Hyderabad Real Estate

Looking at the current valuations in Hyderabad, it is difficult to distinguish between value of Land and Gold. This is a land rush - like Gold rush that we had seen else where. There is lot of hype. It is not hard to understand (for those with sound judgement) that romours are feeding the valuations - if not anything.

I took pains to go round some of the Gold areas in Hyderabad recently. At some point near Manikonda, where I can only see typical Hyderabad area rocks for miles head on, the land is looking more expensive than many parts in Europe or in US. Some one told me that they had invested 4 lakhs in 2005 for 500 Sq Yards and today the land is worth 1 Cr. That is a staggering return - not even Warren Buffet could produce in his life time. That is a straggering return even Dhirubhai Ambani failed to produce during his life time.

1 Cr = 10,000,000. Ten million rupees is a very big money. Even taking US $ = 45, this translates to $250,000. Forgetting the cost / value for a moment, how many years it would take some one to save this many dollars even working at 100k salary! Now, we are not talking about NY or LA, but Hyderabad. Even assuming that BIG and black money is running, I think there are very few capable buyers at this level.

The names BPO, IT or NRI always pops up, when asked who is driving these valuations. Even though peak salaries are at 60 million - 100million range, average salaries in these industries are with in 1 million - all these in rupees. Thus it is herculian task for someone to buy a piece of land filled with rocks some 25 kms from downtown Hyderabad at 1 cr.

This brings us to the question of who is buyers and who is seller. The sellers in 90% cases are the realtors. The buyers are common man with dreams. I asked couple of people, who told that their lands are worth 4 cr - did you ever try to sell them? Yes, you valuation is realitic only if you can realise the cash into your pocket. Else, it is a notional value. So far, I never come across an individual who told me that he sold the land and cashed in. That means, everyone is sitting on the fence, dreaming on the feeds given by Realtors.

Bubble: There are many indicators that bubble may burst or ease out. Everyday in The Hindu or other papers we see, a number of land / flat possession advertisements. All these holders are defaulters and they are not paying their loan or mortgage amount. It is not a single or one off advt. There are couple each day. So, what is happening here? Why we are seeing defaulters? Did they over bought their lands / flats?

Secondly, Indian economy is over heated. Today, all economic indicators like CPI, Inflation, Interest rates are on up swing. This is a clear indication that economy is due for a soft landing or to recession.

If there is genuine demand, why all these Realtors are putting up big advertisements? In a seller market, such advertisements and melas are not required. This is another pointer that the market is not in the same state as it said.

Finally, Outer! Why people are crazy about outer valuations. London got a outer ring and many people prefer to live on the edge because it gives best of rural environment and easy commute to city. For a small size country like England Outer is a good propostion because all roads lead to London and valuations make sense. But, for a big city like Hyderabad, Outer logic is not going to work as far a valuations are concerned. The politicians have made money long before public could think off. Does any one like to live next an airport - where flights take off and land 24/7? The noise pollution and risks are too high to justify the valuations on the airport reason.

In all, it is a good time exit and put the cash in a FD where yields are decent 9%-10%.

After all there is small line between ambition and greed. One should know that thin line of seperation!