Hyderabad Real Estate: Market Update May 2009

Hyderabad Real Estate: Market Update: May 2009

May 29, 2009

VRNET Pvt. Ltd

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Arora Colony, Banjara Hills
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email: marketing@vrnetconsulting.com
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Hyderabad Real Estate: Market Update May 2009

Hyderabad Real Estate: Market Update May 29, 2009

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 the 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.
• Mantri Group has launched its Celestia a residential and commercial project near the
financial district Gachibowli 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, and others have
launched many new large projects in FY 2009 across various segments of the market, while other
major such as Aparna, Aliens, Jain. L&T and others have been executing their large 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 Real Estate: Market Update May 2009

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 execution at Maytas property
project Maytas Hill county, bachupally is moving at a snail’s pace.

No significant unsold inventory

Most Local builders in Hyderabad use the JV 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 friends and investors.

QIP route for Hyderabad builders – ruled out

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, vulture funds/high net worth Individuals are on a look out for
distressed asset sale.

Changing focus of builders

The focus of builder’s upto 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

Prices – National Housing Board – Residex Index for Hyderabad
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
Hyderabad Real Estate: Market Update May 2009

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.

1.1 NHB – Residex – Hyderabad Residential Price Index

West Zone : Serilingampally, Patancheruvu Ramachandrapuram, Kukatpally

South Zone : Kanchanbagh, Begumbazar, Rajendra Nagar
North Zone : Qutbullapur, Alwal, Malkajgiri, Begumpet, Mmarredpally, Tarnaka
Central Zone: Mehdipatnam, Abids, Kachiguda, Nnarayanguda, Himayathnagar, Tolichowki, Khairatabad(west), Panjagutta, Aameerpet, Srinagar Colony, Somajiguda,
Jubilee Hills
East Zone : Kapra, Uppal Kalan, L.B.Nagar
Other Zone: Shamshabad

Source : National Housing Bank

1.2 Residential Property Prices

Hyderabad Residential Property Prices

6000

5000
Banjara Hills
4000
R s p e r s q .ft

Kondapur
Madhapur
3000
Miyapur
2000 Kukatpally
Srinagar colony
1000

0
S e 05

S e 06

S e 07

S e -0 8
Ju 5

Ju 6

Ju 7

Ju 8

9
D e 04
M 4

D e 05
M 5

D e 06
Ma 06

D e 07
M 7

D e 08
M 8
-0

-0

r -0

-0

-0
0

0
n-

n-

n-
p-
c-

p-
c-

p-
c-

p-
c-

p-
c-
n
ar

ar

ar

ar
Se

Year

Source: Local Market data and analysis by VRNETCONSULTING.com

Hyderabad Real Estate: Market Update May 2009

An analysis of the above illustration shows that the residential property prices have increased very
steeply in the year 2006 and 2007 and by March 2008, prices have started declining on account of
slackening demand, tight liquidity conditions, high interest rates, and other factors.

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.

FY 2010 Outlook: Pricing pressure on residential real estate is expected continue, while
demand 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. 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 2009, home loan rates
are like to soften by a further 50 basis points.
Hyderabad Real Estate: Market Update May 2009

Tightening norms by Housing finance companies

Housing finance companies are tightening lending norms/standards and loan to property value is
likely to about 70-80% in FY 2010, which would mean that the days of easy housing loans from banks
is over.

IT Outlook – Uncertain: The outlook for IT sector in FY 2010 and 2011 still remains uncertain on
account of global recession and many IT customers who want to buy property are hesitating in view
of the difficult market conditions and are watch 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, revival of 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. As of May last week 2009,
property prices across Hyderabad in the last one year have corrected by more than 25-35% and
today are at December 2007 levels. With declining prices, demand is reviving slowly and is expected
to firm up from the third quarter of FY 2010.

By Marutish Varanasi
(The author is with VRNETConsulting.com and has authored a comprehensive report on Hyderabad
Real Estate Market focusing on residential, commercial, retail and hospitality segments of the
market). His contact mail ID is marketing@vrnetconsulting.com
Hyderabad Real Estate: Market Update May 2009

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