Real estate value increased ten fold in Hyderabad and around. For the record , I bought some land in 2005 which trippled in three years. The demand primarily is driven by Software Engineers and Hitech workers. My good friend who is in the business argued that he is getting good business from non NRI , non Hitech workers. I agreed with him, but the percentage of non NRI non HITECH people who needs a FLAT or PLOT are small compared to Hitech and NRI's.

Before I jump to conclusion on the demand subject, let me do some math for you. For the last 12 years there is a huge influx of immgrants to USA. INS numbers show that about 1 million of the H1 Visas ( combined with L1's) are issued during this period. This is a fact. Now lets add an assumption to this fact, about 50% of these H1 guys are from AP or Hyderabad, which would bring the number of immigrants from AP to 5 Lakhs. This is the first group that created demand. The second group is Hitech workers ( IT, BPO, Call center, Medical transcription ..... so on). This group is another 5 Lakh strong. Combine the employement numbers of  ICICI, Reliance, Satyam, Wipro, TCS, IBM, Infosys, Infotech , Accenture, CMS, ...... Mom and Pop IT :-)......  you will get an idea that about 5 Lakh people are now gainfully employed in the great Hyderabad City.

Now thats about 1 million potential buyers of FLATs and PLOTS.

The root cause for the deamand is this combined group of NRI's and Hitech workers. The local businessmen ( Marwari;s , Politicians, Actors......, ) joined this crowd and were responsible for the price increase.

Now that we know the root cause for the real estate demand, lets examine if its sustainable. My belief is that it will adjust ( I will not use the word collapse) and loose about 20%- 40% of its value. The reasons are clear

• Hyderabad is not a city where you get quality of life. The traffic is a killer.The smoke can cause some dangerous diseases.
• None of the real estate guys give you a scientific picture of Ground water in the City. They just say they got plenty of water in Hyderabad. If you don't believe me wake up at 4:00 A.M and watch all the water tankers running around the city.
• Salaries for the Hitech employees cannot keep up with the cost of living in the City. And its only matter of time the Hitech companies start layoffs.
• Many Hitech workers are shelling their life earnings into buying real estate. They cannot repay loans if they are hit with a recession in Hitech industry. The banks will loose heavy money if there is an economic slowdown.
• Many real estate guys sell one property and buy another one. They never keep the CASH on hand. They keep on buying with the profit they make from selling. This is a cycle. At the end of it some of these folks end up having acres of land. They feel good about the percieved value of it ( not the word perceived ). To me thats paper money. Its almost like stocks. The fundamental difference is , stock value can become zero, but real estate will hold some value. So if you are one of the guys who invested in real estate , think carefully on how you get the CASH back when you need it. You are going to sell some property incase you need hard cash for your daughter's M.B.B.S or your son's BTech. If you are in a bad market and paid a high price for your property , then its very difficult for you to get your perceived money back.
• Many of the real estate businessmen and buyers are not looking at long term picture. Its always short term thinking and short term goals. This issue is common in many areas in the new India. No one talks about how far Hyderabad or Bangalore can grow? What are the advantages that Hyderabad has over say Ongole ? Why can't a software company operate in Ongole rather than Hyderabad ? No one worries about such long term plans for the booming industries. My bet is that small towns and district centers will grow lot faster that Hyderabad in the coming decade.

Having said that , the real estate market will not collapse in Hyderaabad, it will have a soft landing. And people who joined the real estate business prior to 2005 will make money. The last guys who paid exurbent prices will get hit with the price adjustment.