India’s real estate has been singularly focused on one thing: capital appreciation. For decades, homeowners bought properties, not on the strength of the rent they could collect, but on the premise that prices would multiply manifold every few years. Rent was a bonus, a fringe benefit.But times are changing in Pune, where rental returns from luxury residences have risen to a handsome 3.5-5 per cent annually, which is catching the attention of new investors who demand monthly income and appreciation over the long term.
Why is this significant? You need to know that these figures are quite out of the ordinary. In the nation’s most costly real estate market, Mumbai, rents for luxury residences are typically in the range of less than 2.5 per cent per annum. This is because the cost of housing has risen so much that rents can’t keep up.
A similar story in prime areas of Delhi indicates that annual returns are typically around 2-3 per cent. This is not the case in Pune, where the luxury segment has been doing exceedingly well but still, real estate has been more affordable and prices have not been outrageously high to that extent to deny rents from participating in price escalation.
The prime reason for the same is the strong IT and corporate ecosystem present in the city. Hinjewadi, the biggest IT Park in Asia accommodates more than thousand companies and over four million employees. These are not people with meagre salaries; on the contrary these are well-paid professionals with a good accommodation budget and a penchant for the finer things in life.These include gated communities, swimming pools, gymnasiums, co-working spaces and security all through the day and year.
These individuals are happy to shell out the best rents for this standard and hence, healthy property returns for property owners. There may be variation between micro markets; smart investors would not ignore them. Among the various micro markets Kharadi tops the charts for rental yields ranging between 4-5%. Proximity to EON IT Park and World Trade Centre makes this an ideal address for youngsters who are looking out for two and three-bedroom luxury apartments.Then comes Baner and Balewadi that provide a yield between 3.8-4.5%.
A number of good schools, sports facilities and an easy commute to the Mumbai-Pune Highway make it a favourite amongst families too. Even premium locations like Kalyani Nagar and Koregaon Park provides yield ranging from 3.5% and upwards driven mostly by expat tenants and high-profile corporate employees.
Amongst investors in this segment, NRIs stand out as a highly proactive bunch. Pune is a welcoming entry point into the luxury segment for dollars/pounds/dirhams-earning NRIs; with rental returns repatriated abroad offering currency fluctuation protection, and an answer to domestic economic instability. Add to that, the framework brought about by MahaRERA has increased transparency, minimizing risks related to project delays or unclear titles; and the NRI influx into luxury Pune makes complete sense.
Even further momentum is coming from infrastructure development. The Pune Metro links major residential areas to business hubs making travel time negligible. In addition to a proposed ring road and expansion of the airport, the city’s once-peripheric zones are becoming integrated into the luxury map, opening up avenues of higher rental potential as well.
To look at rental yield solely, however, would be a mistake. Investors in Pune luxury real estate have witnessed remarkable capital appreciation as well. Values in luxury belts have increased from roughly 10,600 to 12,950 per square foot in a year.In Koregaon Park, values have touched ` 13,200 per square foot.The two-pronged approach of monthly income along with long-term appreciation puts the Pune luxury market well ahead of other Indian cities.
Having said all this, one must also understand that due diligence is crucial. Not all luxury projects are created equal in terms of yield. How close are the homes to job centers, what is the quality of maintenance, the credibility of the builder, and availability of modern features all factor in the demand and price.
Homes with smart capabilities, green building design and lifestyle facilities like swimming pools and gyms fetch a much better rent and can guarantee quality tenants.
Pune has silently developed a niche of luxury as an income generating asset Pune’s market offers a rare combination of safety and yields. Yields of between 3.5% and 5%, an army of corporate tenants and constantly upgrading infra as well as fair regulatory processes make this city a safe haven. For investors frustrated with minuscule yields and uncertainty about appreciation, Pune’s luxury homes are an interesting proposition.
