Revival of Amaravati will have no immediate impact on real estate growth in Hyderabad: Study on election fallout

HYDERABAD: The Hyderabad real estate market will be significantly affected by the outcomes of the recent general election. While there could be a moderation of real-estate growth with the revival of Amaravati in neighbouring Andhra Pradesh, a study has confirmed that it will take a considerable time for Amaravati to compete with Hyderabad.

There is likely to be greater emphasis on infrastructure and pro-business policies. This will draw in more IT firms and other industries, increasing the demand for commercial real estate. Fresh development initiatives and improved connectivity may draw additional investment to remote locations.

Housing Sales

According to ANAROCK Research, Hyderabad's residential market has exhibited robust growth between 2021 and Q1 2024, with a cumulative total of approximately 218,800 new residential units launched and 1,54,300 units sold. 2023 witnessed a peak in activity, recording nearly 76,300 units launched and 61,700 units sold. This represents a significant increase of 48 percent and 143 percent respectively, compared to figures from 2021.

Housing Prices

Prashant Thakur, Regional Director and Head of Research, ANAROCK Group, says, “Property values in Hyderabad also saw a substantial rise between 2021 and Q1 2024. On average, prices appreciated by 45 percent, reaching Rs 6,350 per square feet in Q1 2024 from Rs 4,372 per sft in 2021.”

According to Prashant Thakur West Hyderabad, the zone with the highest concentration of office spaces has seen even stronger growth. “Average residential capital values in this region have increased by 52 percent in the same period. Currently, the average price per square foot stands at Rs 7,200,” says Thakur. Land prices, which had appreciated by over 30 percent in the last three years, have contributed significantly to the price hikes.”.

AP Factor - A Threat to Hyderabad?

The peoples’ mandate in neighbouring Andhra Pradesh with a large majority and an important ally at the centre may lead to moderation of real estate growth in Hyderabad. Land prices in Hyderabad have appreciated by over 30 percent in the last 3 years. This had influenced price rises across asset classes in the city.

Conceivably, the volume of residential real estate launches in the city may also rationalise as investors and buyers scout for competitive opportunities in Andhra Pradesh - which is expected to witness a surge in development along the new growth corridors. The study however felt that Andhra Pradesh's potential development can be a double-edged sword for Hyderabad real estate.

However, the overall impact is likely to be positive as Andhra Pradesh's growth could spark a ripple effect, attracting businesses and investors to the entire region.

This could lead to increased demand for office and commercial space in Hyderabad, especially along key corridors like the Hyderabad-Vijayawada highway. This area is already being primed for development with infrastructure projects and industrial parks, making it a potential growth engine for Hyderabad real estate. While the outlook is promising, there are challenges. Some out-migration of businesses or residents to Andhra Pradesh is possible, especially if AP offers lucrative incentives, the report opined.

“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,” the ANAROCK report said.

However, the presence of a large talent pool and developed infrastructure of the city, with enhanced connectivity, could make it difficult for companies to venture into a new state in the short term. While Hyderabad's established infrastructure, strong IT base, and cosmopolitan character are unlikely to diminish significantly, the impact on the city’s real estate market will be influenced by how development unfolds in Andhra Pradesh.

Strong Fundamentals

“Hyderabad is the nearest mega cosmopolitan centre for both states, and this makes it an attractive destination for the population of the neighbouring cities and towns. It is a preferred location for the people from Andhra Pradesh, as the city offers opportunities for higher education, employment, entertainment, advanced healthcare needs, and shopping for special occasions,” the study said.

There could be a significant influx of housing buyers from the neighbouring state. Hyderabad's real estate boom has strong fundamentals driving it. The city's IT-ITeS sector, infrastructure development, and overall business ecosystem are likely to sustain demand for quality housing and commercial spaces.

The city’s economic activities are well diversified and not limited only to the services sector. There are equally strong and able industrial, manufacturing, and logistics sectors along with healthcare and education that drive the demand for real estate in the city. Property price appreciation might be moderate going forward. However, a drastic decline seems unlikely, given the strong underlying demand.

“Overall, the long-term outlook for Hyderabad's real estate market remains positive. Nevertheless, national market trends and the evolving situation in Andhra Pradesh bear watching,” the report said.

Development of Amaravati

N Chandrababu Naidu has already proved his mettle in developing Hyderabad as a major city with world-class infrastructure and was successful in attracting major IT-ITeS, pharmaceutical, and industrial companies to the state. This has been instrumental in generating employment and attracting talent from across the country, thus also spurring rapid real estate development. Now, the recently concluded election mandate has renewed the prospects of Amaravati in Andhra Pradesh.

“While this dream project was shelved by the previous Government, there are now very distinct possibilities of its revival. However, the development of a new capital city and the massive eco-system it entails is a task of epic proportions. Despite all political will and support, it will take time to fructify - and to emerge as real competition to Hyderabad,” the ANAROCK report pointed out.