Rise in land auction prices may hurt realty revival in Hyderabad
Unusually high prices claimed in land auctions help the ruling Telangana Rashtra Samithi (TRS) government mobilise funds for welfare and developmental projects, but may incite private landlords to benchmark their asset values to one-off auction valuations, they point out.
Dec 02, 2015
Source : ET


HYDERABAD: Disputing the claims of Telangana government that the record prices yielded in the latest round of land auction in Hyderabad reflected the boom in realty market, builders and global property consultants have cautioned that towering costs could actually deter the entry of national and international players. 

Realistic land prices based on prevailing rental values would not just help attract the big players, it will also stimulate interest in several debt and private equity firms to invest in Hyderabad properties, they said. 

Unusually high prices claimed in land auctions help the ruling Telangana Rashtra Samithi (TRS) government mobilise funds for welfare and developmental projects, but may incite private landlords to benchmark their asset values to one-off auction valuations, they point out. 

The Telangana chief minister's office last Wednesday claimed that the price yielded in the land auctions by the Telangana Industrial Infrastructure Corporation (TSIIC) at Raidurg, Kokapet and Manikonda in Hyderabad reflected the boom in capital city's real estate market. 

Drug maker Aurobindo Pharma bought five acres of land parcel for Rs 29.28 crore an acre at Raidurg and another 3.65 acres of land parcel in the same area for Rs 24.88 crore an acre.

 Pointing out that not a single national level property developer participated in the latest land auctions, property consultancy firm Cushman & Wakefield's head of Telangana and Andhra Pradesh Veera Babu said, "Commercial re al estate developers are key drivers for revival in residential and commercial realty markets and the latest high land auction costs will deter national and international players from entering Hyderabad." 

Viewing that land title disputes were also acting as deterrents, Babu said, "Many local and national property developers backed out of the latest land auctions by the Telangana government after the TSIIC authorities declared that the auctions were subject to legal disputes pertaining to land titles." 

Further, the Cushman & Wakefield executive said the private equity players who had invested in Hyderabad property market at peak prices of 2007-08 at over Rs 20 crore an acre either wrote off their investments or are still bleeding. 

"High land prices won't make commercial viability for developers. The Telangana government should initiate proactive steps to ensure that land is made available at substantially reasonable cost to investors, apart from significantly upgrading the infrastructure if they want to attract more organised players towards attaining the targeted growth and revival in the Hyderabad realty market." 

Echoing similar concerns, Sandip Patnaik, managing director of global real estate services firm Jones Lang Lasalle's (JLL) Hydera bad chapter, said the latest record high auction prices do not present the true picture of Hyderabad realty market. 

"High prices will not determine a revival — what determines revival is what's being done with the land bought. High prices may in fact have a negative impact since all the landlords in the region will now start quoting these rates as benchmark." 

Further, Patnaik said the high rate at which Aurobindo Pharma and few others bought the land is "not feasible or viable for developers because of the unattractive rentals in that part of the city, which are hovering at around Rs 45-46 per square feet. It makes viable only for players with huge cash reserves and who want to build their own corporate offices". 

Further, JLL's Patnaik said many local builders had shelved a number of their projects, hoping for the Telangana government to slash many taxes and charges that help them reduce the overall cost of construction to make the projects commercial viable. 

Refuting these reflections, TSIIC's vice-chairman and managing director E Venkat Narasimha Reddy, said the government was flooded with requests from interested firms to auction more land assets. 

"We hope to receive much better response in the next round of land auctions, reflecting the boom in the market," he told ET. 

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