real estate prices in hyderabad cooling off

Higher interest rates, input costs slow growth

Growing demand
Sector shows promise to grow as players get funds for bigger projects
Demand for villas, townships, gated communities expected to grow
Shortage of skilled plumbers, masons, electricians a big challenge

K.V. Kurmanath
 March 5
After a dream run of three years, it is time for the real estate prices in Hyderabad to mellow down. Prices, which shot up by up to 300 per cent in most areas, have started cooling off, witnessing very low growth rates or stagnation.
Several factors have contributed to this. While higher interest rates discouraged individual buyers as cost of flats went up by 50 per cent just on this count, steep rise in input costs and stricter rules shooed away the mid-level builders from the scene. This has led to a freeze on construction activity for some time.
Despite these negative factors, the sector shows promise to grow as players with muscle get funds for bigger projects like townships and gated communities.
Rajiv Gandhi International Airport, which is going to be commissioned on March 16, and over 40 SEZs coming up in and around the twin cities too would act as trigger for real-estate growth in the next few years.
"Despite the hiccups in the short-term, there is going to be a time both for the development and construction segments," Mr Y. Kiron, Chief Executive Officer of Suchir India real-estate developers, told Business Line.
Niche products
He felt that demand for niche products such as villas, townships and gated communities would grow.
"At Rs 3,500-4,000 per square feet, a comfortable flat would cost about Rs 90 lakh, excluding taxes and budget for extra fittings. This could prompt people to go in for a villa, which gives them the feeling of owning a home," he reasons.
Mr Sudhir Reddy, Chairman and Managing Director of infrastructure major IVRCL, said there would always be demand for certain locations.
The biggest challenge, however, is providing an enabling environment to support the new projects that plan to develop millions of square feet, including in some high-rise buildings.
 "Do we have enough number of skilled plumbers, masons, electricians," Mr Kiron asked.
"While interest rates on housing loans have eased a bit, large builders from Hyderabad and across India are launching mega projects across Hyderabad. However, prices are not likely to go up significantly as supply is more," Mr Marutish Varanasi, Director of VRNET Consulting, said.
Mr S.N. Reddy, President of Builders Association of Andhra Pradesh, said there was lull as transactions came to a standstill in several areas.
Property lock-ups
Stating that the boom was artificial and that the prices skyrocketed unreasonably, he said the irrational rise in prices resulted in default of land deals. "Notional hikes in prices have resulted in lock-up of properties, with people deciding to keep their properties in hope of better realisations," he said.
Mr G. Yoganand, Managing Director of Manjeera Constructions, pointed out that it had become prohibitive for buyers.
"EMI per lakh has gone up to Rs 1,100 from Rs 700-725 a few years ago. As a result, the repayment burden has gone up by 50 per cent upfront. Besides, costs of cement and steel have gone up significantly, making it impossible for buyers," he said.
Extraneous factors such as NRIs losing confidence in investments in the US and continued encouragement to IT and other sunrise sectors would drive growth, he added.

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