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Hyderabad’s vs other cities - A true litmus test?
3 MIN READJune 13, 2018
GRI Club India convened in Hyderabad, on 7th of June 2018, to decode the power of this high-value city. Hyderabad has witnessed a robust real estate uprise in the last four years after the new state of Telangana was established. It has emerged as a preferred destination by both developers and investors due to its stable government with corporation friendly attitude, availability of land, good infrastructure, and local laws which impose no restrictions on FSI.

The discussion was moderated by Bhairav Dalal, Partner Tax and Regulatory at PWC, and Ambar Maheshwari, CEO Private Equity Funds at Indiabulls Asset Management.

Offer and demand

The demand in Hyderabad is stable with around 7 mn-7.5 mn sq.ft. However, the supply reflects much more than the ~44 mn planned in the next three years. Although oversupply is the current concern, it is encouraging discipline amongst the players in the sector, who are focusing on better planning and execution to stand out and trying innovative methods to market their properties.

Demand for real estate is likely to further increase as the city is welcoming 10,000 migrants a month. The number of migrants may increase, comparing to other cities in the south like Bangalore which hosts 80,000 migrants in a month. Any increase in no. of migrants to Hyderabad will boost demand and rentals accordingly. Hyderabad has now evolved into a commercial real estate powerhouse with demand and growth surpassing everyone except Bangalore. Commercial real estate momentum is high due to healthy construction activity, office space occupancy remained high and prices appreciated due to positive market dynamics.

Pune views Hyderabad as a competitor as the occupancy in Pune may be negatively affected by the positive development in Hyderabad. There is a spill-over from Bangalore and Chennai as well.
Retail demand witnessed a huge boost with the growth of office spaces and residential sales. Restaurants and cinemas are seen as the key drivers for generating more footfalls in malls.

Pro-development policies brought Hyderabad onto the national and international investment radar.

For the past few years, Private Equity firms didn’t invest in Hyderabad, though they have evaluated many projects and deals. The main reason being the lower capital value of the properties compared to other cities, even though the land prices are quite comparable. Funds didn’t invest in the past as the ticket size of the older projects were very small, hence deterring interest from funds which were looking for suitable investments. The total size of projects currently is large and hence attracting funds.

Conclusions

Members concluded there was a strong desire to explore other unconventional asset classes in Hyderabad to cater demand including warehousing, smaller well-maintained spaces for rentals, co-living spaces and co-working spaces. However, co-working spaces would only be viable if larger players also explore the option along with smaller players.

Majority of large developers active in Hyderabad despite not being based there, have entered the market seeing great opportunity, especially in the commercial real estate segment.

The residential market still has a substantial contribution from local developers, due to localized needs of the buyers.

The margins are less in Hyderabad, as the cost of construction is more, additional car parking needs to be built. Due to excess supply, there is good competition and there is very little difference between large and small developers in terms of quality.

More than government, infrastructure, quality of talent pool is more critical for establishing demand in real estate. The quality of companies will determine the demand. It takes 6 months to find a talented person in Hyderabad compared to Bangalore where a talented person can be found in 1 month.

The state government has worked strongly towards building business confidence among all investors in the state and has been supportive of their short regime. This is likely to continue and create new benchmarks in the development and progress of this shining city of Hyderabad.
 
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