RERA ambiguity takes toll on Hyderabad realty

New launches drop 56%; Western city accounts over 80% of total launches in H1 2017; sales remain steady: Knight Frank India

​Hyderabad: New project launches in Hyderabad dropped by 56 per cent in first half of 2017, according to a latest report by Knight Frank India, which attributes the reason to lack of clarity on the implementation of the Real Estate (Regulation & Development) Act (RERA), 2016.

With drastic reduction in launches and steady sales, the current unsold inventory will take less than two years to exhaust, observes Knight Frank in the report.

Samson Arthur, Director (Hyderabad), Knight Frank India, said: “Rera Act has emerged as a major factor dampening new launches in Hyderabad. However, sales remained steady in H1 2017. Prices are expected to move in the same manner in the near future as well. New launches hit an all-time low of just over 2,500 units in the first half. Compared to H1 and H2 of 2016, new launches this year were down 55 per cent and 56 per cent respectively.”

A key provision in Rera Act stipulates that the promoter of a real estate development firm has to maintain a separate escrow account for each of their projects. A minimum 70 per cent of the money from investors and buyers will have to be deposited. This money can only be used for the construction of the project and the cost borne towards the land. Such norms keep builders in a fix.

Knight Frank India on Thursday launched its seventh edition of its flagship half yearly report - India Real Estate. It presents a comprehensive analysis of the residential and office market performance of Hyderabad for the period January–June (H1) 2017.

“Shift towards affordable housing not very apparent as the bulk of launches are in the relatively higher priced western parts of the city. Metro rail is expected to be operational by the end of 2017 and its proximity to IT/ITeS and BFSI hubs, western part of the city remains preferred for new launches. Already Hyderabad west accounts over 80 per cent of the total launches in H1 2017,” adds Arthur.

Micro-markets including Nallagandla, Chandanagar, Serilingampally, Kukatpally, Narsingi, Hayathnagar and Kokapet witnessed new launches. Nearly 69 per cent of the home sales took place in the western part of the city. Furthermore, vacancy levels in the most sought-after locations such as Madhapur, Hitech City, Gachibowli and Nanakramguda are as low as 2-4 per cent. Lack of quality office space has also affected the IT/ITeS sector whose share of space uptake dipped to 51 per cent in H1 2017.

The promising bright side however is that the city witnessed the highest number of deals ever, thus indicating greater confidence among occupiers to take up office space in the Hyderabad market. Also lack of vacant office stock and steady demand pushed the weighted average rentals to highest ever growth rate as rentals move up 14 percent y-o-y.

Coming to the office space, after witnessing its highest yearly transaction in 2016, Hyderabad saw a decline in H1 2017 owing to paucity of quality office supply. “Shrinking new completions have not kept pace with the demand for quality office space thereby pushing the overall vacancy level to around nine per cent, which is lower than the level witnessed in H2 2016.

The office space segment in Hyderabad suffered a drop of 44 per cent in new completion in H1 2017 in comparison to H1 2016. On the other side, realty transactions dip by 15 per cent on y-o-y basis. Shrinking new completions push vacancy levels to a new low” said Arthur.