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2009 Election / Telengana Impact on Real Estate. HYDERABAD,INDIA - APRIL 2009
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2009 Election, Telengana Impact on Real Estate, Land & Property Rates HYDERABAD, INDIA - April 2009

This article report looks at the Andhra Pradesh political theater and the possible impact of the Elections (April-May 2009) and Telengana Movement on Real Estate Market .........Exclusive Ventures -Apr 2009
1.0 The Big Messy Election

The elections this year is along drawn affair. After we vote on 16th April in Hyderabad, we have to wait a month, to know the result. The long election process impacts all development works. For the Govt. its is easy to hold the commission responsible and abdicate all works. So if there is intermittent powers cuts, bad roads and lack of drinking water…blame it on the Commission!

Hyderabad is sweating badly due to huge power shortage. Load shedding is the rule of the day (and night!). The new Govt. will have to bear the cross of the mess, on all fronts including power, water, funds for civic maintenance…… For the common man or a working professional, this lengthy election is nothing but a pain in the neck.

2.0 Actors

The good doctor seemed to be ahead of others with PRP splitting votes, during intial phase of the campaigning. He has wooed rural public with schemes like Arogyasri and Indiramma Housing. These schemes would help to swing votes. Its another matter that due to worsening treasury situation, hospitals are now turning away the poor, since crores seem to be pending to be paid to Hospitals, for the service given.

It would be a interesting if Naidu pulls ahead with his "Kutami Kichdi" of Parties including the CPM, TRS etc. Towards the end of the campaign, Naidu seem to have got stronger. He has created excitement in rural areas with DMK style offering of Free Color TVs and off course cash transfer scheme. The "cash transfer" offer may pull in voters and upset the Good Doctor. So will TDP return??

The biggest headache for Naidu is his old enemy and current Dost, the TRS Chief. TRS chief has forgotten or had no time, to make even a manifesto for his party! Instead of pushing the Telengana sentiment, he is now banking on Naidu's Free TV and cash scheme. Naidu is the most worried man in AP now! Worrying about TRS hijacking his "bright ideas" instead of campaigning hard for Telengana, during elections!

TRS is offering Naidus color TVs probably to let the poor watch TRS chief in future, when he actually starts fighting for Telengana. But after elections, if TDP wins, TRS will start bugging TDP. TDP is praying to get majority without TRS seats!

At the end of the day, PRP is expected to emerge only as a minor player.

3.0 Cash is King

Cash flows like the Ganga during Election time. The Election commission limits on expenses are not enough even for a day of "work" . Crores and crores are spent for electioneering, booze and parties. Candidates pay multiple crores to get a seat. In fact even a small realtor who was fielded by TRS for Secunderabad started crying about the 10 crore that he paid to get ticket, while he was being beaten up by party men who could not bag ticket, in the TRS Office premises.

Just think of the money that would have been paid by all MLA and MP Candidates of three major parties? (336 x 3 x average 10 crore = whopping Rs.10,000 Crore!). This is apart from crores to be spent by candidates as election expenses.

For party founders and top leaders, election is big time to make money. The black will get converted to white slowly and in a few years, they will become big industrialists running news papers and TV channels, for fun!

4.0 Will Telengana Happen ?

Note: This Artcile was written before the elections. On 17th, Congress has suddenly dumped Telengana (the moment polling in Telengana Region was over). View News -YSR on Telengana

All political parties are for Telengana for the sake of votes and with no one to oppose, even people in Telengana have lost interest!! The problem is with the fact that unless there is opposition how do you play ball? Just think of only one team playing cricket for days together! Where is the excitement?

With no one opposing, Telengana is no more a charismatic subject that can sway people. After elections, whoever wins will SURELY soft peddle the issue. When they soft peddle, the opposition will wake up and start fighting and suddenly people will find excitement and the fire-works will start!! So we have to wait and see how things will evolve.

In fact, considering the current cold vibes from people in Telengana, split may not happen quickly. Afterall, political parties need not thrust state division on people, if people are not too keen!!

Even if a decision is taken to split, its going to take a year or two at least, for the state to be actually split.

5.0 The Worry Factor for Real Estate

To know whether and when split will happen, we have to wait for elections to be over and the winner to come out with its stand. TDP and Congress as we mentioned before, are likley to soft peddle the issue, notwithstanding election promises. There will not be any quick, planned execution at all.

The long period of uncertainty and then the routine process of splitting (if it comes to that) will definitely take away, public interest in buying properties for investment. The lingering thought will be about the possible impact on Hyderabad with Govt employees, contractors, business men who take Govt works likely to leave the state for the new. Also, a new state capital will give better speculative investment opportunity and hence lot of private black money funds which otherwise would have been used to buy properties in Hyderabad, will move out to the new capital.

If the whole thing is done quickly and precisely, at least there would not be uncertainty for long. In such case, whatever price fall has to happen due to outward flow of funds will happen and then things will settle down. BUT in practice, this will not happen swiftly at all. Hence we may see a long period of subdued action on Real Estate front.

6.0 Impact on Constructed Area Rates

The impact is likely to be felt first on land, rather than constructed area. The fall in land rate then would have impact on constructed area . But this impact will not be large since the apartment and commercial property rates have already fallen by large extent. All new high-end projects are at least Rs.1000/sft cheaper now, compared to earlier ones. The mid market rates also have fallen by Rs.500 to Rs.800/sft. The rates of new projects do not have filthy profit margin anymore and hence apartment rates may not fall much.

We also need to look at the fact that new project launches have dried up. Whatever projects that were launched in last 6 months are all duds except may be one or two. In effect, we are not going to see any further addition of inventory for a long time. This supply/demand balancing will also stabilize and hold price, even with Telengana split.

7.0 Impact on Land Rates

The apartments were bought mostly by working professionals not having much connection to the Govt and its chain of contractors and businessmen. Hence Telengana division will not see any significant sell out by owners. However, traditionally, land has been bought by people connected with Govt, political class, beaurocrats, contractors, cronies and all those who made black using Govt channels

And there is a huge chunk of investors in India and abroad who will always be looking for better return on investment. Is it better to hold Rs.50K per sqd, plot in Jubilee Hills or sell it and buy several acres beside the new Capital? Simple arithmetic will drives investors.

They have no sentiments or attachment to the current investment. Hence we expect sale of land to occur which could result in reduction of price of prime plots as well as plots and land around Hyderabad. If we look at the impact logically, its obvious that Villa prices should get negatively impacted since land cost is a large percentage of Villa price, unlike that of an Apartment.

8.0 So what is the advice, considering possible split of the state?

To be frank, there is no need to advice anyone to buy or sell! The soul of the market and its fine movements are actually judged by the public.

Last 2 years and more has shown how intelligent people have been! Even 8 Months before Lehman collapsed, people had stopped buying , except for urgent genuine reasons. The market mood is felt by all, as sensed by the combined intelligence of people and action is taken accordingly, by everyone. Obviously, we can not predict. The situation just evolves. So wait and watch for the mood and act accordingly!


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