Real Estate Investment: A Booming Market Amidst Rising Interest Rates
While the stock market demands constant vigilance and carries inherent volatility, real estate investments offer long-term stability and attractive returns. This shift towards real estate is particularly evident now, with the sector experiencing robust growth.
Take Gurugram, for instance, where property prices have reached record highs despite local challenges. The Delhi/NCR region has become a hub for IT professionals due to its proximity to major offices, driving demand in areas like Noida, Greater Noida West, and New Noida, attracting numerous large-scale projects.
Factors Driving Price Increases
Several factors contribute to the current real estate boom. The government's announcement of substantial infrastructure projects in Uttar Pradesh positions the NCR region as a prime source of residential and rental income. Ajit Krishnan, EY India Partner International Tax and Transaction Services, highlighted the impact of investments in renewable energy and roads on India's infrastructure growth during the E&Y Infrastructure Roundtable, stating, “Investments in renewable energy and roads drive India’s infrastructure growth, paving the way for sustainable development.”
Further fueling this growth, Uttar Pradesh Chief Minister Yogi Adityanath unveiled plans for 21 new airports in the state, coupled with other infrastructure projects and public welfare schemes. The surge in tourism in Ayodhya, even before the Ram Mandir opened to the public, further underscores the region's rising prominence. Geopolitical factors also play a role. Anarock Capital’s Flux report reveals a decline in PE investments during the first nine months of FY24, affecting both foreign and domestic investors. Despite these challenges, Noida and Greater Noida West continue to attract major projects, highlighting the resilience of the real estate sector, offering both steady income and significant lump-sum gains. With property prices escalating in Gurugram, Uttar Pradesh is focusing on enhanced infrastructure and amenities to attract buyers and bridge the price gap within the Delhi/NCR region.
Profitable Investment Opportunities
Although single-room units may not be as affordable as they once were, they still present a sound investment opportunity. Rental income is also experiencing record highs. Rents for three-bedroom flats, which ranged from Rs 10,000 to 12,000 in 2020, have now climbed to Rs 19,000-25,000.
As people migrate to Delhi for work, the rising cost of housing within the city proper has made the NCR region an increasingly attractive alternative. A simple example illustrates the investment potential: a one-bedroom kitchen set costing Rs 10-12 lakh to construct can generate a monthly rental income of Rs 15,000-16,000 within seven months, yielding an impressive ROI of 15-18%. Such returns make single-family homes a compelling choice for investors seeking steady cash flow and long-term appreciation.
Residential Property: A Resurgent Market
The COVID-19 pandemic presented unforeseen challenges to the real estate sector. However, the shift back towards in-office work has revitalized the residential market. Increasing rental values, identified in recent studies, have fueled this demand surge, prompting buyers to favor ready-to-move projects for their immediate availability and reduced uncertainty. The Gurugram-Dwarka Expressway and Greater Noida West exemplify this trend.
In 2023, 4.77 lakh residences were sold in new projects. This contrasts sharply with 2019, where sales of newly launched units represented only 26% of the total 2.61 lakh units sold. Anarock's research points out NCR's low absorption rate for new launches among the top seven cities; just 27% of the 65,625 units sold in 2023 were from new launches. Interestingly, Gurugram bucked this trend, with 35% of its 36,970 unit sales in 2023 coming from new launches.