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Real Estate investment give hefty returns – Reality or Myth?
Sky rocketing prices of residential properties have attracted many buyers in the real estate investment market in tier II and tier III cities like Ahmedabad, Hyderabad, Pune and even in metros such as Chennai, Bengaluru, Delhi etc. These buyers are investors and not the end users. The residents of metro cities such as Mumbai and Delhi are looking at small cities to invest in real estate. Let’s check out how profitable it is to invest in real estate.
To evaluate return on investment we will consider NHB RESIDEX. RESIDEX is the price index designed based on actual transactions done in 26 cities in India. The index is 100 in Jan-2007 for all the cities. For 15 cities we have data available from 2007 to Jan 2014. These are Hyderabad, Faridabad, Patna, Ahmedabad, Chennai, Jaipiur, Lucknow, Pune, Surat, Kochi, Bhopal, Kolkata, Mumbai, Bengaluru and Delhi. Well out of these 15 cities only 10 cities show noticeable increase in price. Banglauru, Jaipur, kochi and Hyderabad saw no growth to negative growth since 2007.
Following is the table showing ranks of the cities based on highest return earned from investment in residential properties.
City
Jan-07
Jan-14
CAGR (%)
Real Gain
Rank
Chennai
100
349
19.55
10.41
1
Pune
100
232
12.77
3.63
2
Mumbai
100
229
12.57
3.43
3
Bhopal
100
226
12.35
3.21
4
Faridabad
100
209
11.11
1.97
5
Ahmedabad
100
209
11.11
1.97
5
Kolkata
100
206
10.88
1.74
6
Delhi
100
199
10.33
1.19
7
Lucknow
100
194
9.93
0.79
8
Surat
100
165
7.42
-1.72
9
Patna
100
150
5.96
-3.18
10
Begaluru
100
107
0.97
-8.17
11
Jaipur
100
101
0.14
-9
12
Hyderabad
100
95
-0.73
-9.87
13
Kochi
100
85
-2.29
-11.43
14
Returns show in percentage and it is compounded annual growth rate (CAGR).
Now if we look at the real appreciation then we will have to consider inflation from 2007 to 2014. Average inflation based on CPI (consumer price index) for the period under study is 9.14%. (Inflation data are from http://www.inflation.eu/inflation-rates/india/historic-inflation/cpi-inflation-india.aspx)
From above table we can see that in only four cities Mumbai, Pune, Bhopal and Chennai have more than 2% real return. Mumbai, Pune and Chennai are not affordable for buying for middle class house seeker.
It is not good news as far as investors are concerned but it is really good news for actual buyers who buys for living in the house. RBI has surprised with its rate cut in last monetary policy and it is believed that it will continue. Loans will be cheaper in the next fiscal. Real house seekers can look forward to this opportunity to get their dream home.
This study opens eyes for the one who jump on to book another house as and when they get introductory discounts on launch of a project by builders. Some people even go for a loan to buy another house.
