Is Hyderabad's realty market under priced?

Excerpts of CNBC-TV18 interview with Sandip Patnaik, MD-Hyderabad Jones Lang LaSalleIndia

Patnaik: The CBD, central part of Chennai, Poes Garden is trading at Rs 28,000-30,000 per square feet. In Hyderabad Banjara Hills and Jubilee Hills are trading Rs 7000-9000 square feet – just to give an example what is the mismatch.

40 kilometers out from the CBD in Chennai in Old Mahabalipuram Road(OMR) Road, end of OMR Road the rates are Rs 5500 whereas in HITEC City which is hardly 8-9 kilometers from the CBD, Jubilee Hills is trading at around Rs 5000-5500. That is the potential Hyderabad has and last four to five years Hyderabad has not seen the right prices because of the political scenario. If you talk of the tier-2, tier-3 cities even in tier-3 cities in Andhra Pradesh like Vijayawada the rates are much higher than what it is in Hyderabad. So, there is a lot of potential for the prices to go up and the real estate market to benefit from the price rise.

Q: If there is a mismatch, just what kind of a price appreciation are you anticipating?

Patnaik: Next two to three months it might be stable or flat or might increase by 5 percent. However, after three to four months once the final process is over for the state bifurcation, prices will go up by 15 percent. After the state elections and I am hopeful the prices will go up by at least 20-22 percent after the elections.

Q: Back in August we also heard that prices in Hyderabad would zoom. This was after the Group of Ministers (GoM) had approved of the creation of Telengana. But that never happened. So how are you so confident this time round that prices will indeed appreciate?

Patnaik: That is my worry though we might see 2-5 percent improvement in the sales but there are a lot of ifs and buts are there. Until and unless the final decision of state bifurcation happens and the state election happens – as you know Andhra Pradesh is going to have the state elections along with the central elections by the mid of next year I feel as an member from fraternity in real estate in Hyderabad I see the real jump in prices will come post elections next year. Till then the market will be stable or might see few percentage rise in the sales. However, the real jump will be after the state election next year mid.

Q: In a nutshell you're saying this is a great entry point for investments in Hyderabad. Now tell us which are the growth corridors of the city?

A: Though the established area as of now is HITEC City and in around HITEC City Gachibowli and Miyapur but I see a strong potential after 5-6 months the corridor which is adjoining the outer ring road. So, obviously we have already seen some developments coming till up to Narsingi junction. However, after Narsingi up to close to the airport in that stretch up outer ring road a lot of land available and because of the better connectivity of the outer ring road and service road I see that is the next growth corridor. This is the western part of the city what I am talking of. But we have still a lot of potential in the eastern quadrant where Infosys has set up a 400 acre campus in Pocharam. So, from Pocharam towards Gatkeshwar further down still there is a lot of potential. The land prices are low and developers are yet to take a bet but because of the outer ring row connectivity this part of the city is also going to develop and people who are going to invest in plots this is the right place to invest in the plot.

Q: Let us take that up one by one. First up the western corridor; what kind of prices are currently prevailing?

Patnaik: There is certain development like Nagarjuna Constructions are doing close to Narsingi. There the prevailing rate is Rs 3500 per square feet as far as the flats are concerned. The lands if you talk of, prevailing rates is between Rs 6-8 crore per acre. But what I see that as HITEC City is getting saturated and because its close proximity to outer ring road this location now further down Narsingi and to Appa junction this is the right place for developers to start their projects. Even if the distance is at least 8-10 kilometers from HITEC City because of the outer ring road connectivity it will hardly take 6-10 minutes to reach that place. So, these are the places where we see future the developers are going to invest. As of now there are only one or two projects there and trading at Rs 3500 per square feet.

However, according to PWC, Chennai has caught the fancy of investors while Mumbai and New Delhi seem to be losing their sheen.

Whereas, Financial consultant Capital Mind warns that we are only in the beginning of a down cycle and this rare bearish voice is convinced prices will fall further. It is advising clients to sell properties and hold onto purchases.