With more supply hitting the top 7 cities’ markets, over-heated housing rents are stabilizing. Latest ANAROCK data shows that average residential rental prices across key markets in these cities saw a 2-4% quarterly rise in Q2 2024 to date over the preceding quarter. Q1 2024 saw rents in these markets rise by between 4-9% quarterly against Q4 2023.

Santhosh Kumar, Vice Chairman – ANAROCK Group, says, “In India, the second quarter of most years typically sees rents increase more than in other quarters due to the commencement of the new academic year and the employment of new staff. This year, declining rental value growth coincides with substantial new housing supply entering these markets.”

The top 7 cities are set to deliver approx. 5.31 lakh new units in 2024 while in 2023, these cities saw approx. 4.35 lakh units hit their markets. This denotes a 22% annual supply increase this year if delivery schedules remain on track.

Average rents for a standard 1,000 sq.ft. 2 BHK in Bengaluru’s Whitefield rose by 4% – from INR 32,500/month in Q1 2024 to INR 35,000/month in Q2 2024 to date. In Q1 2024, the quarterly jump against Q4 2023 was double at 8%.

A Quick Look

• Avg. rents in Noida’s Sector 150 rose by a mere 4% – from approx. INR 24,000/month in Q1 2024 to approx. INR 25,000/month in the current quarter. The quarterly hike stood at 9% in Q1 2024 against Q4 2023. Sohna Roadand Dwarka saw their respective quarterly rents increase by 3% and 2% in Q2 2024; in Q1 2024, the hikes stood at 4% and 6% respectively.
• MMR’s key markets Chembur and Mulund saw avg. rents rise by just 2% against the preceding quarter (Q1 2024); in Q1 2024, they rose by over 4% against Q4 2023.
• Hyderabad’s HITECH City and Gachibowli saw avg. rents rise by 3% each in Q2 2024 to date over the preceding quarter. In Q1 2024, the quarterly avg. rent hike in both these markets was 5%.

Source: ANAROCK Research

City-wise Completions in 2024

“ANAROCK data indicates that approx. 5,31,470 units are expected to be completed in 2024 across the top 7 cities, provided there are no delivery delays,” says Santhosh Kumar. “In 2023, approx. 4,35,045 units were completed in these cities.” 

Source: ANAROCK Research

Among the top 7 cities, MMR is slated to see the highest completions at approx. 1,60,900 units in 2024. In 2023, the region saw approx. 1,43,500 units completed.

• NCR is expected to see approx. 1,44,315 units delivered in 2024, against approx. 1,14,280 units in 2023.
• Pune is expected to see approx. 97,000 units completed in 2024. In 2023, approx. 65,000 units were completed here. 
• Bengaluru, the key rental hub with the highest rental value hikes, will see approx. 51,685 units delivered in 2024, against approx. 52,565 units in 2023.
• Hyderabad is slated to see approx. 34,770 units completed 2024-end; in 2023, approx. 20,500 units were completed.
• Kolkata is expected to see approx. 25,220 units delivered in 2024. In 2023, approx. 25,075 units were completed here. 
• Chennai will see the delivery of approx. 17,580 units in 2024, against 14,125 units in 2023.

Also Read: Occupiers across major markets in India willing to pay higher rentals for quality office supply

The post Rental Price Growth Drops 50% In Top Cities as Housing Supply Surges appeared first on Square Feat India.

Indian real estate is once again poised to grow at a rapid scale. It is holding a firm ground, marked by healthy economic sentiments and low-interest rates. Alongside end-user activities, investments are also getting a shot in the arm.

Meanwhile, the old debate to invest in Commercial Real Estate (CRE) or Residential Real Estate (RRE) is also resurfacing. Both asset class has their pros and cons. There is no standardized set of parameters to compare CRE and RRE. However, CRE outperforms its residential counterparts significantly, if we talk about rental yields. Commercial assets such as offices, retail, warehouses, etc. remain safe assets to bet on, as they can be a source of recurrent rental income.

The Rental Yields are higher in CRE in India

Globally rental from housing can be a source of smart returns. The downtown area of London can easily give a yield of around 4.5%. Likewise, Dubai and Bangkok can post returns of 5.5% and 5.3% respectively, fostering a conducive environment for better investor participation.

However, the same perspective does not hold true in the Indian market. In India, the growth in the rental rates has not been in proportion to the growth in property prices.

Housing yields are around 2-3%. , significantly lower compared to international markets. The rental yields are a little less than 3% in Delhi NCR.  In the Mumbai Metropolitan Region (MMR), it mostly ranges between 2.5-2.7%.  In the South, upcoming IT corridors in Bangalore can yield up to 3.3% (the general average is 2.4- 3 %.).

Meanwhile with the help of furnishing or other value addition, one can increase yield by 25-50 basis points. However, beyond a certain point, they can’t be increased.

In comparison, commercial properties render much higher yields. Grade-A office spaces can easily offer an average yield in the range of 6-7%.  Heightened economic activities coupled with a stable macroeconomic outlook in FY 23 are also auguring well for the commercial leasing in the country. Meanwhile, after a prolonged period of WFH, most organizations are implementing Back-to-office initiatives, fuelling demand.

Retail is also resuming after facing the whiplash of the pandemic. FY 23 is expected to be marked by a surge in transactions in the high street, hypermarket, supermarket, mall spaces, etc. Retail units can give yields to the tune of 8-9% and can be a prudent investment option.

Alternative CRE assets to invest

In the commercial segment, other subcategories are also climbing up the curve and piquing investor interest. For instance, warehousing is drawing investor interest in big volume. As per Knight and Frank’s research, in FY 21, warehousing transactions amounted to slightly less than 2.95 million sq. ft, jumping significantly from FY 20, when it totaled 1.29 million sq ft. The warehouse market in India will continue to spiral upwards, stemmed by growth in the consumer internet space, packaged food, FMCG, etc. Warehouses in India can easily give returns in the range of 5-6%, much higher than the residential market.

In a time, when there is a growing appetite for low-risk but high-return investment, commercial assets will be the preferred investment option. Despite fallouts from the rise in oil prices, the Indian economy will continue to recover in the current fiscal, thereby ensuring an enabling environment for commercial leasing. Meanwhile, the residential sector will also grow in a positive direction fuelled by an expansive middle class and growth in urbanization. However, the rental yields will continue to be in the lower range, weighing on the overall ROI.

Nakul Mathur, is MD, Avanta India, views expressed in this article solely belong to the author and do not represent those of SquareFeatIndia.

Also Read: Stamp Duty extension to boost Real Estate

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