Rate Hike: Addressing Real Estate Discrepancies in Telangana
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 unauthorized 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 factors. This revision, last conducted in 2021-22, was based on a report by economist Arvind Subramanian. The government adjusted the basic minimum construction values for reinforced cement concrete (RCC) and non-RCC structures. As a result, the government expects to gain at least ₹1,400 crore in annual revenues, making housing costlier. Critics argue that the decision is mistimed, especially when the sector is facing headwinds, with existing inventory of built houses potentially taking a couple of years to sell and raw material costs on the rise.
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 other areas present a more modest reality. This split picture represents a divide where the middle class is unable to afford 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. Consequently, even in the capital’s west, the unsold inventory could be worth as much as ₹1 lakh crore. In this context, the government’s revaluation is seen as a setback.
However, the gap between the market and government rates was so wide that a revision was long overdue. While lower registration fees mean savings for buyers, they also represent a breach where black money proliferates. Therefore, apart from fund mobilization, this exercise aims to curb the flow of dirty money. Despite this, the fundamental question of affordable housing remains unaddressed. If the government does not take further steps to address the speculative bubble that has built up, it may burst one day soon.
The government’s decision to hike land rates is a double-edged sword. On one hand, it helps in curbing speculative practices and mobilizing funds. On the other hand, it exacerbates the affordability crisis, making it even harder for the middle class to find affordable housing. The real estate sector in Hyderabad is at a critical juncture, and the government must balance the need for revenue with the imperative of ensuring housing for all. Only a comprehensive approach that includes measures to promote affordable housing can truly address the challenges faced by the sector.
