With weeks of agitation continuing across Andhra Pradesh over the issue of statehood for Telangana, transactions in the real-estate sector have nearly come to a standstill in Hyderabad and other major towns, with buyers opting to wait and watch.After a gloomy recession-hit beginning to 2009 and major price correction, the sector had begun to gradually show signs of recovery in the last few months. However, the continued uncertainty over the statehood issue has set the clock back, according to representatives from the realty sector.The President of AP Builders Forum, Mr C. Shekhar Reddy, said the sector has taken twin blows in the form of economic recession and also drop in prices due to slackening demand. “The prices of residential properties have dropped by about 30 per cent in the last 12 months. The flexibility to go down any further has gone,” Mr Reddy said.The Managing Director of Koncept Ambience, Mr M.P. Agrawall, said: “While realtors are concerned about the ongoing agitation as transactions have come to a halt, genuine buyers are keen They expect some more downslide before buying.”The notion that there is more supply than demand is incorrect, he said. The economic downturn and lack of buyer interest in the first half has deterred many developers from venturing into new projects.The available supply will take care of the demand over the next six months, and “suddenly we will realise that there is need for more projects particularly in the affordable segment, which is in short supply,” Mr Reddy said.The Chairman of Confederation of Indian Industry, AP region, Mr Y. Harish Chandra Prasad, said: “The agitation is bad for the infrastructure sector and real estate players. It sends wrong signals to investors. We hope the issue settles down soon and the uncertainty is put behind, helping resume normal business. The offtake of commercial property too could be hit as companies and establishments adopt a cautious wait-and-watch approach.”

Speculative buying

The Chief Executive Officer of Lanco Hills, part of the Lanco Group, Mr S. Pochendar, said that speculative buying was missing in the market in the last six months. This augured well for the sector as the slowdown, coupled with demand-driven pricing, has helped stabilise prices.“Before the build-up to the current agitation, market was already subdued and bottomed out at every nook and corner of the twin cities. The number of takers too had come down. The speculative investment was totally out. The prices too had reached their lowest levels in the last four years. I don't see any more surprises in the sector,” Mr Agrawall said.Since the recent agitation, genuine buyers hope to see some more downslide, which is unlikely. There is also no likelihood of flight of investors, as some speculate. Investors invest wherever there is opportunity, not just in Hyderabad, but other States and in some overseas markets, Mr Agrawall said.However, some players said prices will go up in Vijayawada and Visakhapatnam as some of the speculative investors could prefer these growing cities to Hyderabad in the near term.Mr Shekhar Reddy, however, believes this is not true. From the interaction he has had with some of the project developers, they see this as a passing phase of their business cycle and are okay waiting for this phase out. “Even assuming that a separate state is formed, how will this change their existing business plans?” he asked. “Due to slowdown, with scores of real-estate developers delaying taking up new projects and concentrating on completing the ongoing ones, in the next six to 12 months we will suddenly face a situation where we will have increased demand and shortage of supply. This could potentially push up prices faster than we anticipate,” Mr Agrawall argued.Mr Prasad said the ongoing impasse could also affect the prospects of some of the major infrastructure projects such as the Hyderabad metro rail and foreign direct investment. Banks and financial institutions base their project estimation on the business prospects and valuation of real-estate. And if this comes down, they could be wary of funding new projects.

Impact on infra projects

Asked if some of the projects are in trouble due to liquidity crunch, Mr Shekhar Reddy said the situation is no different from the one about 12 months ago. In fact, several private equity players have set up their teams to look at potential buyout candidates or investment opportunities.“The agitation has had a negative impact on the sector. However, we are looking at the next year with much optimism and hope that the current stalemate is resolved. Once that happens, all those who are keen to own a property will be back hunting for properties,” Mr Pochendar said.For the real estate developers, reality has sunk in. From a stage a couple of years ago, where on the day of Bhoomi Puja most apartments would see buyer interest, realtors are now faced with the challenge of convincing potential buyers who prefer to wait and watch. This happens when it is a buyer's market, Mr Reddy said.