Real Estate Outlook

Recovery Ahead for Hyderabad’s Residential Market

Robust infrastructure, availability of skilled manpower and competitive real estate prices differentiates Hyderabad from other metros of India. The city’s support infrastructure is well defined for corporates to set up offices, attract the best talent and run profitable businesses.

Hyderabad also offers a great work-life balance, which is substantiated by the fact that Mercer’s Quality of Living rankings 2017 ranked Hyderabad as the top Indian city for the third year in a row.

Despite the fact that the city is adequately equipped to cater to global businesses, it’s real estate market had witnessed a slowdown due to political unrest before the formation of Telangana. In fact, Hyderabad lost a few years during these uncertain times and went onto a slower growth trajectory over the past few years. However, Hyderabad is now visibly re-orienting itself as a major business hub, and several companies are investing in the city.

Hyderabad topped office leasing market in Q2 2017 and witnessed a 93% rise in the net absorption of office space, at approximately 1.75 million square feet. Large multinational corporations such as Infosys, Deloitte, Amazon, Accenture, Wipro and many more have already launched their offices in Hyderabad, vouchsafing the conviction that the corporate world is now displaying in the city’s potential.

In fact, there is currently a shortage of Grade A office spaces in Hyderabad – as a result, there is a fresh demand for land parcels where new commercial office facilities can be created.

In addition to corporates fueling the city’s economy, the Telangana government has also taken decisive initiatives to promote Hyderabad as India’s new start-up capital:

  1. T-Hub (Technology Hub): Located at the IIIT-Hyderabad campus in Gachibowli and spread across 70,000 sq. ft., T-Hub is India’s largest incubator for start-ups. The Government is planning massive expansion of this facility, and it may become the largest of its kind in the world.
  2. T-Fund (Telangana Innovation Fund): The Government is planning to set up an early-stage investment vehicle with an initial target corpus of INR 2,000 Cr. in collaboration with T-Hub. This fund will focus on investing in sector-specific start-ups.

With Hyderabad reinventing itself as a key market with well-defined new market drivers, the city’s residential real estate market dynamics have also improved significantly. The supply of new units launched in Q2 2017 has grown by 12% over the previous quarter.

Notably, however, Gachibowli, Kukatpally and HITEC City – the buzzing IT-ITeS and financial districts of Hyderabad – did not witness any new supply in Q2 2017. This change in trend may be attributed to a shift in focus towards affordable housing, which cannot be supported in these high-priced micro markets. The affordable housing segment constituted a majority of the overall launches in Q2 2017, which were mainly concentrated in the peripheral areas of the city.

Residential unit sales remained unchanged in H1 2017, while prices in select micro-markets (such as Appa Junction, Uppal, Kukatpally, and Manikonda) grew between 5-10% y-o-y. Post implementation of RERA, developers are in an understandable hurry to complete their ongoing projects.

The increased pace of construction has given homebuyers renewed confidence, as a result of which sales have remained steady despite some of the residual market challenges. Due to a steady growth in sales, inventory overhang has also reduced to 24 months as of H1 2017 (from 32 months as of H2 2016).

With its superior infrastructure, massive talent pool and increasing vibrancy in its real estate markets, Hyderabad is back on the radar of global corporates who are eager to expand their portfolios there. The improving residential real estate dynamics are now signaling that a definite recovery is on the anvil. Hyderabad is all set to make a new and very visible mark on the Indian real estate sector.

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