Reality Check Might Be In Store For Supercharged Hyderabad Realty Market

The city of Hyderabad went silent with empty streets the week that Andhra Pradesh populace voted for their assembly elections. It’s just one of the many pieces of evidence that show how many Andhra people work and live in the city. Now that the government in ‘the other Telugu state’ has changed, Hyderabad’s fast-paced real estate market could see a roadblock.

While most of India is witnessing a real estate revival since the pandemic, Hyderabad has been growing at a faster clip. As per real estate consultancy Anarock, new project launches grew 48% between 2021 to 2023, and sales saw a massive triple-digit growth of 143%.

Property prices, too, have been skyrocketing. As of the January-March quarter of 2024, the average residential price stood at Rs 11,323 per square feet—appreciating 9% from the same quarter last year, as per Colliers data. The prices are next only to Mumbai, making Hyderabad the second most expensive real estate market among the top eight cities—ahead of Bengaluru and Delhi NCR.

“Throughout the Covid period and beyond, average residential prices in northwestern Hyderabad have appreciated significantly. As of 2023-end, average residential price in the micro market had comfortably breached the Rs 10,000/sq. ft. mark, witnessing close to 25% increase since 2021,” said Vimal Nadar, senior director and head of research, Colliers India.

Pause Mode For Six Months?

After sustained northward movement for the last few years, the market is expected to course correct. Some of it has already been taking effect. “A lot of people from Andhra have already stopped or paused buying properties in Hyderabad in the last six months,” said Nomaan Ellahi, senior VP at Square Yards, a proptech platform. As per the platform, Hyderabad’s residential property sales in FY24 saw a 8.7% fall in FY24 due to 74,942 unit sales versus 82,150 in FY23.

Hyderabad was the capital when both the Telugu states were united. Some part of its realty growth story is attributed to buyers from the other side. “Hyderabad being the nearest mega cosmopolitan centre, is a preferred location for the people from Andhra Pradesh as the city offers opportunities for higher education, employment, entertainment, and advanced healthcare needs. There is a significant influx of buyers from the neighbouring state,” said Pratyush Pandey, CEO, Upflex India.

With the possibility of another centre, a newer capital or a hub developing, might take some sheen away. “There are no sudden and immediate changes expected but buyers from Andhra side will drop and the clip of growth seen earlier in Hyderabad would get duller,” said Ellahi.

There has been a rise in the inventory for both commercial and residential real estate assets in the city—as supply has been matching pace with growth demand. “Commercial properties have a vacancy level of over 25% and the residential assets have an unsold inventory of over 1 lakh units,” said Pandey.

Newer City With Better Pricing

Hyderabad’s real estate story also lies in its improved infrastructure like the newly minted Outer Ring Road, and three metro lines which improved connectivity. A newly elected government in Andhra might also do the same.

“The success story of Hyderabad is due to its political will, and if there is political will, the same can develop in other cities too. In the next three or four years, there can be a good alternate market that is developed like it has been done in Navi Mumbai as well as in Chennai,” said Nikhil Bhuta, director at EFC India, an office space solutions company.

In his last five years in Hyderabad, Bhuta said that he has seen significant growth in property rentals as well as commercial property prices that now average anywhere between Rs 8,000-9,000 per square feet. A newer hotspot close by, with better pricing can offer some competition.

“Some out-migration of businesses or residents to Andhra Pradesh is possible, especially if the state (AP) offers lucrative incentives. This could draw some investments away from Hyderabad, leading to a temporary correction in Hyderabad's real estate prices and a potential dip in the commercial real estate market,” said Prashant Thakur, regional director and head of research at Anarock Group.

Replicating Hyderabad’s Success

Hyderabad, with its significant large IT talent, infrastructure, legacy as well as commercial centers like Financial District and Cyberabad—will also be a tough success story to replicate. It also offers a cosmopolitan lifestyle that’s attractive to young professionals.

It’s not dependent only on the IT and ITeS sector. It also has an equally strong and able industrial, manufacturing and logistics sectors along with healthcare and education that’s driving real estate demand.

“Property price appreciation might moderate, but a drastic decline seems unlikely given the strong underlying demand. Overall, the long-term outlook for Hyderabad's real estate market appears positive. However, keeping a close eye on national market trends and the evolving situation in Andhra Pradesh is advisable,” said Thakur.

A few experts are hopeful that the development of the neighbouring state might also have a ripple effect. The area around Hyderabad-Vijayawada Highway is being primed for development with infrastructure projects and industrial parks.

Andhra Pradesh's potential development can be a double-edged sword for Hyderabad real estate. On a long-term basis, it could have either a positive or a slightly negative effect—but for now, the Charminar city has to brace for a change.

Also Read: Indian Commercial Real Estate Makes Hay Amid US-China Tensions

Katya Naidu is a senior business journalist who writes about equity markets, startups, energy, infrastructure, real estate and healthcare.