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Hyderabad Real Estate Market - Update June 2009

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					Hyderabad Real Estate: Market Update: June 2009

VRNET Pvt. Ltd Plot No :19 Arora Colony, Banjara Hills Hyderabad email: marketing@vrnetconsulting.com Phone : 9849636264

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. 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 Certification VRNETConsulting.com is a market research and consulting firm which does and intends to do business with companies covered in this research report. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this market research report. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The recipient should independently evaluate the investment risks. VRNETConsulting.com and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report.


				
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