A Revanth Reddy has stirred controversy by claiming that the Hyderabad Disaster Response and Asset Protection Agency or HYDRAA, which is tasked with taking down unauthorised structures, drew its name from German dictator Adolf Hitler’s “fondness for the word Hydra”. However, it’s another recent action by his administration that will have a far more consequential impact on the state’s real estate sector.
Last week, the Telangana government raised land rates across the state based on geographical demand, among other things. It undertook the revision, last done in 2021-22, based on a report by economist Arvind Subramanian. This time, the government shook up the basic minimum construction values for reinforced cement concrete and non-RCC structures. As a result, the government expects to gain at least ₹1,400 crore in annual revenues as housing becomes costlier. Critics say that the decision at this juncture, when the sector is facing headwinds, is mistimed as even the existing inventory of built houses might take a couple of years to be sold and raw material costs are set to rise. It is a sound argument, but does not take into account the ground reality.
The state’s real estate sector has been facing a growing dichotomy, particularly in the capital Hyderabad. On the city’s west, premium high-rises and villas dominate the landscape, while the other sides present a much more modest reality. This split picture represents a divide in which the middle class is unable to buy housing within the city limits. The focus on expensive buildings has driven up land costs as the sector has been viewed as a cash cow by builders and successive governments. The result is that even in the capital’s west, the unsold inventory could be worth as much as ₹1 lakh crore. It’s in this backdrop that the government’s revaluation is seen as a setback.
At the same time, the gap between the market and government rates was so wide that a revision was long overdue. Though lower registration fees mean savings for the buyer, it also represents the breach in which black money proliferates. So, apart from fund mobilisation, this is also an exercise in squeezing out dirty money. But in the middle, the fundamental question of affordable housing is yet to be addressed. If the government does not take further steps to address the speculative bubble that has built up, it will likely burst one day soon.