Chandrababu Naidu returns, so does Amaravati: What changes for Hyderabad's real estate market?

On Tuesday, just hours before Chandrababu Naidu was sworn in as the chief minister of Andhra Pradesh, he announced Amaravati as the sole capital of the state, ending Jagan Mohan Reddy’s three-capital plan. "In our government, there will be no games under the guise of three capitals. Our capital is Amaravati. Amaravati is the capital," Naidu said, setting the stage for a new chapter in Andhra Pradesh's development.

The political shift in Andhra Pradesh may lead to a moderation of real estate growth in Hyderabad, a report released by ANAROCK said. 

Land prices in Hyderabad had appreciated by over 30% in the last 3 years. This had influenced prices rises across asset classes in the city.

The expected development along new growth corridors in Andhra Pradesh could present a double-edged sword for Hyderabad's real estate sector, ANAROCK said. While some out-migration of businesses or residents to Andhra Pradesh is possible, the overall impact is likely to be positive. 

Andhra Pradesh's growth could create a ripple effect, attracting businesses and investors to the entire region.

This development could lead to increased demand for office and commercial space in Hyderabad, especially along key corridors like the Hyderabad-Vijayawada highway, already being primed for development with infrastructure projects and industrial parks. This area stands out as a potential growth engine for Hyderabad's real estate market.

Despite the promising outlook, challenges remain. Andhra Pradesh might offer lucrative incentives, drawing some investments away from Hyderabad, leading to a temporary correction in real estate prices and a potential dip in the commercial market. However, Hyderabad's well-developed infrastructure, strong IT base, and cosmopolitan character could make it difficult for companies to shift entirely in the short term, Anarock said. 

According to Anarock, Hyderabad's residential market has shown robust growth between 2021 and Q1 2024, with around 218,800 new residential units launched and 154,300 units sold. The year 2023 saw a peak in activity, with nearly 76,300 units launched and 61,700 units sold, representing significant increases compared to 2021.

Prashant Thakur, Regional Director & Head of Research at Anarock Group, noted substantial property value appreciation in Hyderabad between 2021 and Q1 2024. On average, prices rose by 45%, reaching INR 6,350/sqft in Q1 2024, with West Hyderabad experiencing even stronger growth. 

"Average residential capital values in this region have increased by 52% in the same period. Currently, the average price per square foot stands at INR 7,200," Thakur said. The significant appreciation in land prices has been a major factor in these hikes.

The Amaravati factor

Amaravati, spread over 217 sq km, was Naidu’s ambitious project that began in 2015, shortly after he became chief minister following the state's bifurcation. However, the project stalled in 2019 when Jagan Mohan Reddy's government introduced the three-capital plan. TDP's return has put the spotlight back on Amaravati as realtors and entrepreneurs rush to secure their investments. 

G Ram Reddy, national secretary of Credai, said in a TOI report that the shift in investor sentiment towards Amaravati might temporarily impact Hyderabad’s property prices. Sreekanth Reddy, managing director at Cushman & Wakefield-Hyderabad, however, had a different view. He said while investments may be split between Hyderabad and AP, Hyderabad's growth does not rely on local investors. It was explained that Hyderabad has its own strengths, and Amaravati cannot survive on speculation alone without major industries and an employee base. He termed it as a 15-20-year game in the report.