Hyderabad Real Estate reaching Saturation

Correction coming soon!

Section 1 : Insane Prices

Section 2 : Oversupply & Reports of Slowdown

Section 3 : Infra Problems with City

Section 4 : Signs of Trouble & Conclusion

Section 1

Insane Prices!

If you browse popular online discussion forums these days regarding Hyderabad’s real estate market, these are the most common questions you will see…

most of which are alarming!

Is there a real estate bubble building up in and around Hyderabad?

Will the Real estate market crash in Hyderabad any time soon?

How much more will real estate prices go up in Hyderabad?

Will real estate prices in Hyderabad come down in 2020?

Are Hyderabad property prices at their peak?

Is the Hyderabad bubble about to burst?

Is the Hyderabad market overpriced?

After suffering for nearly a decade on account of separate Telangana agitation, the real estate sector in Hyderabad has witnessed a golden run for the past few years.

But after 3 years of non-stop & extraordinary growth, how long can Hyderabad keep growing at this pace?

  • From 2015 to 2019 when other cities like Bangalore, Chennai, Delhi-NCR, Mumbai & Pune were struggling, prices in Hyderabad surged 33% PER ANNUM for 5 years straight!
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  • Hyderabad accounted for highest absorption of office / IT spaces in India – with a massive 36% market share in 2018.
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  • According to a recent report by JLL, investments in Hyderabad during 2015 to 2019 have surged more than 5 times, to nearly Rs.10,000 crores.
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  • Hyderabad saw a burst in investment in 2018, attracting 3 times as much private equity than the previous three-year period, according to Anarock.
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  • An increase in office space investment has helped generate employment, leading to a rise in demand for residential apartments and open plots that sold like hot cakes.
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  • From 2015 to 2018, land prices in Hyderabad have risen exponentially — registering even 100% jump in many areas on the outskirts of the city!
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  • And just from January to June 2019, land prices jumped 100% and shockingly, from June to October 2019, prices increased another 30% – something hard to digest!

In two years, land prices in Hyderabad are up by 200%!

Despite being 28 Kms away from Gachibowli – a journey that takes 40 to 50 minutes – Mokila is being quoted at Rs.35,000 per Sq Yard something unimaginable even 2 years ago when they were selling for just Rs.10,000 to 12,000 per Sq Yard in 2017!

Here are rates of some other popular investment spots :

  • Shankarpally (37 Kms / 1 Hour from city) is Rs.20,000
  • Shameerpet (67 Kms or 1.5 Hours from Gachibowli) is Rs.22,000
  • Shadnagar (60 Kms or 90 minutes away from city) costs Rs.12,000 per Sq Yard!

Miyapur now costs Rs.24 crores per acre – double of what it cost in 2017 (Rs.11 crores per acre)

Even far flung areas like Kollur are being quoted at Rs.40,000 per Sq Yard and even surrounding areas like Patighanpur / Sheriguda / Kandhanur / Nandigama are being quoted for Rs.18,000 to 20,000 per Sq Yard.

In most of these cases, the ONLY selling point is their connectivity to IT hubs like Hitech & Gachibowlibut even the nearest option – Mokila – is 26 Kms away and takes 45 minutes and some areas like Shadnagar are 60 Kms away!

Even on the other side of the city, areas like Uppal, LB Nagar, Kompally and Medchal are commanding eye-watering pricesKompally is at its all-time high of Rs.26 crores per acre (more than double its valuation of Rs.12 crores just 2 years ago) & Uppal is selling for as much as Rs.10 to 18 crores!

The hype around Yadadri (proposed temple town) is only adding to this mania!

Even in a remote area like Bhongir, people are quoting Rs.10,000 per Square Yard when it should not cost more than Rs.4000 per Sq Yard!

Click here to read full coverage by Times of India on 24th July 2019

As prices & supply in Hyderabad near record highs, it is highly doubtful if the city can sustain growth at the same pace & intensity…

Property prices have now reached unsustainable levels in Hyderabad and this artificial boom bubble will soon burst.

Developers are forcefully increasing prices every 3 to 4 months, just to satisfy their existing investors – creating a false sense of growth.

50% of the investment is being driven by NRIsmost of whom are completely disconnected from ground realty – they decide based on “google reviews / blogs” which are often misleading and paint a much rosier picture than what is actually brewing on ground!

Banks have made it all the more easy to invest (by funding upto 70% of property cost), encouraging even those who otherwise cannot afford such properties – to invest in this bubble.

People are purchasing lands today at rates we may not like to pay even after a decade!

Those who bought lands in the recent few months will end up losing the most.

Investors should look at long term growth prospects i.e. check if there is a real demand for property and not get carried away by short term speculations

The Shamshabad fiasco in 2005-08 was because of such herd investor mentality.

There was a mad rush for land in Shamshabad, and then the bubble burst in 2006 / 07 – leaving lakhs of investors bankrupt after losing massive amounts of money.

And everybody stayed away for the next 10 years.

The same sequence is now repeating!

Since 2011, land rates have appreciated over 10 timesi.e. roughly doubling every 2 years – but jobs & salaries have only grown by 5% on average every year.

And this is where the problem began, putting a brake on the market’s dream run.

Section 2

Oversupply & Reports of Slowdown

Hyderabad realty growth slowing down and while rumours of recession have impacted sentiment, the biggest reason for slowdown is the steep rise in prices.

Open plots sales fell 50% in 2019!

Even bulk land purchases (by builders & big investors) have fallen an alarming 30% in 2019.

While the city has good number of MNCs & domestic companies that are creating jobs, the number of residential units launched far OUTSTRIPS DEMAND.

New launches fell by a massive 69% and sales fell 42% according to a study by PropTiger.com (click here to view this report)

Industry insiders say sales have dropped as people are not keen on investing at such abnormally high prices.

People are postponing their decisions as they are expecting a fall in the next few months.

Number of enquiries for new sales have dropped 50% and most of these enquiries are not converting into bookings – which was not the case earlier.

Markets that rely on “End Users” will always sustain long term growth even through difficult market conditions.

But Hyderabad has been predominantly “Investor Driven” especially in the last 3 years – and such investors have only one goal – which is to make a fast buck.

Hyderabad’s real estate growth is decelerating in 2019…

Prices are being quoted high, but no transactions taking place.

Prices within city limits (like Gachibowli, Manikonda, Kondapur, etc) may continue to grow for another 6 months at most, after which they will stagnate.

But properties on Hyderabad outskirts – especially open plots – will take a BIG HIT & see a major correction / drop in prices – which is good in the long run.

Real estate does well as long as property prices remain affordable & within reach of local population.

Sustainable and gradual growth is good for the sector – not a sudden & rapid boom.

The day prices become unreasonable, growth will slow down and prices will stagnate – as an artificial boom can only go on for a short period.

What makes this even more obvious in Hyderabad is that apartment prices have not appreciated the way lands did.

In the last 2 years, land prices have gone up 4 times.

But apartment prices have not even tripled (not even doubled in some places) in the same time.

Which clearly indicates that rise in land prices is NOT Real Growth – but an artificial one based on market hype & over-enthusiasm.

Apartments all along ORR are empty, and thousands more are under construction!

Resales & new projects are no longer viable at current market rates.

And since Hyderabad is heavily dependent on IT/ITes and BFSI (banking, financial services and insurance) industry as the largest job creators – the impending recession in USA which accounts for the majority of Hyderabad’s IT jobs & exports – may have a big impact on real estate in this city.

The recent ban on Interest Subvention Schemes (also known as Free Pre-EMI or Interest Holiday or 90:10 schemes etc) have further put a dent in sales as due to these schemes, even those with very small budgets could previously afford big homes outside their reach – which is now not possible.

Hyderabad city has no shortage of land or physical barriers for growth on all 4 sides of the city.

There are vast open lands even at a walking distance from Hitech city.

Hence there is no reason or logic why lands should cost as much as they do now.

The current radius of the city is about 20 Kms.

If this radius is increased by just 5 Kms, the amount of land / area of city will increase by a massive 55% – which is huge!

But even with the current pace of job creation, it is highly unlikely that city’s population will grow so much as to need a 55% increase in land area!

Which means that a plot just 5 Kms away from today’s city limits will remain under-developed for a long time to come.

Hence even if prices of plots within city limits do not fall much, those on outskirts – which is where most people are now investing – will definitely take a big hit.

Another problem is of people buying small chunks of 200 to 250 Sq Yards (to fit their limited budgets) which is too small for END USERS to build decent house by Metro standards (you ideally need atleast 350 to 400 Sq Yards or more) and hence will end-up struggling to find a buyer for such small plots.

People are increasingly preferring apartments due to the ease of living and amenities which you cannot get in buying an empty plot

But again, apartments themselves are not a great investment!

Imagine sinking Rs.1.5 crores to buy a 3 BHK by taking loan at 8.5%.

You will never make money unless the pre-launch price was phenomenally low – which is now NOT possible from any builder due to high land rates.

Hyderabad real estate is entering a “cooling-off period”…

Here are some reports by various leading data analysis, market research firms & most importantly, the top real estate consultants / brokers themselves, confirming the slowdown!

1. New project launches fall 51% in Hyderabad
(Among 7 top cities, Hyderabad saw the biggest decline)
Hyderabad saw residential launches fall 51% in Q3 and 17% in 1st three quarters of 2019 as a result of over-supply in the last 2 years.
Economic Times on 1st October 2019

2. Sharp 16% Drop in Hyderabad housing sales
Massive number of new launches since 2018 has led to an over-supply of apartments, putting pressure on prices & slowing growth – with sales falling 16% in 3rd quarter of 2019.
LiveMint on 4th November 2019

3. Data from Registrar Offices across Hyderabad show a downward trend in 2nd half of 2019
Transactions across the city – especially on the outskirts – have fallen alarmingly over 2d half of 2019. A steep fall was also recorded in Ranga Reddy, Medchal, Yadadri, Bhuvanagiri, Sangareddy, Nalgonda, Mahaboobnagar and Medak districts.
Greater Andhra on 17th October 2019

4. Private Equity investments in Hyderabad fall 76% in 2019 (report by Anarock)
While PE investments across Indian Real Estate increased 19% in 2019, investments into Hyderabad fell a massive 76% during the same period – making this the 4th such aspect of Hyderabad real estate showing a steep decline.
Economic Times on 26th October 2019

5. Hyderabad likely to witness major infrastructure challenge (report by JLL)
Over 75% of residential launches + 86% of office stock in last 3 years have happened in just Hitech City, Gachibowli & Nanakramguda. This heavily skewed development has put substantial pressure on carrying capacity & sustainability of these crowded regions – leading to congestion & civic issues.
The Hindu (Business Line) on 4th November 2019

6. Desperation and discontent are brewing in Hyderabad’s labour addas
Since July 2019, thousands of construction workers in Hyderabad have been struggling to find jobs / daily wages, as construction activity is slowing down over the last few months – once again hinting at the slowing market.
News Minute on 29th October 2019

Greater Fool Theory

The Greater Fool Theory is an investment belief that says there will always be an investor who is ready to buy an asset, however overpriced it may be.

So even if the original investor had paid a price higher than the market rate, he would still make a profit as “a greater fool” would buy it from him at an even higher price!

This is exactly what is happening in Hyderabad.

Many people are investing even at today’s abnormally inflated rates, thinking or rather HOPING that “a greater fool” will buy it at a higher price!

Fear of Missing Out (FOMO) : When your neighbours, friends, family, colleagues and everyone else in the city starts investing, you feel like you are missing out on the boom and end up investing too – even if the prices don’t feel right!

This kind of irrational buying mentality makes people pay a price that is much higher than the true value of the asset – leading to a bubble.

And when this bubble bursts – which is only a matter of time – there will be no buyers.

Prices begin to fall and out of desperation, some will sell at a discount, leading to a further fall in prices – a never-ending vicious cycle that leads to a total market crash.

These are all clear signs of trouble brewing…

Investors in Hyderabad real estate are playing a game of “passing the parcel” – you will never know when the music will stop – you don’t want to be the last one holding the parcel!

Here are 2 more reasons for you to know why demand in Hyderabad was more based on marketing tactics (i.e. “manufactured demand”) and not on real demand for homes…

1. Realtors cut flat sizes in weak market

To increase sales by reducing overall unit cost, builders have drastically reduced apartment sizes – by almost 27% over the last 5 years – from 1400 Sft in 2014 to just 1020 Sft in 2019.

Among the southern cities, Hyderabad has seen biggest size reduction of 12% (Chennai 8% & Bengaluru 9% respectively) – clearly indicating that this is responsible for much of the “manufactured demand” so far.

This has made it easy & tempted even those who otherwise cannot afford such properties to invest forcefully just to “jump on the property bandwagon”

This means much of the current demand is based NOT ON TRUE DEMAND for homes but based on a “manufactured desire” of somehow owning property – a big lifetime goal for Indians and in many cases, even if they cannot easily afford it!

Such artificial “manufactured demand” does not last too long and will completely vanish at the smallest hint of market slowdown or trouble (as people will cut down on such unnecessary commitments like property purchase)

Click here to see news coverage by the LineMint
Click here to see news coverage by the The Hindu BusinessLine

2. Free EMI Schemes banned : No More Free Rides!

Much of the rapid growth so far was due to the Interest Subvention Scheme – popularly known as Free EMI offers or ‘5:95’ and ‘10:90’ offers – which are now banned, resulting in a significant drop in sales.

Under these schemes, investor makes a small down-payment of just 5% to 10% and the rest is funded by bank loan where builder agrees to pay interest until completion of the project (instead of the investor paying it out of his own pocket)

This made it very easy for anyone – even those with limited budgets – to invest in big properties as they did not have EMI burden – making these schemes very popular.

Lot of builders used these to attract more buyers and raise funds for construction – but the recent ban has impacted sales significantly – putting further strain on the already precarious liquidity situation of many developers.

Thus demonstrating clearly that a big chunk of sales was based on this tactic of generating “manufactured demand” and not on true or REAL demand for homes.

As they say, before the big slowdown, comes a small slowdown!

Section 3

Infrastructure Problems

Hyderabad’s Road & Highway Expansion hit a roadblock

The development and expansion of national highways, state and district roads in Hyderabad & Telangana is slowing down due to lack of financial support to the R&B (Roads & Buildings) department.

The state govt has infact CUT DOWN Road Development funds to the R&B department by a massive 35% for 2020!

The state government has not made any allocation to even mega projects such as the 330-km Regional Ring Road (which is estimated to cost nearly Rs 15,000 crore and based on which most of the investors are expecting further growth in prices!)

With this grave situation and state running short of funds, the R&B dept may have to take loans just to maintain the existing road network!

How can you expect the city to grow when there isn’t enough money to maintain even the existing road networks – leave alone building it?!

Severe Drinking Water Shortage

Most of Hyderabad (and Telangana itself) is dry & parched land, with barely any ground-water and erratic supply from municipality.

With population passing the 1 crore mark, water requirement in Hyderabad today is around 465 million gallons per day (mgd), which is currently being met from :

  • 260 mgd from Krishna River (via Nagarjunasagar reservoir)
  • 140 mgd from Godavari River (via Yellampalli barrage)
  • 65 mgd from Manjeera & Singur reservoirs

But water levels are falling fast…

Rapid construction / concretisation, intense heatwave & depleting groundwater levels have put immense pressure on borewell water supply in urban areas.

In several areas like Kondapur, Gopanapalle in Cyberabad, borewells have started to dry-up with an acute dip in groundwater levels.

Nagarjunasagar & Srisailam reservoirs have fallen below the minimum draw-down levels frequently.

Almatti and other upstream projects are almost dry.

Osman Sagar and Himayat Sagar reservoirs have fallen prey to encroachments – and as a result water supply has been staggered to once in three days!

Many apartments have no choice but to depend on water tankers as their ONLY source of supply – but even this is becoming difficult due to intense demand & competition between apartments!

The Hindu BusinessLine coverage on 18th June 2019

With such an acute shortage that will only get worse with growing population, how long will people keep investing at such high prices if basic amenity like water itself is a daily struggle?!

Rain brings Hyderabad to a standstill!

Rapid growth of the city has come at the cost of poor planning & inadequate infrastructure!

Traffic across Hyderabad came to grinding halt in & commuters were stuck in snarls across the city for hours together during the recent monsoon in September & October 2019

Even areas that saw just half an hour of rain were severely water-logged – including upscale areas like Jubilee Hills, Raj Bhavan Road, Madhapur, Cyber Towers, Madhapur, etc

It took days for water to get completely drained out – once again exposed the unplanned growth & poor infrastructure of the city!

With such basic issues and future city budgets being cut, growth will slow down as the city can’t cope up with such rapid expansion.

Click here and here to see news coverage by Times of India

As they say, before the big slowdown, comes a small slowdown!

Conclusion

What Next?

Hyderabad real estate market is losing its sheen…

80% of purchases are being made by investors with a hope that some poor guy will buy this from them in the future for 30% to 100% appreciation!

Most of the “future developments” people are speaking of – like Adibatla, Fab City, Yadagirigutta, Regional Ring Road, etc. will take atleast 5–10 years to materialise to their full potential.

But rates being quoted today are already inflated and may take 10 years or more to be considered reasonable!

Which means people are buying land TODAY, at rates that are expected AFTER 10 years – so how can you profit in this case?

Skyrocketing land prices have pushed rates to unaffordable & unsustainable levels – turning-off buyers who see no scope for appreciation anymore.

Infact many are expecting a correction soon!

Hyderabad has over 2,00,000 new apartments & plots coming to market soonand this is in addition to completed units that are already available & vacant!

This surplus stock that will take another 3 to 4 years to clear before investor demand can resume & prices start increasing again.

And to make it worse, there is nothing special about most of these apartments & plots – as they all offer the same set of features & designs – making it difficult for an investor to differentiate his property from the 1000s of other resellerswhich makes it tougher to sell.

Price becomes the only competing point, which means people start cutting rates in desperation to sell off, leading to a fall in prices.

Hence investing in “routine” & “run-of-the-mill” apartments & plots in Hyderabad (or other saturated markets like Bangalore, Chennai, etc) is no longer profitable.

Which brings us back to a fundamental rule of investing, which is…

To make money in real estate now, you should invest in something that is unique and something that can never be replicatedand something that is not “just another plot or apartment”!

Investors have hence started looking for more :

  • unique, one-of-their kind properties that have never been done before
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  • are affordably priced with enough scope for prices to safely double over the next 3 to 5 years
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  • and with genuine end-user demand – unlike investor driven markets where reselling is difficult

And one such excellent alternative matching all these criteria is Alakananda RiverFront – AP & Telangana’s 1st & Only RiverFront Gated Community of Approved Villa PLOTs on the banks of the Krishna River.

Scores of people from Hyderabad have already invested in this rare & truly once in a lifetime asset of Telangana & Andhra!

Click here to learn how you too can benefit from the same!

Quick Start Guide to Alakananda RiverFront

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