Hyderabad – No longer the best city in India

I went to Necklace road for dinner with friends on Saturday. The newly laid road looked so nice.  There were no potholes, the lanes were painted, and driving on the road was a pleasure.  I thought this must be some new technology, as this road looks really good.  This thought (new road laying technology) was on my mind, as I went walking in to the restaurant.

It was only much later on the walk back to the parking lot after dinner that it struck me.  It has been so long since the roads were good in Hyderabad that I had become unfamiliar with good roads.  So unfamiliar and not used to it – that I think of new technology for something as mundane as tarred roads! Probably will help you understand the degree of change in the public infrastructure in the past few years.

Four years back, I had gone to Bangalore seen the public infrastructure and could not help but feel proud – Hyderabad was different.  The roads in Hyderabad then were good, things got done (workers swept from mid night to early hours of the day and still do even today) Very unlike Bangalore. 

Back then, my friend worked in an MNC in Bangalore, the building was good. However, the road outside was not paved.  I incessantly teased him about it.  In order to get to Whitefield, you had to get over a bridge that had only 2 lanes (for both sides of traffic). They said there is a plan to expand the road.  However, the land belongs to the Indian Railways and it has been delayed for the past 5 years.  I remember telling a hundred people after my visit from Bangalore, how proud I was to be from Hyderabad. Things get done here, this is the best city to live in India.

However, things are different now. It is a pale shadow of its past.  Infrastructure has crumbled, legislations help special interests instead of everyone, corruption has increased, administration efficiency has decreased. There is more show and less substance. Smartness on big picture is replaced with Cleverness on small things. Greed dominates, professionalism and work ethic have taken several steps back.  The trajectory of the developments is not even flat – it is downwards!

Realty is a fragmented market. Local factors are the biggest influence.

In a previous post, I had mentioned that "big name" realty companies are fringe players.  

Realty is a fragmented market.  That means there are several thousands of companies that serve the demand in the industry.  No player has a market share that is considered significant as compared to the overall size of the market.  This is how the real estate market was in India and will remain as such.  So stop chasing the "big name" realty firms – they are good with propaganda and want to make you believe these dozen companies construct every single home or every single good home in India.  There could be nothing farther than the truth! 

Realty is also a local market. The price of housing and the demand supply are mostly determined at a local level.  Though macro factors affect the pricing, it doesn't affect each real estate market uniformly.  The state of the industry supporting the employment of the local population has a big impact on the pricing on that city or neighborhood.  If there are very few developments in a neighborhood, then due to the supply bottlenecks, the pricing of the existing homes in that neighborhood may be high.  Similarly, an oversupply of homes in a neighborhood causes a price reduction (as seen today in Nizampet opp. JNTU Kukatpally).

The "big name" realty firms use their almost total control of media and public relationships to create negative impressions about small firms – quality of construction is not good, they will not be able to survive, quality of material is suspect etc.  However, the truth is that housing will be fragmented.  There will be good, average and bad realty firms.  This will be irrespective of the size of the firm.

A home is a big ticket purchase – you need to assess a property properly and make the right choices.  You are not buying a cup of tea for Rs.5/- that you can shrug off and walk away in case you don’t like it how it tastes.  You will have to live in that home for a long time and possibly an entire lifetime.  A good choice will mostly likely take a lot of hardwork, patience and analysis.  So be prepared for it!  Having the right frame of mind and expectation wins half the battle!

Real Estate Hyderabad India

Real Estate is such a hapenning area and especially since so much of talk in hyderabad and for NRI's from Hyderabad happens on this topic there is a substantial section devoted to posts on this topic.  When the market was hot it made many millionaires and also it made a billionaire a pauper i.e. Satyam's Raju.  You can like it or hate it but you cannot ignore real estate.  Atleast while talking about Hyderabad.

The selection of posts on the Real Estate are listed below - enjoy...

Must View:

• No Meaningful Correction in Hyderabad Real Estate Prices
  
• Hyderabad Real Estate Bubble Busts

• The Coming Bust in the Hyderabad Real Estate Bubble
  

Other Blog Posts on Real Estate:

• LIC Housing Finance Property Show - January '09
  
• Realty is a fragmented market. Local factors are the biggest influence
  

• Builders Selling Small Number of Super Luxury Apartments are Fringe Players Nationally!
• Tips for renting commercial real estate

LIC Housing Finance Property Show - January '09

LIC Housing Finance Property Show was conducted on Jan 3rd & 4th  at Institute of Engineers Khairtabad.  This exhibition was a waste of time since the prices were not adjusted to the market conditions. There were hardly any properties on offer in localities where people are looking for homes. 

Secondly, with the tightening of the credit norms by banks - it is difficult to get larger loans like earlier.   However, real estate companies have hardly any decent property options  to offer for the loan amount + savings that most people can arrange.   Thus, there is a big imbalance between buyers and sellers.

The good thing was unlike other shows, there was more variety and smaller firms were in good presence. Many of the big companies other than Aliens were conspicious by their absence.  There was a good crowd, the parking lot was congested and lot of middle class families visited the show.

There were several developers from Hafizpet and Nizampet area.   My contacts in that area tell me that there is hardly 5% booking in that area and builders are under huge strain.

Some developments were quoting  Rs.2,500 to Rs.3,200 about 25 kms away from Khairtabad. The prices were off course negotiable.  Even if  the proposed Hyderabad Metro was operational today as planned - the last stop for these developments would have been tens of kilometers away. In my opinion, these properties are not city locations though they may fall under GHMC limits. It will be very difficult and inconvenient to commute to a job in the city from these developments.

Within the city, one apartment in Srinagar colony was being quoted at 5,000/- per sft negotiable. The size available was about 2600 sft for a flat. At that price the cost of the flat was coming to around 1.3 crore. Based on some rough calculations, this person or family should have a income of Rs.30 lakhs per year and put down some 25 lakhs down payment.  You can guess how many can really afford this apartment.  

With the builders still quoting exhorbitant rates,  only a small number of  purchase transactions are possible in Hyderabad real estate market today.  Since most real estate companies are looking to get the maximum value from their properties, it appears to me that most of these real estate companies will be exiting this industry and "venturing" into other areas. If someone was really into this business for the long-term they would plan and operate in a different manner.

No Meaningful Correction in Hyderabad Real Estate Prices

Real estate price corrections in Hyderabad being prevented by extensive market inefficiencies, cartels and unscrupulous business practices.

In a free market economy, demand and supply create a check on unrealistic prices – at least that is what theory says. So when demand is less, then prices should fall.  This is not happening in Hyderabad, though the real estate market has been down for over a year.  The correction in pricing has been minimal compared to the unrealistic growth in prices earlier (for several years).  Plus, it has not factored in and reduced prices because of the new reality - the reduced number of buyers today and the buying power of the current buyers.

If we look at the US real estate market nationwide statistics, the prices are already down 24% from peak prices. Economists are expecting another 10% downward price revision from peak price in 2009. The peak was reached in 2005.  During peak, the price in Hitech city was 4000/- This means, by US standards it should have been around 3000/- now and go down to 2600/- next year.  I don’t think apartments in My Home Navadeepa (Next to Cyber Towers, Madhapur) are being sold for 3,000/sft.

I am not saying that because US had a correction of 34%, the same price percentage should come off from price of apartments in Madhapur.   My point rather is that I have not seen any meaningful correction in real estate pricing in Hyderabad. 

Even after the global recession, there is no lay-off in Hyderabad and there is no correction in the sticker price (the sarcasm intentional!).  However, I have seen ICICI close down the entire Home Loan origination office in Begumpet and made everyone pay including those of branch managers into commission basis.  A good friend of mine who is head of Sales in another mid-size real estate firm has also converted been into commission pay.  However, there is no change in sticker price of real estate.

The reason for this honestly is that - cartels and unscrupulous business practices prevent realistic price correction. Greed and fear also are preventing businesses from adjusting prices downwards. Real Estate Business people are unwilling to accept anything less than exorbitant profits from their business.

The best explanation of market inefficiency can be drawn from my personal experience with the stock market. The day there are good prices in stock market my online stock trading system does not work as well.  The prices are not refreshed as quickly, I place orders with older data and obviously I don’t get to fully grab the opportunities. Frustrating but true.  When systems don’t work during the times that favor price corrections – it reduces price correction. 

However, when prices have been increasing, media acts as a force multiplier (for the small price of a Journalist colony in that area).  Every new area - Madhapur, Gachibowli etc has a Journalist colony.  I wish there was a footnote after a very glowing article in the newspapers about an area saying, this journalist is being considered for a plot in the Journalist colony coming up in the same area.

Cartels work in a different way, I was in a Gold shop the day prices fell.  Another shopper said Gold prices are lower the last few days, to which the shop owner said – “Yes, papers are quoting lower prices but there is no supply. If you find anyone who has supply tell me, I want to buy a few kgs of gold too!’  Cutting off supply ensures the transaction cannot be made.  So price benefit does not reach the customer.

I recently spoke to someone in Bangalore and they said the price of a apartment in Bangalore is around Rs.2,800/- with decent local builders in Whitefield. 

I know for a fact the apartment prices in Madhapur or Gachibowli, which are equivalent locations in Hyderabad, are definitely higher.  Is there anything that makes the market value of Hyderabad better that Bangalore.  I don’t believe so. The fact remains that Bangalore is still the IT capital of India.   The only top5 IT firm headquartered in Hyderabad is today in doldrums. 

The only reason that the prices are higher are probably because of the greed of builders, the absence of smaller builders and the immaturity of the buyers.  

As we all know, there are two sets of people who get jobs in Hyderabad.  People from outside AP – mostly Madhya Pradesh, Chatisgarh, Orissa, West Bengal, UP etc.  Or non-hyderabadis from rural  and small towns.  A vast majority of both these segments are new to Hyderabad and have no idea of the real estate price history in Hyderabad.  They are isolated and easily fooled by the realtors.  Non-Andhra people compare prices with Mumbai and Delhi and get fooled.  

While, the problem with Andhra people are that they have a long and very established history of being extremely speculative plus having a little bit ‘unrealistic and exaggerated sense of their own’ capability – mostly derived from seeing too many movies of their favorite Tollywood hero. Well, I may be exaggerating a bit.  But there is nothing wrong at taking a good hard look at our attitudes and expectations.  Wisemen, say when you ‘Know Yourselves’ you have less chance of making mistakes!

Builders Selling Small Number of Super Luxury Apartments are Fringe Players Nationally!

If every national real estate player starts their apartments at 60 lakhs – they are not a national real estate company. They are a fringe player in the Indian economy.  

As per World Bank data  80% of Indian earn less than $2 per day.  Also, 33% of Indians earn less than $1 per day.  We need housing solutions that can cover needs of a vast majority of people.  Families (not people) earning over 5 Lakhs per annum are small fraction of 1% of the population. 

Only a Hindusthan Unilever that offers a wide variety of soaps for every segment of society can be called a National player.  Does not matter how sexy the offices are of DLF, Unitech, Maytas and the endless ‘Big names of Indian Real Estate’.  These companies are only fringe players in the Indian economy.  These companies are not an equivalent of a  MS Dhoni or Kapil Dev – They are like some key player from some local school somewhere in Delhi.  Does not matter how much your dad (your business) advertises in the papers and what your stock price is.   

Only if you can build something like 1 lakh apartments covering all segments of the population (who can buy) – you have a right to be called a national player like an Airtel or an Hindusthan Unilever.  There are 80% of India that can probably not buy any modern construction.  However you should atleast be able to provide housing solutions for the rest including people like clerks in government department, Sr. sales executive with 10 years experience in a Bata shoe store, an engine driver with Indian Railways and a traffic constable.  

I dont understand what is the big deal in building fancy housing for 0.01% of Indian population. This satisfied the years of latent demand created for housing due to the  job creation done mostly by IT offshoring industry.  The recent push by the Government and incentives including classification of loans below 20 Lakhs as priority sector lending are very welcome.   However, we  need to understand that a house is a 'manufactured good'.  

The Indian Real Estate Industry is 'Primitive' till the time we can mass produce at least 10 lakh of functional, decent homes per year that provide hygeinic living conditions and create decent neighborhoods.  Let me illustrate this with an example -  If the Indian army had a few thousand soldiers with modern arms and while the balance several lakh soldiers carried bows and arrows.  Nobody would consider such an army as a modern. It will be called a primitive army.  Similarly, the Indian real estate industry has a very long way to go. At this time, they have a small number of localized successes. No single company has been able to manufacture what is required from the Indian market.  

In 1947, one real estate entrepreneur called William Levitt (Levitt & Sons, Inc) built 17,000 homes in a single development covering 18.7 sq kms. This was done in 4 years and the new town was called Levittstown as a suburb of New York city.  People can commute conveniently by taking a local train to Manhattan for work.  

60 years later there have been dramatic advances in construction technology, methods and management. Plus, we already know others have constructed large numbers of affordable houses in various parts of the world. The sad story is there is no capable real estate entrepreneur in India.  This is despite a huge demand for affordable housing. We desperately need a hero in Housing industry.  Someone like what  Kishore Biyani was for Indian Retailers or Sunil Mittal or Dhirubhai Ambani was for Cell Phones.  Any one listening ?

Tips for renting commercial real estate

Many people are hit with the entrepreneurial bug and to start their own business. Here are some tips for leasing an office premises. This is not for retail businesses:

There are great tips in this article - see them at our new location by clicking on this link - Tips for renting commercial real estate

The Coming Bust in the Hyderabad Real Estate Bubble

The Land prices have gone up several times across Hyderabad city. In many places, they have gone up ten folds in a matter of months. Hyderabad city seems to be the happening place with special zones created for semiconductors, garments, offshore IT and BPO, biotech and anything else that you can think of.

Apartment prices are going through the roof. You cannot get a new apartment for anything less than 60 lakhs - the average size of a two bedroom apartment which was 750 sft about 10 years ago has now become 1500 sft.

To read the full blog posting click this link - The Coming Bust in the Hyderabad Real Estate Bubble