Hyderabad property prices up 10% yearly in last 5 years

Hyderabad: Hyderabad and Bengaluru have seen maximum five-yearly increase of 10 per cent in average property prices in last five years, says a report. The average property prices in Hyderabad had risen to Rs 4,620 per sq ft in 2022, from Rs 4,128 per sq ft in 2018, while average prices in Bengaluru went up to Rs 5,570 per sq ft in 2022 from Rs 4,894 per sq ft in 2018.

Prashant Thakur, Sr Director & Head – Research, Anarock Group, said: "As per our research, the current average prices in the top seven cities are collectively at Rs 6,150 per sq ft. In the last five years, there was an increase of over 11 per cent across these cities (from Rs 5,551 per sq ft in 2018 to Rs 6,150 per sq ft in 2022)."

He says, "Investment in residential real estate is a very different kettle of fish than end-user homebuying. When the intention is returns on investment (RoI), 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."

2022 saw the maximum yearly rise at 6 per cent (Rs 5,826 per sq ft in 2021 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 per cent 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-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," said Prashant.

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 per cent among all major cities, followed by Mumbai with 3.8 per cent.

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. This year 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 market dynamics more favourable. Property prices may rise 5-8 per cent 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.