Hyderabad Metro - Impact on property prices

Real Estate values have a positive impact on micro markets through which Metro routes pass. An analysis by Centre for Environment and Technology (CEPT) on the impact of Delhi Metro on real estate in three phases i.e., pre-construction phase, under-construction phase and post-construction phase has found that property prices jumped significantly after the Metro began its operations. The study has established that property prices around stations that are at the peripheries of the city have considerably closed the gap with those at city centre. Further, the prices are highest within 500 metres of Metro routes.

Currently, the impact of Hyderabad Metro on Hyderabad Real Estate market (which is still in the bidding stage) is insignificant. With the new metro developer likely to be identified in the last quarter of FY 2010 i.e., by March 2010, real estate prices along the metro routes may inch up in the next one year or so on account of Hyderabad Metro.

However, the impact of Outer Ring Road (after the implementation of its first phase) has been significant on Hyderabad Real Estate Market (land rates) along the alignment and the route of Outer Ring Route. In certain areas, Land rates have more than doubled and in some cases jumped by more than six times in a time-frame of 2003-2009.

Asset bubbles - Indian Real Estate Market

In a rational market, real estate rates could be linked to buying power of users and the investor interest. However in today's time, markets are exhibiting irrationality and are becoming very difficult to predict.

Capital flows into the emerging markets have been phenomenal. In the last six months over US $ 16 billion has flown into Indian stock markets. Further, there is talk that US $ 4 billion has flown into the real estate market. I believe that these heavy capital flows could destabilize the Indian market by creating asset bubbles across asset classes including real estate .

My concern is that this is not foreign direct investment, but money flowing because of a carry trade i.e., money being borrowed at a very low rate in the west and then being invested in the developing markets such as India. While markets growing at a moderate rate is good, but what we are witness to is irrational exuberance - beyond normal in the Indian stock markets and that will lead to a bubble. With an ear on the ground, builders locally have already started increasing prices, ahead of pick up in demand and in spite of steep reduction in input prices. I do wish that investors/builders will be more cautious and the asset bubbles will not touch the Indian property market this time around.