In a downturn - How to call the bottom to the real estate market prices

Note: These observations are limited to micro markets around areas with strong employment potential. e.g. Domlur, Whitefields, Sarjapur in Bangalore and Kondapur, Hitec City, KPHB in Hyderabad. 

Banks usually allow for 85% of loan of total cost of the project, in the worst of the times they have brought it down to 75%. This broadly is a barometer to call the bottom of a market. In good micro market like above, you can start bidding your time for the right opportunity starting with prices coming down 15% and more. Ideally, if you can land a deal 20% below the earlier peak, don't think too much, just grab it. You never know when the market will turn and such deals will vanish. I see no point waiting endlessly to see the prices go further down and reach 25% from the peak.  I think, in India, 20% down in a good micro market is a buy signal.

And, for locations that are away from the business districts and have been boomed on speculation, even if they are down by 70%, don't touch them.

When can you try this prognosis next- I think 2017, but I see June 2014 also producing a scare, there could be some deals if you are constantly on the look out.  Homes are sticky to let go for the reseller so you have to be on the look out for months before you spot the deal.

Miyapur - Hyderabad micro market scan

Miyapur has very little social activity.  Though it has some 3/4 movie screens and good super market options, eating out options are pathetic. This is because there is not commercial activity and no colleges around to attract floating population through out the day. The fact that Miyapur is sandwiched between two very commercial locations in KPHB and Chandanagar, does not provide enough scope for commercial development.  But, with time the activity will eventually kick in. Given the situation and the wide use of the name Miyapur by the realtors, some caution is advised.

Miyapur, as quoted by builders, indicates an emerging micro market that encompasses - Bachupally, Mythrinagar, Madinaguda, Hafeezpet, Mathrusrinagar, Mayurinagar, HMT Swarnapuri, Ameenpur which expands the core Miyapur area by about 10 times. 

Like Gachibowli, Miyapur is used to broadly address all the above localities surrounding Miyapur, so one should be alert to the exact location because as you move away from NH 9 (JNTU - BHEL stretch), the livability quotient comes down drastically.  It is safer to bet on projects closer to NH 9 - inside 1 km from the highway. And, the metro is also running bang on NH 9. Gated communities can be a good options but individual apartment units might face challenges with respect to social infrastructure.  

Branding and Real Estate

A brand inspires lot of trust.  Real estate is definitely not the place to talk about branding because of the dubious mix of unprofessionalism (cheating), type of people in the business and general lack of awareness of the technical challenges in the industry.  Most of the real estate operators are financiers with no technical knowhow of the industry what so ever.

But, brands like My Home, Aparna (major builders) and Alekhya (specializes in small apartments but positioned as super premium) have built trust and loyalty with their patrons. And, are seeing the fruits of their hardwork. In a sluggish market like Hyderabad, they have been working extra hard and in the process have put in place the basic building blocks of great industry players.

At the national levels, marquee corporate brands like Godrej, Mahindra and Tata have brought a breath of fresh air to the industry.  People are increasingly depending on these brands (Chennai and Bangalore markets, that I am aware of) to avoid the usual heartburn associated with real estate deals. And, that is translating into pricing that is 6-8% above the next door projects' pricing.  And, I am coming across buyers who passionately argue that the premium is every bit justified. 

Hyderabad Real estate - Key Govt Acts - Buyers must know - GO 86, 2006

See the link

http://www.aponline.gov.in/Quick%20Links/Departments/Municipal%20Administration%20and%20Urban%20Development/Govt-Gos-Acts/2006/e-GO.Ms.86.2006.pdf

Hyderabad Real estate - Key Govt Acts - Buyers must know - GO 901, 2007 - BPS and LRS

See the link

http://www.ap.gov.in/Acts%20Policies/Regulation%20of%20Buildings%20Act.pdf

Job market in Hyderabad - Dull but growing

As in rest of India, Hyderabad job market has been dull. The political uncertainty has had an affect, but we can seek some consolation from the fact that the companies already in Hyderabad were extremely happy in the past 4 years.  One big reason is the low attrition as very few new companies have  set up shop.  Continuous flow of  new entrants would have unleashed a war for experienced talent.

Second reason is that in spite of on going agitations, not single day of work was affected. So, existing players have chosen to grow organically in Hyderabad surprising everybody.  Many of the existing companies have added staff on a regular basis. Deloitte is a great case along with Amazon. Deloitte is planning to consolidate all its office space into two massive 17 floor towers close to Ramky Towers.

There has been no new office place coming into the market in the last 5 years. (2013 and 2014 will see some additions). So, surprisingly, office space at Rs 55 per sft is on par with some of the IT park offerings in Bangalore.  Some IT parks in the East - North Bangalore are under Rs 50 per sft.

The office space market in Hitec City and Gachibowli has been kept busy with lot of companies moving from Banjara Hills and beyond to the IT parks.  Lack of parking spaces in old offices, deteriorating buildings, architecture not suited for current industry standards and lack of desired aura around the current location have prompted move from the core city to Hitec City side.  Over the years, most IT employees have started living in West Hyderabad. pushing the employer further to be in that part of the city.  

Hyderabad Discount

How much discount is Hyderabad offering due to the political uncertainty?

I tried to see what are the prices of residential properties in a 30 mins/ 8 km range from key IT parks in Bangalore. I chose Bangalore because in 2007, the prices in Bangalore were on par (marquee projects were 5% above Hyderabad projects).  The projects in Bangalore around Domlur, White fields are now quoting at 5,400 to 6,500 per sft where as projects in comparable locations in Kondapur Gachibowli belt are in the 3400 to 4500 per sqft range, so the Hyderabad discount is approx. 30%.  

Final cost of an apartment in Pre-launch mode

Many of us are pained by project delivery delays.  Every month of delay threatens to convert our best investment decision into a nightmare. 

Customers should be very much clued into the costs of finance and how a decision to buy an unit under construction carries certain risks.  Every year in construction would effectively add Rs 150 per sqft cost of a typical flat (Assuming ticket size of 50 lacs and you have paid 50% of the amount in the first 8 months). No matter whether the delivery was done on time after 2 years (Rs 300 more) or delayed by couple of years and delivered after 4 years (Rs 600 more) - the calculation should hold good. By adding RS 150 per year from the time of booking you can arrive at the break even cost.  I have kept it in the high range to comfortably cover the agony and hardship going through the construction cycle.

The end price including interest costs would be on par with the costs in the micro-market of new launch projects at the delivery.  The only positive is that you can land an unit of your choice.  This is true of good markets like Bangalore but not necessarily Hyderabad in 2013-14 season.

P.S. The best scenario in current market is to buy finished units, we are sure of the product and returns from the project.

Hyderabad - Maintenance charges for apartment complexs

Maintenance charges are going up with increasing inflation, especially diesel prices and labor costs have seen steep increases.

Single block 5 floored apartments - Rs 1200 - 1500 per month (in Summer - can go up to Rs 3,000 pm)
Gated communities (small) less than 800 flats - Rs 3000 - 6000 per month (Rs.2.5 to 3.0 per sft)
Gated communities (large) more than 800 flats - Rs 2500 - 5000 per month (Rs. 1.5 to 2.6 per sft)

Swimming pools will become white elephants.  Builder build it once as a marketing ploy but maintaining a pool costs a bomb. Many swimming pools in smaller gated communities in areas outside of Gachibowli, Kondapur, NH9 stretch might have to close down their pools from next summer onwards to control the costs.  Converting swimming pools into parks would be a good idea.

P.S. The maintenance charges quoted are for fully loaded amenities. I am sure many new complexes are charging a tad less than what is quoted here as many units are unsold and the builders are absorbing the costs to present a better picture of maintenance costs to prospective buyers.

KPHB to see 2 new malls - Hyderabad micro market scan

Trinity Mall by Manjeera is ready and might open by year end (Hyper city and Shoppers Stop already functional). Forum Sujana is also ready and might open by August 2014. This is will help bring down the pressure on Inorbit.  My bets are on Cinepolis opening in Trinity Mall.  Cinepolis (a Mexican company) is the largest multiplex operator in the world.  Hoping for some world class movie experience in KPHB.

Update April 2014 - The Trinity Manjeera Mall is 75% full and is seeing heavy crowds on weekends. The Forum Mall is done and will open in couple of months.

Nallagandla - Gachibowli - Hyderabad micro market scan

Ramky One Kosmos - This particular projects looks good, given it would come up after 3 years or so.  Aparna has taken most of the load in developing this area and Ramky can reap the dividends. 

1. It is on the main road unlike Diamond Towers (lot of negative reviews)
2. Hopefully, the road expansion would be done in time before 2016, hand over date.
3. Plans of all sizes/ budgets - starts from 1030sft.

The area, as expected, has taken time to evolve like the botanical gardens stretch (again because of access issues, narrow road, zigzag approach to Gachibowli, I hear this is getting addressed. Update May 2014 - Work on the 120ft road from Kothaguda to HCU has started and would be a game changer for the locality.).  In 2016-17, I am sure the area would be marked as a social infrastructure ready locality because the number of people in the area would have reached a critical mass to encourage businesses to invest in that area. The RoB at Nallagandla will also help. 

Aparna projects - Cyberzon and Cyber Life would also benefit from these changes.

The kick-starting of Citizen's hospital in the area is a great relief.

 

Investor Vs End User

Builders for lack of funds have, in the last 4 years, opened up a new avenue for people with money but not seeing returns in their own business or equity markets. Investors are typically offered prices 35% less than currently quoted prices.  Most of the options are available in pre-launch stage or in the first six months of a launch.  Given that the project will take 3 years to complete, the investor will lose 12% compound interest (compared to a bank FD of 9.75%). The discount more or less covers the interest cost and the investor can exist at a higher price say 20% and pocket the difference.  To cover any downside, the builders promise minimum capital protection of around 65%, a cheque that can encashed by investor in the worst market conditions where there is a big drop.  The cheque might bounce, but that is a different issue. The returns, in nominal terms, are expected to be 18-20% in the best of the markets like Bangalore. 

This scenario has played out in NCR and Mumbai, but most of them are really stuck because the markets don't have the job creation of Bangalore.  Someday, in the future, Bangalore also might reach that stage, because human mind has the tendency to take the game too far.  Looking at the launches in Bangalore this year, I am sure investors have to play a big role to sustain the game. The year of reckoning for the Bangalore market is 2017, when most such project will be ready to move in and the investors try to exit at the same time.

Lansum Etania project in Gachibowli offered Rs. 2,800 per sqft for 100% upfront payment where as it is quoting upwards of Rs. 3,700 sqft for regular milestone based payment purchases.    

Narsingi - The next Hyd RE destination? - Hyderabad micro market scan

A few projects like

NCC Urban One
PWS De-Lite Apartments
The Retreat by Rajapushpa
Atria by Rajapushpa
Panache by Vertex

Are upping the ante in terms of making Narsingi a micro-market in the Gachibowli - APPA stretch.

Already the area has seen good development of villas projects (premium ones). 

Hyderabad - New Road - Emami Swanlake - Rainbow Vistas connectivity

Gulf Oil limited is launching a township, still at planning stage.  GHMC asked the company to provide connectivity through their land for sanctioning the plan.  The company has close to 100 acres around that area that it plans to develop (See Hinduja Realty website for more details).  This particular road will be, I think more than 120 ft and is already built (see google maps).

This bodes well for new projects - Emami Swanlake and Rainbow Vistas.  This road will connect NH 9 with Chandanagar Moosapet Manjeera pipeline road.

Hyderabad RE Rates

From the APREDA show Oct 2013

These are ranges:

Gachibowli -                     3500 - 4200 psft
Hitec City Area -              3700 - 6000 psft
Miyapur - Chandanagar - 3100 - 3700 psft
Pocharam -                       1600 - 1900 psft
KPHB -                            3300 - 3900 psft

Villa projects seem to be gaining ground.

The marketing line is "Because most of the ORR stretch is not having social supports now, a Villa project is better. The customers are willing to wait for the development to happen where as the apartment customers want a location with complete social infrastructure".  I am not sure villa buyers are ready to bite that line.
 

APREDA show at HITEX - More focussed marketing

APREDA marketing hoardings slogan - Hyderabad हैदराबाद hi rahenga.

 

A good marketing message, hope it breathes some life into the market. Aparna has been doing it for some time, and I think it has worked for them - many of their projects has significant non-south purchasers. I think APREDA is taking a leaf out of their marketing booklet.

Dates: 25, 26, 27 Oct 2013

Builders of repute in Hyderabad

My personal experience - no scientific methodology behind these observations

My Home Constructions
Aparna Constructions
Rajapushpa

Jayabheri

Vasavi

R.V. Nirmaan
Trendset Builders
Alekhya Homes
Manbhum

Please suggest any other builders, I will add to the list as I deem fit.  Thanks

Gated communities - High rise vs 5 floored apartments

Communities that have only 5 floored blocks in a large area usually indicates that the approach road is narrow and cannot take lot of peak hour traffic.  The permissions for the height of buildings is usually dependent on the width of the access road.  

High rise properties are usually located on wide and key roads.  Given that builder maps are never clear and exact about the location, this criteria should help people to short list projects to visit.

2021 Update - Telangana has been a pioneer in getting rid of FSI limits and providing sanctions based on inra around the building - size of the road.

Common Area - What is acceptable?

Different builders have different common area statements. Many of us are used to the 18-22% statements from the pre 2007 days. But, with new norms in place 28-30% for normal 5 floored apartment and up to 38% for high rise apartment is something we should get used to.

Will you see my views on any specific projects?

Yes, if I like it.  But, I will not cover each and every launch because not everything is worth your and my time/ money.

Bangalore - Benefits from uncertainity in Hyderabad market

I guess some of the folks are doing short term fund management.  I am sure this might have some not so good affects on real estate in Bangalore in 2014-15. Beware!!!

P.S. - I hope the market is deep enough to absorb and sudden pull out of this money.

http://articles.timesofindia.indiatimes.com/2013-08-06/bangalore/41130517_1_sudeep-chandran-investors-bangalore-run

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Standard Chartered, HSBC and Citibank also have similar products, but they charges 0.25% more than normal home loans rates for the OD product.

When to buy real estate - Plan, bid time, execute

Buy when there is blood on the streets. In real estate, especially in Hyderabad the year was 2009.

Just observe people, when real estate is on everybody's menu at a social gathering including the drivers and house maids, then is the time to run and lock your money somewhere else. 

We are in October 2013, and Gold is almost at a multiyear low, the newspapers don't talk about it and all the gold shops are deserted but look at Sept Oct 2012, gold was at all time high, the newspapers carried all time highs on front pages but the gold bazaars were full of people and then came the crash and in dollar terms the gold remains at the lowest price till date. But, nobody is talking about buying gold now. This is how the housing market also behaves, I see a big scare coming back in 2017 - be ready.

Also, try visiting at least 25 properties before you make an offer for 4 of them.  Please don't hesitate to quote a really low price, you never know how low the seller can go. I guess only 1 or 2 will be accepted. Never hurry, take your time, build up pressure on the seller by maintain long pauses in negotiations. You will land a good deal.

P.S. - Also, May 2014 may produce a short term opportunity but I am not sure.   Make a note of all projects that might be ready to move by May 2014 and start visiting them with a target to open negotiations after May 2014.

Location is everything

This is a famous quote from the real estate industry.  Even a lousy building in a prime locality commands the area's premium.  Never invest in a locality because the property is coming cheap, the low price is the reflection of the lousy location.  Many people have paid a heavy price for not being in the right location.

Is Real Estate investment in India ever going to be profitable

As everybody knows the maximum returns a residential property in India (bought with a loan and rented out) can produce is 7.0% to 7.8%, much lower than a bank FD and way lower than the consumer inflation (about 10%). [Personally, I think most countries manage their inflation numbers and would add another 1-2% to the inflation number to arrive at the real number].

So, does it really make sense to invest in a house and lose money in the first few years? I would say, YES. India is a socialist country (with several leakages and protections) trying to pose as a emerging free economy. As, global factors act increasingly on India and force the country to improve tax collections and cut subsidies - we are in for a 7 -12 % inflation path for the next 10-12 years. Hoping, that these around 10% inflation rates adjust in to capital prices of property, say, once in 3 years, we should be looking at returns of 14-17% annually on property, which should be decent enough. And, where 80% of the funds come at the lowest interest rate.  I think, home loan interest rates in India are the lowest and actually negative because inflation if measured properly will be 12% and the home loan rates are 10.5% which is negative 1.5%.

Unlike US, where rental yields can hover around 7-9% compared to mortgage loans of 3.5% and present a exciting business, India is a capital + rental yield economy where part of the return is stuck in the capital appreciation. I agree, US house prices also have been rising rapidly well above their inflation of 2%.  The rise has been devoid of fundamental reasons like booming economy or inflation and has proved to be a death bite for many in the financial crisis of 2009.   

Hyderabad is unidirectional

Hyderabad is unidirectional in growth.  All infrastructure and connectivity has been concentrated on the Gachibowli side - West Hyderabad. Given, the slowing growth (add the local factors on top of global factors) don't believe anybody who says other parts will be developed because of the metro and outer ring road in the next 5 years.

Growth is where the Jobs are. And, it is only Gachibowli - Kokapet, don't make the mistake of investing any where else. Pocharam is coming up but picking winners in that belt is going to be tough.

Lessons to be learnt from Bangalore - the Bangalore development authority planned to develop all sides of Bangalore for equitable development by allowing IT parks in all directions of the city.  They built an airport on the opposite side of the city from where the jobs were. The strategy seems to be boomeranging.  The government is unable to provide basic civic amenities to booming townships around IT parks coming up all around Bangalore. And, in spite of Bangalore industry being manifold bigger than Hyderabad, the price in all the peripheral areas is close to Hyderabad because of lack of good infrastructure and the housing being spread all around.

A unidirectional Hyderabad provides better value proposition than Bangalore.

Addendum: After years of going around, the Whitefields - Mathahalli - Old Airport stretch, which was originally the IT corridor of Bangalore is again in demand.  The prices of this micro market are going up because the area is established and has all basic social supports. 

Scope of the Hyderabad Real Estate Market Blog

Hello folks,

I know many people love Hyderabad. And, also acknowledge that the city has not met its expectations in terms of emerging as a premier city of Asia (forget India!!). 

I have been in the city for the last 15 years and have seen the city emerge from a sleepy Nizami place to what it is today. Like most of you, I have also lugged my self around many 100s of kms trying to invest in a nest, actually several of them. Since, this is what I have done most of my spare time in past 15 years, I thought my experiences might help some of you out there to crystalize your thoughts on residential real estate. 

Why Residential Real Estate Market

Alert: I thoroughly despise the commercial and retail real estate market. I am conservative who likes India's inflation (aka capital appreciation), tax breaks and stable returns from residential real estate.

Wishing you happy browsing

BR

TVK