hyderabad real estate market profile

8/8/2019 Hyderabad Real Estate Market Profile

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Review of the Hyderabad Real Estate Market 2010

VRNET Pvt. Ltd

HyderabadDecember - 2010


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Hyderabad : Residential Market Updates

Actual end-user supply is not very high in all micro markets: In the Hyderabad Residential Market, ready to move apartments or completed apartments are very few in key markets

such as Gachibowli, Madhapur and Nanakramaguda. Bulk of the new supply consists of projects, in the constructionphase or projects which are in the launch/foundation stage. We expect that by March 2011, the number of projects inthe completed phase will be high in Gachibowli/Nanakramguda/Madhapur area. However in few areas such as Miyapur,Nizampet, Bachupally, the supply is higher than demand and prices are still touching new time lows.

Property prices Residential prices in Hyderabad in the FY 2010 have witnesses a sharp downward trend (down 25%-35% from peak).

From May 2010, prices have stopped falling. Builders have infact started increasing the prices in 3Q of FY 11 as

demand has revived a bit in few micro-markets.Many new launches in FY 11.

In the Hyderabad Residential Market, Q2 and Q3 of FY11 we have witnessed high profile launches of high rise propertyand villas.

Housing loans rates inching up Housing loan rates are a powerful driver ofnew housing demand. With housing loan rates touching 8.5% in the first

year and 9.5% in the next two years for housing loans under floating rate schemes. Housing mortgage rates have beeninching up in view of tight liquidity conditions in the economy.

Real Estate Market Update - 2010


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Hyderabad : Residential Market Updates

IT Industry has picked up steam Hyderabad IT and BPO market are in a scorching mode. Further outlook for incomes is positive. Outlook of other key sectors of the

Hyderabad economy such as Pharma, Bio Tech and education sectors is positive. Job security has improved in the last threequarters starting April 2010. Hence, we believe improvement in the job security will enable first time home buyers to commit tohouse purchases.

Prices are rising The price war among builders to capture the market has stopped across all micro markets. Infact, prices are picking steam in

certain micro-markets, where the projects have been completed. With residential prices in a upward trend, builders are expecting that the demand from locals, speculators, NRIs will kick start. Volumes are also rising in the residential market primarily driven by innovative promotional schemes launched by the builders with

aggressive price cuts.

Key developers Key developers leading the volume revival in affordable segment include Janapriya, Modi builders, Prajay and others. Under the mid income segment, Ramky, First SMR Holdings, Indu, Srisairam, Aparna, Mantri, DLF, Manjeera, Aliens, Cybercity,

Western have reported a pick up in volumes for their residential projects in Hyderabad following offer of innovative promotionalschemes.

Recovery in the Hyderabad Residential Market still sluggish Sales volumes in the residential segment of the market still remain sluggish in the third quarter of FY 11 across all the micro

markets. Absorption rates in the affordable and mid income segments is picking up steam, while activity in the luxury segment has not yet

picked up traction.Political Uncertainty

Political uncertainty which has been plaguing the congress government in its second consequent term continues. The Governmentled by Mr. Roasiah has resigned in the last week of November and a new congress Government led by Mr. N. KiranKumar Reddyhas taken over. However, with Mr. Jagan Mohan Reddy resigning from congress, the problems with cabinet formation persisting, weexpect the Government will continue to live on the razor edge with dissidence and also the unresolved issue ofTelangana.

Telangana issue

The unresolved Telangana issue, remains a serious problem for the growth of the Hyderabad Real Estate Market. We expect that

the report of Sri Krishna Committee will come by December end and it will resolve the Telangana Issue once for all.

Real Estate Market Update Dec - 2010


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Hyderabad : Residential Market UpdatesLuxury Villa Developers Map


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Hyderabad : Residential Market UpdatesResidential Developers Map - Dec - 2010


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To understand, and identify product-market opportunities in the Hyderabad real estatemarket, a framework for analyzing anIndustry named Five Forces Framework is used. Thisframework helps in identifying existing and potential competitors, analyzing the bargainingpower of buyers and suppliers, estimating the threat of potential entrants, and implications ofsubstitute products/services in the industry. Given the importance of the regulatory frameworkin the Hyderabad real estate market, this factor has also been examined.Entry BarriersEntry barriers into the Hyderabad real estate market are low though access to finance toexecute large projects, skills, project expertise, and availability of trained manpower is anarea of concern fornew entrants.Regulatory FrameworkGetting plan approvals from GHMC, HMDA, and other town planning agencies is a timeconsuming process. Further, process for obtaining fire, water and power connections;environmental clearances (large projects) are cumbersome.Seller PowerBuilders source their material requirements from many vendors. Vendors have low bargainingpower with builders, due to which they give high price discounts. However incase of land,

cement and steel the prices of these three major items have gone up significantly in the lasttwo years ending December 2008, primarily due to increased demand. From then on, it hasbeen an downhill for land, cement and steel prices with sluggish demand.

Market Segmentation and structure


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Buyers Power

Customers have very limited power in transactions with the builders. Once, they sign anagreement with a builder, they very little bargaining power with the builder. In the last oneyear, with inventory pile-up of both completed projects and completing projects, builders areoffering various schemes to attract customers including completely furnished apartments forthose who book apartments within a timeframe, cars, holidays, price discounts available for alimited period etc.CompetitionWith housing loans disbursements in FY2010, expected to decline by 30% over the

disbursements of FY2009 on account of higher costs of home loans, subdued marketdemand, political uncertainty Hyderabad real estate market has been a buyers market. FromFY2009, the market dynamics in the Hyderabad real estate market have been transformed.Quality, customer service, and understanding customerneeds are becoming the watch wordsfor builders intending to identify, attract and retain customers. However, the overall industryfor real estate market is still attractive. In this market, large local and multi-regional buildersenjoy significant and growing competitive advantages over smaller builders.



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Complementary Products/Services/ Substitutes

In the Hyderabad market, buyers find suitable products as substitutes by improving theircurrent home or buying a second hand home, rather than buying a new property. Industrystructure is a key driver of builders profitability. This tends to be lost amidst attention onfluctuations in interest rates and new housing project announcements.Competitive Advantages of Large Builders

Access to Capital:o Large builders can access both bank debt and corporate bonds;o Use of both bank credit and corporate bonds together provide a less volatile

source of capital than

ban

k credit alon

e;o Over the long-term, the cost of debt for large builders with public marketaccess is likely to be lower than for smaller builders with access to bank creditonly;o Large builders enjoy superior, more reliable capital access than smallerbuilders.



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The Hyderabad real estate residential comprises more than about 500 odd small andmedium companies, and about 40 odd large companies. Hyderabad is moving toward agrowth phase with revenues of about Rs 6000 crore in FY2011.

Hyderabad Real Estate Market Size


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The real estate market in Hyderabad can be segregated into 4 segments:

Residential Development of townships Development of villas, apartments, independent and row houses Development of plotsCommercial Building of commercial complexes Building ofIT parks SEZs

RetailHospitality Hospitality and wellness

Market segmentation


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The followi

ng are the product/i

ncome segme

nt wise i

nthe Hyderabad real estate market.Builders in Hyderabad are offering products to the following market segment at the following price

points: Low end: Units costing below Rs 20 Lakhs; Middle End: Units costing between Rs 20 Lakhs to Rs 80 Lakhs and; High End: Units costs above Rs 80 Lakhs.

Residential : Pricing


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The following are target segments in the Hyderabad residential housing market: NRI population; High Net worth Individuals from across India;IT and software professionals, self employed; Senior Professions in the industry, Govt. officials; Junior and middle level executives in the industry; Govt. Staff;

Others.

Target segments : Hyderabad Residential Housing Market


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Factors enabling and hindering residential market in Hyderabad


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Conclusion

Post challenging market conditions through FY09, FY10 was one of the tough years for builders in Hyderabad because of the

turmoil caused by theTela

nga

na issue.

Q1 FY10 saw a recovery led by Buyers growing in confidence and have started making enquiries with builders in Hyderabad. Aggressive price cuts by developers in Hyderabad has improved affordability, but uncertainty inIT industry, impact of

global recession continue to trouble buyers. Impact of rate cuts on mortgage loans & stimulus packages helping the revival. Local builders have announced aggressive price cuts across Hyderabad, operating margins of builders getting affected.

Small builders in Hyderabad are today selling below break-even margins to stay afloat. Demand from buyers still marginal and below expectations, market recovery to take time.

Q2 FY10In this quarter we witnessed measures by developers to generate demand including

Restructuring of projects targeted towards from premium luxury segment to affordable segment with ticket size of lessthan Rs 30-40 lakhs.

Aggressive focus on the housing segment with ticket size of less thanINR 40 lakhs Aggressive launches of existing projects at new price and product combinations targeting the forthcoming festive

season. Builders have also focused on completing their existing projects and focused on delivery of the end products.

Q3 and Q4 FY 10 Due to the market turmoil on account ofTelangana issue affected the real estate market in Hyderabad. The market was

more or less on a stand still basis with limited ornegligible transactions in the two quarters.

Q1 and Q2 FY 11 The market conditions improved in Q1 FY 11 on account of the constitution of Sri Krishna Committee to look after the

Telangana issue. Sales have picked up albeit slowly. But a big overhang of supply continues to hang on the Hyderabadresidential, commercial market, which has put pressure on prices. The hospitality and retail market too have improvedtheir performance compared to the corresponding period in FY 10.

Market Performance and Outlook FY 2010 and FY2011


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Conclusion

We expect that the market conditions with respect to volumes in the residential housing segment in Hyderabad toimprove in the quarter ending Q3 FY11.

The market conditions post Jan 2011 are expected to be uncertain in view of the Telangana issue in Hyderabad We continue to believe that builders will continue to focus on the affordable segment of the market. With expected increase in the inflation rates in the next two quarters, interest rates on housing loans are

expected to inch up. IT industry is likely to consolidate in view of continued improvement in the US economy and slow recovery of

Europe. Employment outlook is also expected to be positive, which is likely to improve the se ntiment forresidential housing.

Raising of funds for local builders is expected to improve with banks flush with funds, while Venture Capital andPE funds looking to invest in projects which offer sustainable returns.

Market Outlook - Q3 FY 11 & Q4 FY 11

hyderabad real estate market profile

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