India’s real estate market has grown phenomenally in recent decades, and this has gone hand-in-hand with the economic growth of India as a whole. In this growth, there are a few cities that have taken the prime spot and their real-estate has become a key sector for investment and development.
Prime Cities in India
The Knight Frank India Prime City Index is an important report that tracks the growth of these cities and compare the across the dimensions of socio-economic characteristics, real estate market, physical infrastructure, and governance.
Best Cities for Real Estate
According to the Index, Hyderabad emerged as the top city due to its fast-paced growth in various economic activities and strong real estate market and socio-economic environment.
Second on this list is Bengaluru, which displays a robust socio-economic performance and strong real estate market. The city remains a favorite for commercial establishments and start-ups. The financial capital, Mumbai-MMR is third on the list and showed consistent performance on all reports. On the other hand, the national capital Delhi NCR showed slow socio-economic factors and real estate market performance, but strong physical infrastructure and governance. Ahmedabad and Chennai respectively rank 5th and 6th as they show slow performance on all parameters.
Real Estate Parameters
Residential Price Appreciation
Residential prices are a key parameter when looking at the development of real-estate markets. Hyderabad remains a highly desirable location for investors and end users and prices appreciated by 11% in this city. Mumbai-MMR and Bengaluru experienced moderate appreciation of 7% and 9% respectively whereas Delhi has a 6% increase.
Ahmedabad has the lowest per-square-foot residential prices among the top markets, making it an attractive and affordable housing market.
Residential Launches (per capita)
Mumbai-MMR saw the highest number of residential launches in the past 5 years, indicating a robust development in the sector. West Hyderabad alone dominates 63% of the overall launches. Bengaluru follows closely with 35,771 launches on average recorded over the past 5 years with Chennai having the lowest rate.
Residential Sales (per capita)
Mumbai-MMR leads in per capita residential sales indicating a stable economic condition, higher disposable income, a preference for larger homes, and a sense of urgency among buyers to invest before further price escalations.
Bengaluru saw strong sales post- COVID and Hyderabad has emerged as a new and attractive buy for homebuyers.
Chennai, however, has yet to return to its pre-COVID sales levels, recording the lowest per capita residential sales.
Residential Sales (CAGR 2013 – 2023)
Hyderabad shows the highest compound annual growth rate (CAGR) of 6% in the past decade, indicating a rapidly growing market that is poised for further expansion. The growth has been fueled by the expanding IT sector, improved infrastructure, and favorable government policies. Delhi-NCR and Mumbai-MMR also demonstrate positive growth rates in residential sales, with CAGRs of 3% and 2% respectively. The established infrastructure, economic opportunities and key status keep attracting homebuyers. Bengaluru’s registered a negative CAGR and this could be due to market saturation and high property prices.
Residential Launches (CAGR Timeline 2013 – 2023)
Hyderabad is one of the only cities that has demonstrated resilience in its residential market with a positive growth rate of 10% (CAGR) in residential launches over the past decade. Other cities, including Delhi has shown a decline in the same. Regulatory challenges, oversupply in certain segments, and economic disruptions have been the basis of these low investor and buyer sentiments.
Quarters to Sell
Bengaluru has the fastest moving real- estate market as it takes 4.0 quarters to sell properties.
Delhi-NCR, Mumbai-MMR, and Ahmedabad have longer selling times, indicating slower market activity.
Rental Yields (%)
Ahmedabad and Hyderabad have the highest rental yields at 5%, making it an attractive market for rental investors.
Delhi-NCR and Bengaluru show yields at 3%, whereas Chennai and Mumbai-MMR have the lowest yields.
Addition to Office Stock in mn sq ft (between 2019- 2023)
In the last decade, Bengaluru has added 66.3 mn sq ft in office stock, indicating a stable market. Hyderabad and Delhi-NCR also show addition of 41.90 mn sq ft and 34.90 mn sq ft of launches respectively. Delhi witnessed launches mainly in Gurugram, Udyog Vihar and Noida.
Office Transactions in mn sq ft (per capita)
Bengaluru leads in terms of CAGR office transactions over the past 5 years at 13.4% and continues to be the most favored market by occupiers. Hyderabad has emerged as a compelling alternative to Bengaluru, witnessing an 8.1% CAGR growth in office transactions.
Delhi-NCR and Mumbai-MMR witnessed moderate office leasing transactions with 7.7% and 6.7% respectively. It is interesting to note that Delhi-NCR witnessed a decadal high in 2023 recording 10.1 mn sq ft in office transactions
Average Office Rental (Appreciation)
The booming tech industry has given Bengaluru a 7% rental appreciation, followed by Chennai at 6%. Chennai benefits from a mix of IT growth and manufacturing. Delhi-NCR’s appreciation sits at 2%, reflecting high supply and sluggish economic growth.
GCC Area Transacted (2023)
Chennai leads in area transacted by Global Capability Centres (GCC) in 2023 with 6.02 mn sq ft, indicating robust growth in notable firms including CMA, CGM, DHL, Maersk, and Mediterranean Shipping Company. Skilled workforce, cost-effectiveness, and supportive government policies have made this growth possible in Chennai. Both Bengaluru and Hyderabad also offer strong markets for GCCs.
These levels have been low in Delhi which sees greater occupancy by India-facing businesses as compared to GCCs.
Warehousing Transactions
Delhi-NCR and Mumbai led in terms of overall transaction volumes in 2023 with 8.6 and 9.5 mn sq ft respectively. Chennai and Ahmedabad witnessed the lowest warehouse area transacted at 4.5 and 3.8 mn sq ft respectively.
EMI to Income Ratio
While people can now afford real-estate more with increased disposable income, Mumbai is the only city beyond the affordability threshold of 50%, a level exceeding which banks rarely underwrite a mortgage.
Hyderabad follows with 30%, while Bengaluru, Chennai, and Delhi-NCR show similar levels ranging between 25% and 27%
Ahmedabad remains the most affordable housing market in the country with an affordability ratio of 21% which implies that on average, a household in Ahmedabad needs to spend 21% of its income to pay EMI for a housing loan.
Housing Loans Per Capita
Chennai and Ahmedabad have the highest housing loans per capita. Although Hyderabad has a higher EMI to income ratio, it has emerged as a compelling market for investors to buy residential properties, owing to its significant infrastructural and economic growth.
Conclusion
While the real-estate market has become an attractive sector to invest in, the growth has not been the same for all cities in India. Hence, navigating the market with experts who will help you invest in the right places is important. Reach out to us at Bluella Realtors to know more.