Mumbai, Delhi, Chennai or Bengaluru: Where to invest in property for best returns?

Chennai, Ahmedabad, and Kolkata have emerged as the most affordable cities for residential investments in 2024, according to a report by Magicbricks. These cities offer the lowest price-to-income (P/I) ratios among India's top 10 property markets, making them ideal for investors. Meanwhile, the Mumbai Metropolitan Region (MMR) and Delhi are the least affordable, with property prices soaring relative to household incomes.

From 2020 to 2024, property prices in these major cities grew at a compound annual growth rate (CAGR) of 9.3%, while household incomes rose at a slower rate of 5.4%. This growing gap has worsened affordability, pushing the average P/I ratio in India's top cities from 6.6 in 2020 to 7.5 in 2024—well above the globally accepted benchmark of 5. Chennai, Ahmedabad, and Kolkata maintain a P/I ratio of 5, while MMR and Delhi's P/I ratios stand at 14.3 and 10.1, respectively, signaling steeper costs in these regions.

The report also points to rising mortgage burdens, with the EMI-to-monthly income ratio increasing from 46% in 2020 to 61% in 2024. MMR leads with a staggering 116% EMI-to-income ratio, while Delhi and Hyderabad follow with 82% and 61%, respectively. In contrast, cities like Ahmedabad, Chennai, and Kolkata remain relatively affordable, with ratios under 50%.

Bengaluru, India's Silicon Valley, stands out for its strong rental yield, offering a 4.45% return in Q1 2024, an Anarock report had said earlier this year. This represents a 24% increase from its pre-pandemic yield of 3.6% in 2019. The city's booming IT sector and the return to office have driven up rental demand, particularly in areas like Sarjapur Road and Whitefield. These areas saw an 8% jump in average rents for 2 BHK apartments between Q4 2023 and Q1 2024.

The trend isn't limited to Bengaluru. Cities like Mumbai and Gurugram have also experienced a rise in rental yields, with Mumbai's increasing to 4.15% and Gurugram's to 4.1% in the same period. Nationwide, rental yields have been climbing, driven by a surge in demand post-pandemic, particularly in IT-centric cities.

Rental values across India's top cities have also seen significant growth. In 2023, rents rose by over 30% year-on-year, and the upward trend continued into 2024. Bengaluru once again led the way, with some localities experiencing rent hikes of over 40%. In Sarjapur Road, the average monthly rent for a 2 BHK apartment rose from ₹31,600 in Q4 2023 to ₹34,000 in Q1 2024. Similarly, Whitefield saw rents rise from ₹30,200 to ₹32,500 in the same period.

Other cities have seen notable rent increases as well. Noida's Sector 150 and Delhi's Dwarka recorded rent increases of 9% and 6%, respectively, while Mumbai's Chembur and Mulund saw 4% growth each. Kolkata's Rajarhat saw a modest 3% rise, while Chennai and Hyderabad experienced increases of 4% and 5%, respectively.