Limited supply of new housing keeps rents high

Property prices have cooled down significantly in the last one year. So, has this led to a lower rental bill for tenants? No, rents in most cities have increased in the last 12 months, with some localities even witnessing hikes of up to 20 per cent.

Data from online real estate listing portal Commonfloor.com show that rents are up, on an average, by over 10 per cent in Delhi and Mumbai in a year, while the southern cities of Bangalore and Chennai witnessed a modest increase of 8 and 5 per cent, respectively.

Home rents have seen a steady rise even as property prices captured by the NHB Residex have dropped by 3 per cent in regions such as Delhi in the last one year.

One reason rents in the cities are rising despite property prices cooling off is limited supply, say market watchers. Many new homes in areas such as Delhi’s NCR are still in the construction phase and have not hit the market yet, says Sukhijinder Singh, a broker with RE/MAX, a global property agency. In the meantime, those migrating to the region are propping up the demand for rental homes.

Vacant houses

Many existing homes also remain unavailable to tenants. Around 11 million homes, against the urban shortage of 18 million, are vacant as per a report from the Ministry of Housing and Urban Poverty Alleviation. The procedures involved in sewing up a contract and getting it terminated act as barriers to rent out a property, says Amitabh Kundu, a professor at Jawaharlal Nehru University, who authored this report.

Also, while property markets have been dull due to speculators staying away, the rental market has no speculation. Landlords quickly adjust rents with rising demand and rental homes find takers within a short time. For instance, house listings in Bangalore, where rental properties make up over 50 per cent of the homes, remain active for only around a month, says online property portal HomeShikari.com.

While rising rent has been the norm across cities, better infrastructure and the presence of corporate parks nearby have led to steep rent hikes in some localities. For instance, rents in areas such as Whitefield and North Bangalore appreciated by 15-20 per cent last year riding on demand from the IT workforce, says Sundar Prakasham, CEO of HomeShikari.com.

Likewise, rents in Andheri, Malad and Bandra in Mumbai are up by over 10 per cent as these areas are becoming industrial hubs, says Prateek Sukla, co-founder and CEO of Grabhouse.com, an online house-hunting site.

Local factors

Local issues also hurt rents in some cases. The rents around Gurgaon are down 15-20 per cent in one year as ready-for-possession homes are on the rise, says Nakul Seth, broker and owner of Pearls Spaces.

In Bangalore, where launches and inventory levels are low and there are expected project delays, rents could increase further, say experts. However, as a tenant, you can still hope for relief from higher rent by following a few expert tips. Avoiding gated communities, choosing suburbs over heart-of-city locations and opting for smaller complexes without many amenities can lower your bill, say real estate brokers.

(This article was published on March 17, 2014)
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