Andhra Pradesh’s three-capital plan could trigger 50% rise in realty prices

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January 22, 2020 7:40 AM

Industry experts say that besides the realty sector, the Chennai-Visakhapatnam industrial corridor will spur growth for other allied industries as well.

Visakhapatnam houses many public sector units like Vizag Steel, NTPC, Vizag Port Trust among others and a naval base as well.

Real estate players are expecting about 50% hike in rates both for office and residential segment in and around the executive capital city — Visakhapatnam.  The Andhra Pradesh Assembly on Monday passed the AP Decentralisation and Inclusive Development of all Regions Bill 2020, which provides creation of three capital cities to usher in decentralisation of development. The three capitals include Visakhapatnam as executive capital, Kurnool as judicial capital and Amaravati as the legislative capital.

Industry experts say that besides the realty sector, the Chennai-Visakhapatnam industrial corridor will spur growth for other allied industries as well.

“The capital talk of Visakhapatnam or steel city has seen increased activity in the realty and hospitality sector and prices have increased between 30% and 50% in the last two months across the city,” an official from Visakhapatnam Metropolitan Region Development Authority (VMRDA) which plays a crucial role in the city’s development, said.
“In a calculated risk, the Andhra Pradesh government decided on three places of governance. To start with, about 5,000 acre land is being surveyed by the state government for housing for the poor and 22 acre for an information technology city project.

“Registration rates have also increased in Vizag, especially near the beach area, which is unusual for a calm port city,” the official said.

Madhurawada and Rushikonda are witnessing faster escalation as compared to other neighbourhood. Visakhapatnam houses many public sector units like Vizag Steel, NTPC, Vizag Port Trust among others and a naval base as well.

“The move to decentralise Andhra Pradesh’s state capitals between Amaravati, Visakhapatnam and Kurnool comes with in-built advantages and disadvantages. On the positive side, it can ensure balanced regional development all across and benefit a larger section of people rather than just one city. Also, while it is a mammoth task with massive investment requirements to build a capital city from scratch, a city like Vizag is reasonably developed with adequate infrastructure for immediate use,’” says Anuj Puri, chairman, Anarock Property Consultants.

In this light, it is beneficial that the state will have Vizag as the executive capital. In terms of real estate, there will be development across all the three cities — unlike earlier, when the focus remained on just Amaravati. Back in 2015, when new infrastructure projects were announced at Amravati, the World Bank and Asian Infrastructure Investment Bank (AIIB) promised investments. Property values rose two-fold and investors increasingly looked at Andhra Pradesh with renewed interest. This dynamics could now be seen for all three cities. However, the change in guard of the state government in 2019 derailed the growth story with major investors backing out and also there was a visible slowdown due to tepid demand.

“On the flipside, such a massive political move could cause some negative perceptions and thus pose a challenge to attracting investments initially, as investors will be quite cautious. It is a given that in the transition from one government to another even the best-laid plans sometimes go awry. However, if such a massive plan goes wrong, there will be continued repercussions for quite some time until things shape up firmly on ground,” Puri added.
“Ever since there was news of decentralisation in the last two months, land rates have appreciated in Visakhapatnam by 25% for individual houses and bungalows which are competing with high rise apartments depending on the location,” a member of Confederation of Real Estate Developers Association of India (CREDAI) said.

However, state government employees, who were transferred from Telangana to Amaravati post the bifurcation, are unhappy and called this as ill-conceived decision.

“At a time when is there is huge financial crunch, the Secretariat is now moving away from Amaravati to Vizag. This will create huge pressure on logistics apart from resource crunch,” said a government official.

The state government has a huge revenue deficit and increasing unbudgeted expenditure. In the 2019-20 budget, the Jagan Mohan Reddy government estimated that the revenue deficit would be Rs 1,778.52 crore and the fiscal deficit Rs 35,260.58 crore.

“As per the Bifurcation Act, despite having Hyderabad as the common capital city for 10 years, we lost it for the mistakes of Naidu,” chief minister Jagan Mohan Reddy said.

He said the 1937 Sribagh Pact had clearly discussed where to place capital, High Court and accordingly, Kurnool was declared as the capital city in 1953 and was remained as capital till 1956. Similarly, in 2014, Justice Srikrishna Committee studied various aspects of the Human Development Index and recommended that the decentralisation of development is needed.

The committee further stated that development in one place is leading to inequalities and emerging of backward regions and clearly opposed the construction of super capital in Amaravati region and suggested to decentralise all the departments and extend the governance to all 13 districts.

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