REASON 1

Oversupply – Too many projects everywhere!

In just 1 year alone (Jan to Dec 2022), over 80,000 new apartment units were approved by TS-RERA across Hyderabad.

However, the annual sales / absorption of residential properties in Hyderabad is just 10,000 to 14,000 units – which means in 1 year alone, a staggering 65,000 new excess homes have been added to the city…

(infact unsold inventory went from just 11,918 units in December 2021 upto 58,535 by December 2022!)

And with another 60,000 to 70,000 new apartments in the pipeline for 2023 alone (and a lot more over the next 2 years), this supply-demand gap will only worsen further, adding to the already worrying oversupply in the city.

And though builder’s so far managed to artificially create hype / demand to increase prices over the last few years, this oversupply is so bad that eventually, they will start cutting prices in desperation to sell – leading to either stagnation or worse, a big fall in prices.

Take China for example, where over-construction led to ghost cities with plenty of newly built apartments lying empty with no one to occupy them – Hyderabad is going to face a similar situation soon!

(and while above data is only covering apartments, you can only imagine how bad it must be incase of plotted layouts which are in the 100s of 1000s in all directions of the city, stretching as far as 120 Kms away from core areas!)

SUMMARY

If you end up buying properties at current high prices with such an oversupply in the market, you will struggle to sell them in the future and even if you manage to find a buyer, you won’t have made much profit as there are more properties than buyers in market – making it easy for buyers to bargain heavily and you also end-up competing with builders who are desperate to sell this excess unsold stock, maybe at a discounted rate!

REASON 2

Over-Priced & Unaffordable Properties

Due to non-stop increase in prices since 2017, Hyderabad has become unaffordable for most of the buyers – leading to a slump in new sales since mid of 2023.

In India and most parts across the world, a typical real estate boom cycle usually lasts between 3 to 4 years – but incase of Hyderabad, prices have been increasing for 6 years in a row which is very UNUSUAL  / ABNORMAL and definitely not unsustainable or healthy – clearly indicating a bubble that will soon burst.

Hyderabad’s average price per SFT is Rs 5900 to Rs 6100, much higher than other metro cities like :

And so from the current high levels, prices cannot continue to grow at the same pace as its already quite expensive…

Going forward, you can only expect a moderate increase of just 5% to 7% per annum – unlike the 15% to 30% per annum jumps seen in the last few years!

(moreover, the most recent price increase has been more due to a spike in the cost of construction material after Covid-19 outbreak due to shortage of material & labour, and not necessarily due to increase in demand for homes)

SUMMARY

With such abnormally high prices, if you buy anything in Hyderabad today, you  will be lucky if you make anymore than 5% to 7% ROI per annum – the golden days of money doubling every couple of months or a year are long over / behind us now!

REASON 4

Skewed Growth & FOMO – Fear of Missing Out

GEOGRAPHICALLY SKEWED :

Most of the apartment launches have been concentrated in the micro-markets of Puppalaguda / Narsingi + Miyapur / Bachupally – which are already struggling with lots of unsold units.

Even incase of plotted layouts, the only places you hear people talking are Shankarpally, Shadnagar, Moinabad, Chevella, Vikarabad, Mominpet, Shamshabad & Srisailam Road etc – all mostly in Western Corridor of Hyderabad…

More worryingly, most of these new launches are far away from the ORR and established catchment areas – in many cases almost 40 to 60 Kms away from the core areas, where physical and social infrastructure is still largely non-existent, making it very difficult and in some cases almost impossible to live.

FINANCIALLY SKEWED :

Incase of apartments, almost 36% of new launches were over the Rs.1.5 crore price bracket – with some apartments costing almost Rs.8 to 12 crores! – whereas most of the buyers are looking for Rs.60 to 80 lakhs bracket which is the largest / fastest moving segment.

According to Mr.CV Reddy, Director of Aparna Constructions and Estates, while properties priced in Rs.50 lakhs to Rs.1.1 crore have some demand – sales for projects priced over Rs.1 crore are virtually stagnant, with no increase at all.

(while there is surely demand for properties from Rs.1 to 1.5 crores, the number is very small to make any difference to the overall market and will never make a big difference)

Even for plots far away from the city such as Chevella, Moinabad, Shankarpally, Shadnagar, etc, people are quoting a ridiculous Rs.15,000 to 30,000 per Sq Yard – with Mokila taking the cake at a mind-boggling Rs.50,000 per Sq Yard!

(despite such high prices however, transactions are only happening at almost 20% less than quoted rates as investors feel such prices are over-hyped and impractical and even after buying them at such rates, they feel there isn’t much scope for prices to double or triple from these levels)

REASON 5

Work from Home + NRI Euphoria coming to an end…

During the pandemic, with work from home becoming the new normal, many were tempted to upgrade to a larger apartment / house / villa to have more space for the family.

Therefore in 2021, a lot of sales happened due to families wanting to move into bigger homes – which means most of the demand was from people upgrading from their existing properties and NOT necessarily from new jobs being created in the city / new families moving into the city – which is usually the reason for healthy growth in prices.

But with work from home now coming to an end – with companies calling employees back to offices and with even schools reopening full-fledged – families no longer feel the need for bigger homes as they are both expensive and harder to maintain and are now rethinking their strategy – leading to a drastic drop in new sales.

(rental values have already come down in many places ever since the breakout of Covid and have not gone up despite easing of lockdown)

For those who continue to work from home – many of whom have completed vacated their city homes and gone back to hometowns to save on rent, the huge difference in cost of living between Hyderabad and their hometowns is tempting them to continue in hometowns – and may not want to return to the city!

Which means most of the recent growth has been driven by NRIs, who unfortunately are not aware of the ground realities…

Sitting halfway across the world, they only keep hearing that Hyderabd is booming and their parents in India keep pestering for them to send money home so they can “invest” in some property and feel good (again to avoid FOMO).

REASON 6

GO 111 can wreak Havoc!

With lands in the core city becoming very expensive, plots further away from ORR such as the Mokila – Gandipet – Shankarpally – Moinabad – Vikarabad sections have sold like hot cakes.

However in most cases, buyers are unaware and have been misled by realtors into buying lands falling in the 111 GO zone, without knowing the real implications – as lands here come with a lot of restrictions on how much can be constructed etc.

If the GO 111 continues as it is, these lands will have no buyers or demand as you can build not more than 10% of the land area which is of no use to anyone other than those wanting to build farmhouses – a luxury item again with not many end-users or resale market.

And if this GO gets abolished, even then its a problem as the market will be flooded with over 1,40,000 acres of additional land right next to the city – leading to further over-supply and putting pressure on lands!

If such a large extent of land is available very close to the core city area, people would not want to or be forced to go further away to distant locations like Shadnagar, Vikarbad, etc – leading to a sudden & sharp drop in prices of lands on the outskirts…

(even if only 10% of such land is opened up in a phased manner, that is still 14,000 acres that needs to be sold or filled – way more than what the city needs at this time – which again means oversupply, leading to stagnation or worse, a fall in prices!)

REASON 7

Dangerous Short Term Trends

In this, the builder collects money from hundreds of people who make the full payment of the proposed apartments upfront – even before land is acquired for the project – on the promise that flats would be given to them at a mouth watering steep discount to market rate – often at 1/3rd the market rate – making investors believe they can make tons of money by selling it later post completion.

And using such pooled-up money, the builder THEN BUYS LAND which is divided among the investors / registered in their names as Undivided Land Share – which means investors become landlords where builder promises to give them flats (proportion to the land they own) which investors HOPE to sell later, for double the price or more.

While it seems lucrative, it is a dangerous way of investing as many times, all of this is just on paper, without any government sanctions and even deemed illegal as per RERA.

Thousands have suffered in similar schemes in Delhi-NCR where even major builders could not complete the projects…

And more worryingly in Hyderabad, many builders without any previous track-record of delivering large project are offering such schemes and if they go bankrupt or leave the project midway, investors would have no recourse and cannot do much with such land.

Pharma companies buying up Large Land Parcels in Core City Areas

Thanks to Covid, Hyderabad’s pharma industry minted a fortune in 2020 and 2021 and this surge in profits generated tremendous cash which was used to purchase large parcels of land in prime areas of Hyderabad

(since the pharma companies have no immediate use of all that money, they increasingly bought land to lock-in their unused profits in real estate instead, that too in premium upscale locations of the city)

This led to an obvious & sharp rise in land prices & since this is a long term investment for them, they are not in a hurry to sell and hence prices will hold and may not come down anytime soon.

Amaravati Effect!

Conclusion

What Next?

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 replicated – and 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
  .
• are affordably priced with enough scope for prices to safely double over the next 3 to 5 years
  .
• and with genuine end-user demand – unlike investor driven markets where reselling is difficult

Given all the above reasons, it’s now very easy to see why people have slowed down their buying in Hyderabad – especially in the 2nd half of 2023 when sales fell drastically…

If it is something you need for your own family / parents to live-in, then you have no choice but to buy a property no matter the price (though if you can wait a few months, you may get a better deal once the panic sets-in)…