Hyderabad no longer remains the underdog in the national real estate market. It has maintained its growth impetus in the real estate market and continues to be a favorite destination for many investors and customers. As per Knight Frank India's report, the city recorded 32 percent y-o-y growth in sales at 7,900 housing units in Q3 2022 when compared to 5,987 units in the same quarter last year.
A study by CREDAI, Colliers and Liases Foras revealed that the average housing prices in Hyderabad which used to be around Rs 5,000 to Rs 6,000 per sq. ft a couple of years ago, have risen, making the city the second most expensive residential market after Mumbai, witnessing an increase of 171%. As of Q2 2022, the average prices in Hyderabad stood at Rs 9,218 per sq. ft.
As per Cushman Wakefield, Hyderabad continued to gather pace in office demand with gross leasing activity standing at a seven-quarter high of 3.43 msf during the second quarter of 2022, registering robust q-o-q growth of 80.6%. Activity in H1 2022 recorded a 12.8% growth over H1 2021. Furthermore, office demand in H1 2022 has also surpassed the pre-pandemic levels by registering a growth of 28% over H1 2019, indicating a strengthening market activity..Fresh demand accounted for 1.53 msf, a q-o-q growth of 37%. Pre-commitments too played a crucial role in driving the leasing activity during Q2 2022which accounted for more than 900,000 sf.
IT-BPM was the largest contributor in Q2 with a share of around 35%, followed by BFSI and Engineering & Manufacturing sectors at 21% and 11%shares, respectively. Net absorption registered 2.5X growth on a q-o-q basis, as large occupiers expanded.
In the retail segment, leasing in Hyderabad’s malls strengthened in the first half of this year, led by domestic brands. The city recorded absorption of about 2.4 lakh sft in investment-grade malls and high streets, as per ‘CBRE India Retail Figures H1 2022’. According to the report, the retail space supply in the city was at 3.7 lakh sft during the first six months. With improving sentiments towards offline stores, space take-up increased across malls on a half-yearly basis.
The city has also become a viable investment option over the years. Traditionally, the people of Hyderabad constituted a major chunk of IT ex-pats living in different parts of the globe. With a hybrid working model coming to the fore, they prefer to invest back home and real estate has emerged as one of the favourite investment instruments in recent years. As per a reports. NRIs invested $13 billion in Hyderabad’s real estate in 2021, which is likely to touch $15 billion by the end of 2022.
PROGRESSIVE DEVELOPMENTS IN THE CITY
In recent years Hyderabad has drawn interest from all stakeholders including investors, homebuyers, and developers because of its high-performing socio-economic dynamics, well-developed infrastructure, relatively affordable prices, and above all business conducive government works in the city’s favour.
Housing sales will continue to grow, as the robust policy-making and the State Government’s unflinching support for the growth ensures a regular flow of investments to the city, and a robust job creation and office space absorption.
Employment opportunities that were created in the IT sector and start-ups are driving the residential market in Hyderabad, adding to the investment in the city’s infrastructure. Through State Rural Development Programme (SRDP) has opened new residential clusters in the north and east parts of the city which is contributing to increased residential sales.
Encouraging policy reforms and structural changes have changed the market dynamics, it has become more homebuyer-friendly. The commercially developed infrastructure also remains a significant reason because of which many international companies like Amazon, Microsoft and have been setting up their units here. Besides creating employment, these investments have seen a spur in housing demand.
Despite pandemic-induced interruptions, the city was the only market that exhibited no year-on-year (YoY) change in price levels until the end of 2020. Hyderabad was one of the first cities in India to gradually restart economic activity in May 2020 demonstrating the underlying resilience amidst the crisis. The confidence in doing business instilled by the Government of Telangana strongly drove this recovery.
In Q2 2022, nearly 4.1 msf of new office space entered the market, a q-o-q growth of 46%. This resulted in a supply infusion of 6.95 msf during H1 2022, recording a 25% growth annually. Additionally, Pharma companies are investing and buying up large land parcels in core city areas.
Hyderabad is a preferred destination for malls. The retail space absorption in Hyderabad retail space supply in the city was at 0.37 mn sq. ft. during the first half of 2022. With more than 3.9 mn sq ft Grade A space leased during January–June, Hyderabad had more than 52 percent of the total grade A space in the country. While 93 mn sq ft was leased from January to June this year, about 7.2 mn sq ft happened in Hyderabad.
Hyderabad warehousing sector has recorded warehousing transactions of 5.4mn sq ft in FY 2022 recording 128% YoY growth as compared to 2.36 mn sq ft in the previous year. Flipkart, Reliance Retail, ECom Express, DMart, and SVS Pharma are among the top occupiers of warehouse space in Hyderabad.
BUT IT’S NOT SO ROSY A PICTURE
Due to a non-stop increase in prices since 2017, Hyderabad has become unaffordable for most buyers. The cost of construction, registration charges, and land rates have gone up in the past year, and this has increased the cost of under-construction apartments. With the astronomical increase in prices by as much as 3 to 5 times in just 2 to 3 years in some areas, buying a property in Hyderabad has become unaffordable for most people.
Hyderabad’s over-supply of over 60,000+ unsold apartments is almost 5 times more than that of Bengaluru and Pune. With such over-supply, sales had come down drastically in the second half of 2022. Going forward, the excess inventory will lead to delayed and stressed projects, which in turn will lead to stagnation or reduction in prices in the long run.
Even if the builders manage to create hype/demand to increase prices in the last few years, this oversupply is so bad that eventually, they will start cutting prices in desperation to sell – leading to either stagnation or worse, a big fall in prices. By 2024, Hyderabad could be sitting on an absurd number of excess, unsold homes – at least 4 to 5 times more than the annual demand, industry reports indicate.
Another disturbing factor is the relentless construction activity that has eventually resulted in an over-burdened infrastructure. Hyderabad is the only city in India, that does not limit how much or how tall you can construct. Most new projects in Hyderabad have FSI of 9 and 13, with the average being 6 to 7 – almost 3 times more than the national average. What makes this more frightening is most of these high–rises are within core city limits. Such a construction overload with limited open space creates massive pressure on the civic infrastructure – leading to problems such as road congestion, urban flooding, sewage overflow, and poor light and ventilation for homes, among others.
The city’s drainage and water supply systems are still not capable of handling unlimited FSI. Properties will quickly lose value as they become less liveable and becomes increasingly difficult to rent or resell as people will avoid such problematic spaces – 90% of new launches and most price hikes are heavily concentrated only in the western corridor – making it all the easier for the bubble to burst. Both geographically & financially, demand for homes and price hikes have not been uniform across all pockets of the city.
DESPITE THE IMPACT OF EXTERNAL FACTORS LIKE INCREASE IN INTEREST RATES, HOME PRICES, AND THE LOOMING CRISES OF UNSOLD INVENTORY, HYDERABAD REAL ESTATE PRICES HAVE RISEN CONSISTENTLY, SIMULTANEOUSLY ATTRACTING A LOT OF INVESTOR INTEREST. INTERESTINGLY, PRICES CONTINUED TO MOVE UP DURING THE ENTIRE CORONAVIRUS-INDUCED SLOWDOWN PERIOD. HYDERABAD IS STATED TO BE THE SECOND MOST EXPENSIVE MARKET IN INDIA AFTER MUMBAI.
THE DEVELOPMENT OF LOGISTIC PARKS AND CONNECTING HIGHWAYS, THE CONSTRUCTION OF WIND GARDENS MODELED AFTER THOSE IN MADRID, AND THE FIA FORMULA E PROJECT—ALL ARE EXPECTED TO DRAW ATTENTION TO HYDERABAD ON A GLOBAL SCALE.