has kept buyers at bay, with even modestly-priced homes (anywhere between Rs 2,800 and Rs 3,500 per sft) waiting for takers.

Incidentally, most of the dying projects are those that jumped on to the private equity bandwagon (partnering with private investors) that chugged into the city between 2006 and 2008. The concept, then new to Hyderabad, was lapped by primarily because it did not require the developer to bear the initial capital alone. Over time, however, the economic turmoil coupled with an almost 50% depreciation in land value spelt doom for these partnerships.

"It is very important that people understand the nitty-gritty of a private equity project before entering one. Also, because exiting such a project is very difficult, especially in the prevalent market condition," said Sandip Patnaik, managing director, JLL (Hyderabad). According to him, most developers are now staying put in these ventures (despite they not selling) as they would have to suffer a 50% 'haircut' (loss) in case they decide to walk out.

"It is true that some developers stretched themselves too much as they did not foresee such a long dry spell. But despite the odds, they cannot slash prices now to clear their stocks as the selling price is already at rock-bottom. In fact, if you factor in the escalating cost of construction over the years, some are even selling at a loss," argued P Dasharath Reddy, president of Telangana Real Estate Developers' Association. He insisted that the number of developers facing a fund crunch comprise only "a minuscule percentage of the total 3,500 builders operating in Hyderabad".

While that claim may be debatable, builders unanimously agree that property rates in the city will continue to remain stagnant for at least another four quarters. "There is no scope for any increase in property rates any time soon," said Ashwin Rao of Manbhum Constructions, reiterating how it's the "ambitious projects that are in limbo" at present while the "smaller ventures are doing considerable well".

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