1.0 FY 2009 Year in review
Based on our interactions with the key market players in Hyderabad, the residential segment of
Hyderabad real estate market is likely to recover by third quarter of FY 2010.
Major residential property launches in FY 2009
In FY 2009, Hyderabad has seen significant investments into the residential real estate market
from local players, national and international majors across various segments of the market
including premium luxury, premium, affordable and low cost housing.
National real estate companies
In FY 2009 national real estate companies have launched the following large projects in the
residential market of Hyderabad.
• Lodha Group has launched its premium luxury apartments named Lodha Bellezza at
Eden Square - Kukatpally.
• DLF has launched its project -Lake District -The Summit at Kokapet in the affordable
housing segment.
Local real estate companies
Leading market players such as Indu Projects, Janapriya, Prajay, Aditya Constructions, Bharat,
Ramky, Nagarjuna, PBEL, Sree Srinivasa, Sri Aditya homes, SMR Holdings, Legend, Trendset,
Meenakshi, Sri Krishna and others have launched many new large projects in FY 2009 across
various segments of the market, while other major’s such as Aparna, Aliens, L&T and others have
been executing their large residential projects.
Market size in FY 2009 has shrunk
In the last two quarters of FY 2009, residential property transactions have come to virtual
standstill and have affected players across the Hyderabad market. We estimate that the market
size for residential property in FY 2009 to have shrunk by about 60% as compared to FY 2008.
Builders going slow
Leading developers in the city have gone slow on their projects and have prioritized on a few
projects due to tight liquidity and working capital issues. While large luxury segment builders such
as Lanco are now building only 13 residential towers as against the stated 26 towers in their sales
prospectus due slackening demand, others large builders have either postponed their
construction activities by a few quarters, restructured their projects or have scrapped the projects
altogether. The status of Hyderabad’s largest integrated township at Tellapur being built by the
ICICI Venture Capital, Nagarjuna, US-based Tishman Speyers consortium, comprising
development of over 400 acres and saleable area in excess of 30 million square feet is uncertain,
while cash strapped Maytas Properties is seeking customers to pool in an extra Rs 120 crore to
complete its upmarket residential project – Maytas Hill County.
No significant unsold inventory
Most Local builders in Hyderabad use the JV/JD route to build projects, while large local builders
and national players buy land and build projects. In Hyderabad, builders presently do not have
any significant unsold inventory of completely build projects. However, many of the projects which
lie unsold are projects under execution and are likely to be delivered in the next two years or
projects which have been announced and are still under the foundation stage.
Builders under stress to raise capital
Many Hyderabad builders have raised significant capital from VC, PE funds in the period between
FY 2006 to FY2009. In most cases, valuation of projects has been very high and VC/PE funds
today are stuck with the stock of unlisted companies/SPV vehicles, whose value has declined
significantly. With bank credit tough to get in FY 2009, builders have raised capital by selling
assets, tapping high net worth individuals, while few have raised capital from foreign investors.
QIP route for Hyderabad builders – might be tough
With very few listed real estate firms in Hyderabad, raising capital through today’s favorite
instrument qualified institutional placement (QIP) route for Hyderabad firms might be ruled out.
With many builders/companies under stress because of leveraged balance sheets, vulture
funds/high net worth Individuals are on a look out for distressed asset sale.
Changing focus of builders
The focus of builder’s up to the first two quarters of FY 2009 has been on the premium luxury and
luxury segment of the market. The market has changed by third quarter of FY 2009 and builders
have realized that the market for premium segment has reached a dead end and have gone back
to their drawing boards to launch new projects targeting the affordable segment of the market.
DLF, which was one of the early entrants to tap the affordable housing market in Hyderabad, has
managed to book more than 120 apartments as on April 2009, despite tough market conditions.
Residential Prices – Hyderabad – An analysis
NHB Residex has come out with property price movements for various cities in India. An analysis
of Hyderabad data reveals that property prices have declined significantly in West Zone in the
period Jan-Dec 2008 as compared to the year 2007. Similarly the South Zone and Central Zone
have declined marginally, while North Zone has shown marginal appreciation, the Other zone
(Shamshabad Zone) has recorded significant appreciation on account of the opening of new
airport. As of June 1st 2009, property prices across Hyderabad in the last one year have
decreased/corrected by more than 25-35% and today are at December 2007 levels.
2.0 Will the market recover in FY 2010?
Major Launches in FY 2010
Even in difficult market conditions, builders in Hyderabad have launched new projects in FY 2010.
A few large projects launched include
• Botanika by Koncept Ambience. – A premium luxury segment project near Botanical
Gardens in Kondapur.
• Rainbow Vistas launched by Cybercity Builders & Developers Pvt Ltd and Ashoka
Developers & Builders Ltd in the affordable housing segment of the market near
Kukatpally.
• Ramky group has launched Ramky Pearl a 17-acre habitat with luxury triplex villas
numbering about 110 in Kukatpally, Hyderabad.
• Legend Estates has launched Legend Chimes a 45 acre premium villas project at
Kokapet near to Hyderabad financial district.
• Mantri Group has launched its Celestia a residential and commercial project near the
financial district Gachibowli in the affordable housing segment.
FY 2010 Outlook: Pricing pressure on residential real estate is expected continue up to the
second quarter of FY10, while demand is likely to firm up.
Residential transactions improving: Builders are witnessing significant enquiries in Hyderabad
after the new government formation at both the state and centre level. After a long lull, in the
month of May 2009, builders have been able to sell properties at new price points in the market
for both affordable housing, villas and premium housing. Builders, who have offered value deals
to customers, have been able to report best sales in the last few weeks.
Delinquent property auctions likely: Banks have seen significant Housing mortgage loans
delinquencies in FY 2009 on account of slow down in IT sector and recession in the economy.
We expect banks in Hyderabad to auction delinquent property from the second/third quarter of FY
2010 and it is likely to have an impact on pricing of both existing projects and new project
launches.
Bank Lending rates – To dip further: While RBI has announced sweeping cuts in repo and
reverse repo rates in the last two quarters, banks have been reluctant to cut their Prime Lending
Rates (PLR) and have been lending to new customers at below PLR rates, while existing
customers have been paying at PLR rates. With the likelihood of a further rate cuts by RBI in
June/July 2009, home loan rates are likely to soften by a further 50 basis points.
Tightening norms by Housing finance companies
Housing finance companies are tightening lending norms/standards and loan to property value is
likely to be about 70-80% in FY 2010, which would mean that the days of easy housing loans
from banks, is over.
IT Outlook – Uncertain: Hyderabad accounts for bulk of the IT revenues from Andhra Pradesh.
and IT revenues from Andhra Pradesh grew by 20% to about Rs 31,800 crore in FY 09 as against
Rs 26,500 crore in FY 08. IT revenues which grew by 40% in FY 2008 were impacted by the
global economic slowdown in FY 2009. The outlook for IT sector in FY 2010 and 2011 still
remains uncertain on account of global recession and the industry growth rate might even
touchdown to 10% though the industry associations are forecasting a growth rate of about 13.5%
in FY 2010. IT customers who want to buy property are hesitating in view of difficult market
conditions and are watching the market developments keenly.
Market Outlook: Industry players in Hyderabad hope for a revival of the market in FY 2010 on
account of stable outlook for the Indian economy with a projected GDP of 6%. Likely recovery of
the US economy, optimism in the global markets, stimulus packages to the real estate sector by
both state and central governments and finally the likelihood of Telangana issue to be on the
backburner for another five years are the other factors which might aid the revival of the market.
With declining prices, demand is reviving slowly and is likely to firm up from the third quarter of
FY 2010.
Source: Marutish Varanasi (VRNETConsulting.com)
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