CM Jagan Mohan Reddy and the real estate crash in some parts of Andhra Pradesh.
Snapshot
  • Then CM Chandrababu Naidu announced building a new capital, Amaravati, for Andhra Pradesh. This resulted in a real estate boom that lasted till May 2019.

    But now, a change of government has turned the tide.

K Sreenivasulu of Palasamudram village in Andhra Pradesh’s Chittoor district planned to sell 12 acres of his land earlier this year. He had made plans to sell his land following a boom in real estate prices in Andhra Pradesh since 2014.

But Sreenivasulu withdrew his decision as prices dropped drastically compared to 2018 and before, according to a Deccan Chronicle report.

This fall of prices in Andhra Pradesh’s real estate sector has received very little national attention.

The fall in real estate prices may not be uniform, though. While real estate prices in regions such as Guntur, Amaravati, Visakhapatnam have crashed, the rates in places surrounding Sri City, some 100 km from Chennai, stand firm.

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“An acre of land in our area is selling upwards of Rs 4 crore. Prices are slightly higher than last year,” says a person at a village in Nellore district, some 50 km from Sri City.

One reason for land prices to rule firm near Sri City is because it has become fully commercialised with many global companies such as Cadbury, Colgate, Kellogs, Pepsico, Alstom and Isuzu operating there.

“It has totally become a commercial area,” says A Siva Reddy, the Andhra Pradesh President of Confederation of Real Estate Developers’ Association of India (CREDAI).

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Real estate prices had ruled firm until May this year before witnessing a fall. For example, commercial plots at Uddandarayunipalem in Guntur district are currently quoting a little below Rs 25,000 for a square yard.

In comparison, the plots quoted at nearly Rs 36,000 in May this year. Similarly, prices for residential plots in Vijayawada in Krishna district have seen nearly a 70 per cent drop in some areas, though some urban areas like Benz Circle have witnessed a sharp rise in prices too.

Real estate prices in Andhra Pradesh boomed after N Chandrababu Naidu became the first chief minister of the state after the bifurcation. Naidu announced that a new capital Amaravati would come on the banks of river Krishna in Guntur district.

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But a change in government in May this year with Y S Jaganmohan Reddy taking over as the state Chief Minister has made things go awry. An announcement by Reddy that his government would investigate land scams in the proposed capital caused a dent in the prices.

A lurking fear was that the investigations would bring to light the benami owners of the land. There were also apprehensions that Reddy could shift the capital elsewhere for political and economic reasons.

A report by Deccan Chronicle on Monday (20 August) said that since the Andhra Pradesh Chief Minister is not divulging his plans for a new capital for the state, distress sale of lands is taking place in Amaravati.

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Andhra Pradesh requires over Rs 50,000 crore to construct a new capital city and a question mark hangs over how it will mop up funds for the purpose in the face of its mounting debts of over Rs 2.5 lakh crore.

Soon after Reddy was sworn-in, registration of properties came to an immediate halt and real estate prices dropped by 25 per cent. Currently, prices have dropped by over 70 per cent in the Amaravati region.

An acre of land that was selling at around Rs two crore in May is now being offered at around Rs 45 lakh in the Amaravati region.

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According to CREDAI’s Siva Reddy, there is a lull in real estate activities currently because the Reddy government is focussing on social welfare.

“In the last four-five months, the Andhra Pradesh government has been concentrating on the social welfare sector. As a result, the focus on industry, revenue generation and job creation has been lost,” he told Swarajya.

The Andhra Pradesh CREDAI chief expects the state government to focus on attracting investment, revenue generation and job creation in the next few months. “There are over 30 lakh people without jobs. In such a situation, realty sector cannot thrive,” he said.

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The problem for the state is that despite rolling out a red carpet to foreign investors during the previous regime, not much investments came in. Particularly, no new projects have been announced since 2018 leading to some sort of stagnancy in the state’s industrial development.

Even for the projects that have come up, the real estate prices had sky-rocketed for no apparent reason. For example, prices near Kia Motors production facility in Penukonda mandal of Anantapur district in Andhra Pradesh shot up initially.

The expectation was that Penukonda would become a thriving Korean satellite town of sorts, which has not happened. Also, officials of Kia Motors have opted to be based at Bangalore. Media reports say only those who sold their lands initially gained while the rest suffered.

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Prices shot up since the setting up of Kia Motors led to the expectations of more industries coming up around the area. This has, unfortunately, not materialised, though auxiliary units for Kia Motors have come up.

There are reports on how a couple of politicians acquired land from farmers and sold it to real estate companies to make a neat profit. These real estate companies, on the other hand, have been unable to make much progress and as a result are facing losses.

Currently, prices in those areas have dropped to around Rs 1,000 per sq ft. “The problem is Andhra Pradesh has only one metropolitan city — Visakhapatnam.

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“The state has to develop towns like Vijayawada, Nellore, Guntur, Anantapur and other such places into big cities,” says CREDAI’s Siva Reddy.

The real estate sector woes have been compounded by the state government’s decision to raise the guidance value of land by 10 per cent. This will likely affect the sector more as the fee for registration of land sale will see a corresponding increase.

The real estate sector is of the view that things could change for the better towards the end of the year as the Reddy government comes face to face with the real situation.

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