In India, New State Should Boost Hyderabad Property

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Property prices in Hyderabad are expected to rise following the announcement of the creation of a new state in India, after developers and buyers held back from investing in the city amid years of uncertainty over the issue.
 
Last week, India announced that a separate state to be known as Telangana would be carved out of the state of Andhra Pradesh. Hyderabad is to be the joint capital of Andhra Pradesh and the new state for 10 years.
 
"Due to the Telangana agitation, residential capital values in Hyderabad had stagnated since 2009 and driven investors to other cities such as Bengaluru [Bangalore] and Chennai," according to Crisil Research. "In the immediate term, real estate prices are likely to pick up due to buoyed investor sentiment in anticipation of the city's return to political and economic stability."

Hyderabad's property prices have declined since the first half of 2008 because of the political uncertainty surrounding the formation of the state of Telangana, while many of India's others major cities have experienced growth in recent years, according to data from Crisil.

"In the medium term, the resurgence in corporate investments will improve demand for commercial office space and, in turn, provide a fillip to job creation, particularly in those sectors where fresh investments were on hold, and boost residential real estate demand and prices," Crisil reports.

The research firm is now forecasting growth of 8 to 9 percent in residential property values in Hyderabad in 2013 and 2014, compared to its earlier prediction of a rise of 6 to 7 percent.
 
"Capital values have already been on the rise in select pockets of the city (after bottoming out) since the last few quarters on the back of signals that the issue was close to a resolution," Crisil added.

Sandip Patnaik, the managing director, Hyderabad, for Jones Lang LaSalle India, described the move as a "game-changer" for the city's property market.

"The decision that has been arrived as is good for the Hyderabad real estate market, as it has been hanging fire for the last three to four years," Mr Patnaik said. "This state of affairs had given rise to a lot of doubt in the minds of residential end users, investors as well companies that were considering Hyderabad's for its unique business potential.

Investors who had considered pulling out of Hyderabad because of the unresolved political climate will now be reassured that Hyderabad is poised for growth.

"The fact that Hyderabad will become the joint capital for the next 10 years is especially encouraging for this city's real estate market," Mr Patnaik said.

Some observers have pointed out that investors may remain cautious, however, as protests continue and they wait for the state to be established and the markets to settle.
 
"From the beginning, we have been saying that we need clarity for the sector to bounce back," Anand Reddy, the executive director of PBEL Property Development told the Times of India. "Now, we finally know where we are headed, the market is only likely to look up."

There is likely to be increased activity in commercial real estate as corporates are encouraged to expand in or enter Hyderabad, according to JLL.
 
But Crisil said that it expected commercial lease rentals to only show "a marginal annual increase in 2013 and 2014 mainly due to a huge oversupply situation".