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Does infrastructure development actually benefit the real estate market?

August 19, 2014
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At every real estate conference, that we have attended, experts suggest that most Indian cities lack basic city infrastructure, which hampers their respective real estate market / growth / prices etc. Experts also share that once a city improves its infrastructure then the real estate prices will start regularly moving northwards. Atleast in conferences held in our city, Hyderabad is always showcased as a city with the best infrastructure in comparison to all other Indian cities. The only thing one fails to understand is that in case Hyderabad has the best city infrastructure in the whole country then why is it at the bottom in terms of property prices.

This unique situation is a huge paradox and needs to be understood. The first thought that comes to mind about cities that are priced higher that Hyderabad, is that good infrastructure seems to have been monopolized. It seems as though only certain parts of that city are the focus of all good infrastructure initiatives in terms roads, power, water, connectivity, drainage, cleanliness etc.

Cities likes Delhi, Mumbai, Chennai etc. seem to fall in this category where proactive development of infrastructure is restricted to certain areas of the respective city. Invariably these restricted areas are the prime or elite areas of these cities. In Delhi for e.g. the Lutyens' side of the city has always been a power cut free zone. Even today the city's metro is designed in such a way that the construction in elite areas is underground. The differences in Delhi's infra used to be so stark that I am reminded of a heading in Hindustan Times some years back, which read "Our Delhi and their New Delhi". The price difference today between the elite and other areas of Delhi are a testimony to this monopolized development over the years.

In Hyderabad one big piece of infrastructure is the Outer Ring Road (ORR), which encircles the entire the city. This is the pinnacle of the city's infra story. What has the ORR actually achieved till now, apart from being a good bypass for inter city traffic and easy transit for suburban intra city traffic. The ORR has ensured that all property abutting its approx. 160 km radius became prime property. Before the ORR was operational, prime property was restricted only to the main roads of the core city area. The ORR has made innumerable number of landlord's owners of prime property across the city, some of them practically overnight. Every project today in any side of the city highlights their distance or access to the ORR. Prices along this road range from a few lacs to a few single digit crores to double digit crores, per acre, as we move from east to west.

Is it possible that such democratization of development along the ORR has held back the growth of prices within the core city? It is a fact that the recession and subsequent political situation were major reasons for holding back prices since 2009. The ORR has been in the making since 2005-06 onwards and probably the first section opened somewhere in 2008. The market has been talking about the ORR for more than a decade now. Land acquisitions & projects have been planned across the length and breath of our city considering the ORR. Some of these projects / plans have been successful while some others have been a failure. Over supply of prime land could be the main reason for prices being held back in the core city. Prices in the suburbs have remained in check over the past few years. Excess available land in the suburbs keeps adding more projects to the overall supply. Resultantly the overall real estate prices in the city remain under check / held back.

Does infrastructure need to be planned in stages / phases / mild doses so that the real estate market is able to absorb the opportunity and plan for the next round. May be from a real estate market prices standpoint a more measured or controlled or monopolized approach to providing infrastructure might be desirable. From an overall city planning perspective this measured or controlled plan may not work. Even though the above reasoning about ORR seems logical but it still does not convince me that markets remain subdued just because the ORR increased availability of prime land manifold. After all just having land does not ensure projects will get automatically developed.

It brings me back to the question of what constitutes city's infrastructure. At a macro level this would include power, water, roads, connectivity in terms of airport / roads, drainage, cleanliness etc. On the first two points i.e. power and water, Hyderabad's condition is quite bad. This city has been transformed from a power surplus city in the pre-2006 era, to today's situation of multiple hours of power cuts. The water situation has also turned from bad to worse over the past few years. This is the end result of lack of planning and vision for this city over the past few years.

On the roads front, the ORR is a great addition but how many city residents actually use it. Population on the western side of the city uses the ORR regularly. It has been made conveniently for them to access the airport. For all other sides, access to the ORR is a pain. We do not see city residents using the ORR regularly. For e.g. people staying in Secunderabad, Uppal, L.B. Nagar, Dilsukh Nagar, Begumpet, Kompally etc. have no use of the ORR.

The ORR has connected a lot of suburbs where the density of population is still less. Generally visitors are happy to see the city's ORR access from the airport to Hitec city, and maybe they feel this is how the whole city has been planned. Once you exit the ORR and enter Hitec city or get off the expressway at Mehndipatnam, the city's snails pace traffic hits you. The city's road infra is not great at all. The situation today is so bad that we have traffic jams in our city during midnights. During the daytime it is impossible to get from one side to another side of the city even in an hour.

Atleast for the past one year, one feels like living in 'Potholeabad' and definitely not the Hyderabad that we remember. In the past one-year period potholes have not been repaired and more holes have been created on some pretext or other. All roads whether it is in Hitec, S. P. Road, Banjara Hills Road No. 12, Jubilee Hills Road No. 36, Secunderabad etc. look the same and are littered with potholes. Add to this the metro construction and our road experience has turned from worse to horrible. Hyderabad has a great airport, which is probably being used by a small number of its population. I hope the same could have been said about its railway stations. The city's planning on this front also is not great. Railway stations connectivity is bad for residents of West Hyderabad. For residents of East / North a drive to the airport is close to 100 kms both sides.

The city's drains & cleanliness leaves a lot to be desired for. Some portions of the city are still relying on infra created in the pre-independence era. Even the newer developed parts like Hitec have no proper drainage system. I was part of the team that worked on Hyderabad's Information Technology & Investment Region (ITIR) project proposal report. The team was a great advocate of including Hitec as part of ITIR since a lot is still lacking in terms of developing roads, power and allied infra in that side of the city. We were surprised when a senior government official agreed that Hitec lacked proper drainage systems and he feared that someday all the muck might land up in the Durgam Cheruvu.

Overall the city infra has flashes of brilliance in terms of the ORR & airport otherwise it is bad. For majority of the city's population, bad infrastructure is the reality of today's situation. This bad infra seems to the main cause for pulling the city's property prices down and continues to be a drag.

What the city needs is a better & quicker actionable plan for improving its basic city infrastructure. Roads, power, water, drains, cleanliness are basic pillars of this plan. Without these challenges being effectively and permanently resolved we cannot say our city has good infra. Even the future infra projects like the metro should be planned for a larger coverage. The current corridor coverage of just 3 lines is highly insufficient for a city our size. The metro project is worthwhile only if every city resident has access to a metro station in a radius of a few kms from their residence.

Infra project planning, in our city, should stop being more marketing focused in terms of creating infra for visitors and concentrate on developing far reaching and need based infra for its residents.

Some immediate things to be done could be as follows:

  • Providing regular power and water to city residents
  • Develop 100+ flyovers & underpasses across the city to ease traffic flow.
  • Make the Inner Ring Road (IRR) and some other key roads completely free of traffic lights. Unnecessary road divisions / openings to be closed. Focus should be that long distance traffic uses the main roads and inter / intra colony traffic should avoid using the main roads and stick to proper internal roads / lanes.
  • All city roads should be planned as 6 lanes only i.e. 3 lanes on each side with a proper road divider in place.
  • Proper pedestrian pathways should be created specially in the prominent retail areas. Along all roads importance to pedestrian pathways is most important. A lot of foot-over-bridges for pedestrians is also required. In cities in USA, one aspect that impresses is that road planning is done keeping in mind first the pedestrians, then two-wheelers (if any) and finally four-wheelers. In our country / city road planning is the exact opposite which should be reversed.
  • Develop railway station hubs in such a manner that each side of the city has a hub and caters specifically to certain side of the country.
  • Modern buses to be introduced to the city with better frequency.
  • Plan ample parking slots across all roads, complexes and projects.
  • Ensure development across all sides of the city and not just make the western side of the city the sole focus

The new government seems keen to plan Hyderabad to handle a population of 30 million residents. Hope this plan would include stemming the current rot in the city's infra and developing on a better platform to make this city into a world-class city. Once we rectify previous gaps in infra development then only better infra can be planned or made. A great city with constantly improving city infrastructure is the only requirement for real estate market to improve and keeping growing.