August 2018
Hyderabad market prices have gone up by 40% in the last one year. This was expected since Hyderabad was an under-priced market because of economic slowdown and statehood issues. But, the prices now are only 15% away from Bangalore, which has 3 times the IT workforce compared to Hyderabad. So, caution is advised.
Anybody buying at 4,500/- per sqft should not expect his money to double in 5 years. I have been very supportive of buying the Hyderabad story in 2015/16/17, but not so much in late 2018.
There are certain reasons to keep expectations in check.
1. GST - The 12% GST overload on base price is making almost all properties in Hyderabad west beyond 4,000/- per sqft. Buyers are having a sticker shock.
2. Second hand market and ready to move in flats are coming back into vogue as they don't have GST component. So, it is a struggle for builders to sell under construction flats.
3. Given the above scenario of preference for ready to occupy flats, builders need more than 50% of the cost of the project to be borne by them compared to 20% of the project cost + helped by ongoing sale proceeds from buyers buying early into the project.
4. RERA - The RERA act will weed out many small time builders from the market since they might not have the increased financial resources because of the scenario sighted above to adhere to the timelines promised.
5. As bigger builders nudge smaller ones out of the market, land owners are at the mercy of big builders with required resources. Land prices might come down and big builders could keep offering flats at the same price as today for the next 3-5 years. Obviously, they will collect higher prices if market is willing to pay and better their margins. But, at the same time, they have the option to keep prices flat, without hurting their margins, if buyers don't open the purses.
So, keeping the above factors in consideration, plan your purchases with 'margin of safety' and 'downside protection' in mind.
Note: I am not talking about 2007-2012 correction in real estate to make my point because many first time prospective buyers have no idea of what it is. History is funny, in the sense, economic cycles happen in spite of evidence available all around on how a pricing story could derail. It is just human nature. So, I will save the story of real estate cycles for another time. Atleast, I hope the readers in their 40s would not believe in the story that real estate and land prices go only one way - UP.
Hyderabad market prices have gone up by 40% in the last one year. This was expected since Hyderabad was an under-priced market because of economic slowdown and statehood issues. But, the prices now are only 15% away from Bangalore, which has 3 times the IT workforce compared to Hyderabad. So, caution is advised.
Anybody buying at 4,500/- per sqft should not expect his money to double in 5 years. I have been very supportive of buying the Hyderabad story in 2015/16/17, but not so much in late 2018.
There are certain reasons to keep expectations in check.
1. GST - The 12% GST overload on base price is making almost all properties in Hyderabad west beyond 4,000/- per sqft. Buyers are having a sticker shock.
2. Second hand market and ready to move in flats are coming back into vogue as they don't have GST component. So, it is a struggle for builders to sell under construction flats.
3. Given the above scenario of preference for ready to occupy flats, builders need more than 50% of the cost of the project to be borne by them compared to 20% of the project cost + helped by ongoing sale proceeds from buyers buying early into the project.
4. RERA - The RERA act will weed out many small time builders from the market since they might not have the increased financial resources because of the scenario sighted above to adhere to the timelines promised.
5. As bigger builders nudge smaller ones out of the market, land owners are at the mercy of big builders with required resources. Land prices might come down and big builders could keep offering flats at the same price as today for the next 3-5 years. Obviously, they will collect higher prices if market is willing to pay and better their margins. But, at the same time, they have the option to keep prices flat, without hurting their margins, if buyers don't open the purses.
So, keeping the above factors in consideration, plan your purchases with 'margin of safety' and 'downside protection' in mind.
Note: I am not talking about 2007-2012 correction in real estate to make my point because many first time prospective buyers have no idea of what it is. History is funny, in the sense, economic cycles happen in spite of evidence available all around on how a pricing story could derail. It is just human nature. So, I will save the story of real estate cycles for another time. Atleast, I hope the readers in their 40s would not believe in the story that real estate and land prices go only one way - UP.
No comments:
Post a Comment