RESIDENTIAL TRACTION@GLANCE

HYDERABAD RESIDENTIAL TRACTION@GLANCE February 2014

MARKET OVERVIEW NEW LAUNCHES ABSORPTION map RESIDENTIAL TRACTION@GLANCE FEB 2014

Market overview Hyderabad has witnessed weakened consumer sentiments that have yderabad is undoubtedly the affected the market deeply with no most affordable residential signs of recovery since the past two Hmarkets out of the country's years. Developers on the other hand top seven cities of NCR, Mumbai, have taken cues from buyer Hyderabad witnessed a Bengaluru, Chennai, Pune and Kolkata. expectations and have refrained from further slowdown in the The city has been known as the second increasing the prices. silicon valley of after Bengaluru year 2013. Factors such as Like other residential markets in the and has emerged as an IT/ITeS and slow economic growth, country, Hyderabad witnessed a further biotech destination. Not only is it the slowdown in the year 2013. Factors rising interest rates by administrative, financial and economic such as slow economic growth, rising banks, high inflation and capital of the state but also the largest interest rates by banks, high inflation political instability among contributor to the state's GDP. and political instability among other A number of proposed infrastructure other factors have added to factors have added to the uncertainties. initiatives are expected to further fuel the uncertainties. Nevertheless, Hyderabad fared slightly the growth of the real estate sector in Nevertheless, Hyderabad better compared to other IT/ITeS Hyderabad city. Outer Ring Road (ORR), dominated cities of Chennai and Pune fared slightly better an eight lane expressway is being built with only a 4% drop in sales volume compared to other IT/ITeS in the city and work is in progress on during this time last year. A greater dip dominated cities of the last stretch between and in project launches helped the unsold Pedda . A large part of the Chennai and Pune with inventory levels to stabilise. New ORR is already operational providing only a 4% drop in sales launches in Hyderabad have come good connectivity with volume during this time down from 19,000 in 2012 to 16,200 airport. The ORR provides a circular units in 2013 resulting in a fall of 15%. last year. connectivity with the city and helps in decongesting the Inner Ring Road and major arterial roads. Hyderabad Metro FIGURE 1 is also under construction, Phase I of YoY Change in Launches and Absorption the project will connect and Launches Absorption LB.Nagar, and Shilparamanam, Chennai -35% -33% JBS and Falaknuma. Unlike the ORR, the Pune -34% -33% Metro cuts through the city connecting Hyderabad -15% -4% north with south and east with west in a linear manner. Besides, the proposed Source: Knight Frank Research Hyderabad Metro Rail Information Technology Investment Region (ITIR) is The fact that Hyderabad is an end user also expected to boost the real estate market having a latent housing demand development in the city. The ITIR would is substantiated by evaluating a trend include special economic zones for the of the past two years. A long term IT/ITeS sector, industrial parks, free analysis (8 quarters) of the moving trade zones, warehousing zones and average of launches and absorption export oriented units. clearly shows that the absorption levels have been more or less stable, whereas Despite having all the constituents in launches peaked in Q3 12 and have place for a successful real estate been trending downwards since then. market, the city has still not got its due. Even the short term moving average Hyderabad has been reeling under (4 quarters) confirms the trend. abundant uncertainties most of which Recognising the fact that buyers in the emerged due to political upheaval. As a Hyderabad market prefer completed result of this, the state of the market projects over under construction ones, has remained the same since the past developers are concentrating on five years. Largely an end user market, project execution.

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FIGURE 2 As of December2013 about 24% of the and around HITEC city and . Long Term (8 Quarters) Moving Average Trend Of Launches & Absorption total available units in the primary Supply in this micro-market has seen market remain unsold in the Hyderabad a boost due to its proximity to Launches Absorption 5,500 market. Although it is not quite high workplaces, upcoming retail 5,000 development and supporting 4,500 compared to other IT/ITeS driven 4,000 infrastructure in the form of connecting f Units markets, a healthy absorption rate is 3,500 No. o 3,000 required to bring it down and sustain railway stations, the National Highway 2,500 the prices. and Express Highway that connect to 2,000 the airport. Development in this region Q1 13 Q2 13 Q3 13 Q4 13 Q1 12 Q2 12 Q3 12 Q4 12 Q4 11 is moving southwards with developers FIGURE 4 Source: Knight Frank Research Index Of Real Estate Indicators showing interest in locations like New Launches Absorption Narsingi and Appa Junction. These Unsold Price locations are now perceived as the next During 2010-2012, nearly 54,000 160 growth corridors and are expected to residential units were launched in 140 gain traction in the coming years. the Hyderabad market. New project 120 100 launches peaked in the year 2011 alue (Base: 2010=1) 80 The northern zone is the second most and despite an improvement in Index V 60 preferred residential micro-market and demand the unsold inventory levels 2010 2011 2012 2013 Source: Knight Frank Research is driven due to good infrastructure inched up. facilities and proximity to the cantonment area. This region Hence, by the end of year 2011 the QTS In order to understand the market constitutes nearly 14% of the total (Quarters to Sell) ratio for the dynamics further it is important to under construction units in the Hyderabad market peaked at 9 study the city in parts. The Hyderabad Hyderabad market. Most of the supply indicating that unsold inventory will residential market can be broadly in the north zone has come up in take more than two years to get classified into five micro-markets,each , Qutubullapur, Nagpur absorbed. QTS refers to the number of of which has different characteristics, Highway, Yarpal and Shamirpet. quarters required to exhaust the price points and buyer profile. existing unsold inventory in the city. The eastern zone comprises locations Taking a cue from the piling unsold FIGURE 5 such as Uppal, , Mallapur, inventory, developers sliced the Residential Micro-Markets , Cherlapalle, Pocharam, Kuntloor, in Hyderabad number of new project launches by and . Nearly 10% of HMR- Central , , one-third in Q1 2012. This coupled with the total units under construction fall in a 20% increase in absorption brought , Panjagutta, this zone. Uppal remains one of the down the QTS to eight in Q1 2012. HMR- West , , favoured destinations in this Post this the QTS remained stagnant at , Gachibowli, micro-market. Phase II of the ORR, that Raidurgam eight till the end of Q3 2012. A flurry of is under construction will improve the HMR- East Uppal, , LB Nagar launches in Q4 2012 pushed the QTS HMR- North Kompally, , , traffic situation and connectivity in the back to the Q4 2011 level of nine. This Qutubullapur eastern zone. has remained as is since the past five HMR- South , Rajendra Nagar, Shamshabad quarters, primarily due to a slowdown , Attapur, Upparpally, in absorption. Source: Knight Frank Research , , Rajendranagar *HMR refers to Hyderabad Metropolitan Region and Shamshabad fall under the southern zone. With the development FIGURE 3 The western zone comprising locations QTS of Shamshabad International Airport QTS like Kukatpally, Madhapur, Kondapur, and other developments like SEZs, 10 Gachibowli, Miyapur, HITEC City, 9 Hardware Park and Fab City, this zone Gopannapalli, is the largest contributor 8 has been growing as a residential 7 to residential supply in Hyderabad. Of 6 location. However, its distance from the the total units under construction, the 5 city is still a deterrent to demand. western zone accounts for a significant Q1 13 Q2 13 Q3 13 Q4 13 Q1 12 Q2 12 Q3 12 Q4 12 Q4 11 share of around 60%. Demand in this Source: Knight Frank Research region is end user driven, majority catering to the employees of IT firms in

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Residential demand in the central zone New Launches sales due to the weakened consumer comprising areas like Begumpet, sentiments have refrained developers Maredpally, Somajiguda, Himayatnagar, from launching more projects. Most of Share of West Hyderabad in the overall , Banjara Hills and Jubilee the project launches in Central new launches pie has been going up Hills is primarily driven by government Hyderabad took place in Banjara Hills, gradually with each passing year. Nearly officials, businessmen, corporate office Begumpet and Kavadigua in the price 11,000 residential units were launched employees and NRIs. These locations range of `7500-8500 per.sq.ft. in this micro-market during 2013 cater to higher income groups as well constituting nearly 70% of the new as the upper middle income segment. launches. Gachibowli, Kukatpally and continue to remain FIGURE 7 At a micro-market level South Zone has Micro-market Split Of Launched Units the maximum unsold inventory. Despite preferred locations within this zone. in 2012 having prices in the affordable range These locations cater to the demand HMR- Central HMR- East HMR- North this market has failed to attract buyers. from the IT/ITeS sector, wherein HMR- South HMR- West Most of the projects with high unsold employees prefer to buy a house units are located in Rajendra Nagar and instead of staying on rent. It is interesting to see the ticket size wise 12% 10% Shamshabad. Although both these 3% 8% locations are well connected with the split of launched units across micro- other parts of the city, distance from markets in the Hyderabad market. The the IT/ITeS hub could be a probable west zone has product offerings in all reason for a higher ratio of unsold ticket sizes be it affordable, mid- 67% units. segment or high end housing, making it a favourable destination for home Source: Knight Frank Research The west zone has a comparatively buyers. lower ratio of unsold units, considering that nearly 60% of the East Hyderabad's share in the new FIGURE 8 Micro-market Split Of Launched Units total under construction units falls launches has also shown improvement in 2013 under it. This confirms that there is in 2013. This region has a lot of HMR- Central HMR- East HMR- North an inherent demand only for the potential to grow further as land prices HMR- South HMR- West right kind of product. Location of the are still low compared to other

project, socio-economic profile of developed parts of the city. Once Phase 4% 7% 10% the area, type of unit plans and II of the ORR is operational, 9% presence of amenities are some of connectivity issue will also be resolved. the key factors that impact the Majority of the launches took place in buying decision in Hyderabad. Pocharam, Shamirpet and Uppalin the price range of `1900-2300 per.sq.ft. 70% Credibility and trust on the developer have a high influence in choosing a Share of North Hyderabad in the Source: Knight Frank Research property, prominent developers have overall new launches pie has shown relatively low unsold inventory improvement in 2013. MedchalAlwal compared to others. and Kompally were some of the FIGURE 9 prominent locations for project Micro-Market Wise Ticket Size Split of Launched Units During 2013 launches during 2013. Kompally is FIGURE 6 Micro-market Split Of Underconstruction predominantly witnessing the >20 mn 10-20 mn 7.5-10 mn 5-7.5 mn 2.5-5 mn <2.5 mn Units As On December 2013 development of villa projects in the 100% HMR- Central HMR- East HMR- North price range of `5.0-10.25 mn/ unit. 90% HMR- South HMR- West Alwal on the other hand has a number 80% 70% of stand-alone projects in the price 8% 60% 10% range of `2,200-2,500 per/sq.ft. 50% 40% 14% Central Hyderabad's share in project 30% 60% 20% 8% launches has shrunk in 2013. 10% 0% Unaffordable prices in this region, non- HMR-Central HMR- East HMR- North HMR- South HMR- West Source: Knight Frank Research availability of land parcels and poor Source: Knight Frank Research

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Absorption Prices During 2010-2012, nearly 54,000 residential units The residential sales volume has dipped Despite steady absorption levels in the were launched in the by 4% in the year 2013 compared to past two years the Hyderabad Hyderabad market. New 2012. Approximately 16,500 residential residential market has seen hardly any project launches peaked in units were absorbed in 2013. movement in prices. With only a 13% the year 2011 and despite Hyderabad is an end user market, with increase in weighted average prices an improvement in a stable sales appetite which is not since 2009 the Hyderabad market has highly influenced by the number of been the worst performer among the demand the unsold launches. Developers confirm that the IT/ITeS driven markets. Bengaluru, Pune inventory levels inched up. number of enquiries has not gone and Chennai have witnessed a down but buyers are taking time in minimum of 38% increase since the closing deals. year 2009. The Hyderabad residential market has remained Plummeting launches during the year However, select markets closer to the stagnant during 2013, with 2013 had little impact on the sales business districts such as Madhapur, a slight drop in absorption. volume, as home buyers prefer not to Kondapur and Gachibowli have seen Considering the recent book in a recently launched property price appreciation to the tune of 9% but wait for the delivery of the project. during 2013. Despite this the capital decision on the formation The western micro-market has shown values still fall short of the 2007-08 of a separate state the highest absorption in terms of levels. Weighted average capital values the prevailing volume which can be attributed to the in the western zone are in the range of uncertainties will fade type and volume of inventory available `3000-3200 per.sq.ft. Prime residential away. Clarity on this issue in this market. Nearly 11,000 residential locations of Jubilee Hills and Banjara is expected to boost the units were absorbed in this micro- Hills have seen an increase of about market during 2013. 7-10 % during 2013 due to limited absorption by the end of supply. Jubilee Hills and Banjara Hills the year or early 2015. East and north micro-markets have command high capital values ranging witnessed a drop in sales volume between `7000-7500 per.sq.ft. during 2013 when compared to 2012. which is quite high, compared to other Despite the prices being in the micro-markets. Property prices in East affordable range these markets have and South Hyderabad have been failed to attract enough buyers. steady. Locations such as Uppal, LB However, smaller projects with less than Nagar and recorded a price 50 units with minimum amenities have appreciation to the tune of 3-5% during seen good traction as they were offered 2013. at an even lower price.

FIGURE 10 FIGURE 11 Micro-Market Level Absorption in Index of Weighted Average 2012 & 2013 Price Movement Hyderabad Pune 2012 2013 Bengaluru Chennai 160 12000 140 10000 120 8000 100 80

f Units 6000 60

No. o 4000 40 2000 20

0 0 HMR - SOUTH HMR -EAST HMR -WEST HMR-NORTH HMR-CENTRAL Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13

Source: Knight Frank Research Source: Knight Frank Research

7 RESIDENTIAL TRACTION@GLANCE

Outlook Research Dr. Samantak Das [email protected] The Hyderabad residential market has remained stagnant during 2013, with a slight drop in absorption. Considering the recent Consultancy & Valuation decision on the formation of separate state Telangana the Saurabh Mehrotra prevailing uncertainties will fade away. Clarity on this issue is [email protected] expected to boost the absorption by the end of the year or early 2015. Considering the city's potential as an IT/ITeS hub it is only a Office Agency matter of time before companies start making some investments. Mudassir Zaidi However, there will be a lull until the elections, post which we [email protected] expect the demand to pick up. and see prices moving upwards. West Hyderabad, where majority of the new jobs are being Cities Mumbai created, will continue to witness the maximum traction in the Naushad Panjwani residential space going forward, followed by East Hyderabad. [email protected] Development of the ORR is also facilitating developers to launch projects in far flung locations at lower prices, without NCR compromising on connectivity. Narsinghi and Appa Junction in Rajeev Bairathi West Hyderabad are the next growth corridors with ample land [email protected] availability and good connectivity to the HITEC City. Bengaluru & Hyderabad Satish BN [email protected]

Pune Shantanu Mazumder [email protected]

Chennai Kanchana Krishnan [email protected]

Report Author Ankita Nimbekar, Research Consultant

Knight Frank India research provides development and strategic advisory to a wide range of clients worldwide. We regularly produce detailed and informative research reports which provide valuable insights on the real estate market. Our strength lies in analyzing existing trends and predicting Recent market leading research publications. future trends in the real estate sector from the data collected through market surveys and interactions with real estate agents, developers, funds and other stakeholders.

elocitaBrand.com .V This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the www preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this Chennai Office Chennai Residential Economic & Traction@Glance Traction@Glance Realty@Glance material does not necessarily represent the view of Knight Frank in relation January 2014 January 2014 January 2014 to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank to the Knight Frank Research Reports available at form and content within which it appears. www.KnightFrank.com/research