Return on investment in real estate -  2022 witnessed increase of 6 percent in average property prices

The year 2022 saw a 6 percent yearly increase in average property prices from Rs 5,826 per sq. ft. in 2021 that went up to Rs 6,150 per sq. ft. in 2022. The southern cities of Bengaluru and Hyderabad witnessed the maximum 5-yearly increase of 10 percent in average property prices in the last five years, an analysis by Anarock Research said.

The major cities included in the analysis were NCR, Kolkata, MMR, Pune, Hyderabad, Chennai and Bengaluru.

The Reserve Bank of India will likely take a pause after a spate of interest rate hikes, so growth momentum will continue. The year 2023 will continue to be driven by end-user demand, but serious long-term investors will find the market dynamics more than favourable. Property prices are likely to rise by another 5-8 percent in the larger cities – this bodes well for investors focused on capital appreciation, but also means that rental demand will increase, it said.

The current average prices in the top 7 cities are collectively approximately Rs 6,150 per sq. ft which indicates that there has been an increase of over 11 percent since the last five years from Rs 5,551 per sq. ft. in 2018 to approximately. Rs 6,150 per sq. ft. in 2022, it said.

The year 2022 saw the maximum yearly rise (6%) in average property prices which were at Rs 5,826 per sq. ft. in 2021 and increased to Rs 6,150 per sq. ft. in 2022. The previous four years, on the other hand, saw either no change or a maximum of 3-4 percent y-o-y increase in 2021 against 2020. Before the Covid-19 pandemic, property prices across cities remained range-bound due to a prolonged demand slowdown, it showed.

Among the cities, Bengaluru and Hyderabad have seen maximum 5-yearly increase of 10 percent in average property prices in last five years. Average property prices in Bengaluru stood at Rs 4,894 per sq. ft. in 2018 and went up to Rs 5,570 per sq. ft. in 2022. As for Hyderabad, average prices in 2018 in the city stood at Rs 4,128 per sq. ft. and had risen to Rs 4,620 per sq. ft. in 2022.

Bengaluru commands the highest rental yield of 3.9 percent among all major cities

Rental yield saw a decline across most cities in 2020 when compared to 2019 – a natural fallout of the pandemic and its work-from-home and e-schooling ethos. 2021 saw some improvement, with rental yields rising across cities and nearing 2019 levels.

However, 2022 saw a decent rise in rental yields, which breached pre-Covid levels of 2019 across all the top 7 cities. This was largely due to a sudden spurt in rental demand with offices and schools reopening.

The current rental demand will remain strong in all cities as urban work opportunities rise and more people migrate to cities, the analysis said.

ANAROCK Research indicates that Bengaluru has the highest rental yield of 3.9 percent among all major cities, followed by Mumbai with 3.8 percent.

As for the real estate outlook in 2023,  under-researched investments and a short-term profit perspective must be avoided in 2023, said Prashant Thakur, senior director and head – Research, ANAROCK Group

All the factors that drove up capital appreciation and rental yields are firmly in place, and the profitability potential for both investment rationales remains promising. That said, 2023 will face some headwinds in terms of economic slowdown and inflationary pressure, and this needs to be factored into any investment decision – including for real estate, he said.