Investment in residential real estate is a very different kettle of fish than end-user homebuying. When the intention is returns on investment, knowing how the housing asset class is performing is of prime importance. From a ROI perspective, there are two buckets to check – capital appreciation and rental yields. Let’s examine this.

Property Prices

As per ANAROCK Research, the current avg. prices in the top 7 cities are collectively approx. INR 6,150 per sq. ft. If we look back, the last five years have seen an increase of over 11% across the top 7 cities (from INR 5,551 per sq. ft. in 2018 to approx. INR 6,150 per sq. ft. in 2022).

If we delve deeper and consider the yearly trends in the last five years, it emerges that 2022 saw the maximum yearly rise (6%) in average property prices (INR 5,826 per sq. ft. in 2021 to INR 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% 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.

Post the pandemic, demand soared across cities – as did developers’ input costs – causing prices to rise, particularly in 2021 and 2022. Another factor driving prices up is the fact that most sales happening now are by branded developers who have not shied away from price hikes on the back of strong demand and rising construction costs.

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

Rental Yields

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.

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

Outlook for 2023

There is little reason to be pessimistic in the current year, though under-researched investments and a short-term profit perspective must be avoided in 2023.

All the factors that drove up capital appreciation and rental yields are firmly in place, and the profitability potential for both investment rationales remainspromising. 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.

The RBI will likely take a pause after a spate of interest rate hikes, so growth momentum will continue. 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% in the larger cities – this bodes well for investors focused on capital appreciation, but also means that rental demand will increase.

Because of the new demand profile, larger-configuration homes will outperform compact affordable housing. Properties by branded large developers will pay better dividends in terms of both rental yields and capital appreciation.

Also Read: MahaRERA Inaugurates the First batch of Real Estate Agents Training

The post Housing ROI 2023 – Smooth Sailing or Choppy Waters for Investors?  appeared first on Square Feat India.

By Varun Singh

56% of respondents of the CII-ANAROCK Consumer Survey – H2 2021 – H2 2021 expect housing prices to rise in 2022 due to Inflationary trends in construction raw materials and overall operational costs for developers. The survey, conducted between July and December 2021, polled 5,210 participants via various digital platforms across tier 1, tier 2, and tier 3 cities.

In a quantitative analysis of the likely consumer reaction to such a price rise, the survey finds that an under-10% increase would have a moderate-to-low impact. However, an increase of over 10% would have more profound repercussions on buyer sentiment.

The survey also identifies an increasing demand for newly launched properties in cities like MMR and Bengaluru. Though ready-to-move-in (RTM) homes are still the most preferred category for 32% of respondents, this denotes a 14% reduction for this preference since the first Covid-19 wave.

Over 31% of buyers in MMR and Bengaluru have a positive outlook on newly launched projects, possibly indicating a return of investors in these markets. Another major factor influencing this change is that post-Covid-19, the new housing supply is dominated by branded developers, which homebuyers perceive as safe.

Anuj Puri, Conference Chairman – 4th CII Real Estate Confluence & Chairman – ANAROCK Group, says, “Votes favouring real estate as an asset class rose by 3% in this survey – from 54% in the H1 2021 edition to 57% in H2 2021. This is especially significant since housing prices are likely to rise by 5-8% in 2022 due to increased input cost pressure and supply chain issues. Hardening interest rates, which are very likely in the second half of 2022, will be another factor driving up the overall acquisition cost for homebuyers. 56% of respondent homebuyers are aware of this.”

“Nevertheless, the new pandemic-induced desire for homeownership continues to be robust,” says Puri. “At least 63% of previously fence-sitting respondents are now determined to become homeowners. For another 30%, the pandemic has not impacted their buying decisions, effectively resulting in 93% of respondents now convinced homebuyers.”

The survey also studies the property types in highest demand across cities, from preferred property sizes, hottest-selling budget ranges – and residential plots.

Residential plots are the second-most preferred property type in the top 7 cities – and the most preferred option in tier 2 and tier 3 cities and towns. Apartments are still the property type of choice for urban buyers. Only 17% of surveyed urban buyers will pick a plotted development over other property types, but a significant 51% of respondents from tier 2 & tier 3 cities favour plotted developments. 21% of respondents in Chennai, 18% in Bengaluru, and 16% in Kolkata will buy plotted developments.

Extra living space continues to be a major ask amid ongoing and resilient WFH and e-schooling realities. 28% of respondents will buy homes with that extra half BHK – of which 72% had not considered this extra space essential before the Covid-19 pandemic.

Approx. 43% of respondents will buy homes in the city peripheries – just 22% now prefer to live within city limits, close to office hubs. The future of work is tilting towards the hybrid model, and proximity to offices is no longer a significant concern.

In terms of budget preferences, approx. 63% prefer homes in the mid and premium segments priced within INR 45 lakh – INR 1.5 Cr. The demand for affordable housing has dropped further – from 40% votes in the survey’s H2 2020 edition to 27% in H1 2021 and 25% in H2 2021.

As always, the survey also provides updated insights on its respondents’ investment timelines, horizons, and age brackets. In short, the CII-ANAROCK Consumer Survey – H2 2021 unwraps the latest housing demand trends and shows what developers must focus on to harness this demand.

• Price rise of <10% will have a moderate-to-low impact on sales; price rise of >10% would have a high impact
• Newly launched properties gaining traction in MMR & Bengaluru with over 31% respondent buyers favouring this category
• Residential plots are the 2nd best property type in the top 7 cities, most preferred option in tier 2 & 3 cities
• Demand for extra 1/2 BHK increases post-pandemic; 28% respondents prefer this option amid WFH & e-schooling compulsions
• 43% of respondents will buy homes in city peripheries; 63% prefer mid & premium segment options priced INR 45 lakh – INR 1.5 Cr

Also Read: In 30 days of 2022 Mumbai sees 7718 home sales

The post Many Homebuyers Expect Housing Prices Hike in 2022 appeared first on Square Feat India.

By Varun Singh

The latest CII-ANAROCK Consumer Sentiment Survey underscores how radically COVID-19 has altered homebuyers preferences, with the second wave being a significant change catalyst. For the first time, affordable housing is the lowest priority, with more than 34% respondent home seekers focused on properties priced between INR 90 lakh to INR 2.5 Cr. While 35% favour properties priced between INR 45-90 lakh, just 27% respondents voted in favour of affordable housing (priced <INR 45 lakh). In the previous H2 2020 survey, approx. 36% respondent property seekers eyed budget housing.

The survey, conducted between January and June 2021, polled 4,965 participants responding via various digital platforms.

While attractive pricing continues to rule the roost of must-haves, established developer credibility is the second-highest priority for 77% of the surveyed buyers. Project design and location also feature prominently on the wish list.

Anuj Puri, Chairman, Chairman – CII Real Estate Knowledge Session & Chairman – ANAROCK Group, says, “The budget range which this survey identifies as the hottest seller is a surprise, but it makes sense if we consider that it is precisely this segment of buyers who are least financially impacted by the COVID-19 pandemic. Online home sales are gaining traction, with close to 60% of the entire property buying process now being conducted online – against 39% in the pre-pandemic period.”

“From property search to documentation and legal advice to down payments, homebuyers are leveraging the new tidal wave of digital technology driving the Indian housing sector,” says Puri. “Only developers with sufficient online presence will remain relevant going forward. Also, social media are among the most effective property marketing platforms at this stage.”

Approx. 41% participating property seekers are considering second homes for self-use, of which 53% prefer mountainous regions. Amid the sustained work-from-home and e-schooling realities, over 65% respondents currently working remotely now prefer larger homes, and approx. 68% aim to relocate to peripheral or suburban areas to buy them.

NRI homebuyers in the survey primarily prefer luxury properties priced between INR 1.5-2.5 Crore. Among the metros, Bengaluru, Pune, and Chennai are the hottest NRI picks, while Chandigarh, Kochi, and Surat top their Tier 2 & 3 cities list.

COVID-19 Trends: 1st Wave Vs 2nd Wave

The survey also highlights a stark contrast between consumer preferences during the first and second waves of the pandemic.

• Investor confidence in real estate has risen to 54% during the second COVID-19 wave, against 48% in the first wave.
• Ready-to-move homes are still the most preferred category at 32% upvotes, but this is still a dip of 14% from first wave levels. Currently, branded developers dominate the new housing supply, and buyers consider them safe bets; also, the available inventory of RTMI homes is limited.
• Approx. 71% respondent property seekers in the second wave are end-users, and only 29% are investors. In the first wave period survey, investors accounted for 41%. A significant factor possibly driving this is the increased desire to acquire second homes in greener, healthier environs during the pandemic-infused lockdowns.
• For 72% of respondents, designated walking trails are must-haves, while 68% require adequate open green spaces amid massively increased health awareness. Swimming pools now unsurprisingly have the lowest priority.
• 64% prospective buyers will respond favourably to offers and discounts during their online property search

Also Read: Home-buying preferences changed post COVID

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