Despite the relatively low rental yields, residential property investors increasingly prefer to earn a steady rental income over selling the property (after appropriate appreciation), said an Anarock Property Consultants study.

Anarock’s consumer survey found that more than 53 per cent respondents looking to invest in real estate in 2019 preferred to earn a steady rental income, while only 39 per cent would sell the property.

Prashant Thakur, Director & Head – Research, Anarock Property Consultants, said: “If we look at the city-wise performance for rental yields, Hyderabad tops the list with a rental yield of 3.7 per cent. In Bengaluru, it is 3.6 per cent, Pune 3.3 per cent, and in entire MMR - surprisingly – it is just 3 per cent.”

Thakur further said one would think that increasing demand for rental housing would also improve its performance as an investment asset class. Even as the rental market grew steadily across major cities, rental yield (the annual rate of return an investor can earn from his capital invested in a property), has long since stagnated at a national average of 3 per cent.

However, the lower the property cost, the higher is the rental yield. Therefore, investing in affordable or mid-segment properties will yield better rental returns (depending on external factors such as location, project type, developers’ brand, etc.) For the same reason, luxury and super-luxury homes are not rewarding from a rental yield point of view.

Driven by the salaried population

Indian rental housing is a complicated asset class, Thakur said, and added: “The demand for rental properties is mainly driven by the salaried population. A large percentage of tenants in cities such as Bengaluru, Hyderabad, Pune and Mumbai are from the salaried segment and belong to industries such as IT/ITeS, BFSI, pharma and services.”

“In fact, the IT/ITeS and the BPO sectors, in turn, are the key drivers for commercial space in cities such as Bengaluru, Hyderabad, Pune and Chennai – which has led to steady migration to these cities. Resultantly, the demand for rental housing has been rising steadily,” he further said.

Evolving tenant preferences

With greater exposure to international housing standards, high disposable income and frequent movement across cities, Indian tenants are seeking more amenities such as open spaces, swimming pools, power back-up and multiple parking from rental properties. Most tenants rely on property portals to find and shortlist rental properties, and finalise the same after personal visits.

The average tenancy duration sits in a rather schizophrenic grey area of preferences. Most tenants want stable options, but simultaneously the possibility of moving out at short notice. One year is the average tenancy duration observed in Tier 1 and 2 cities. In terms of configurations, compact homes are definitely the top preference - studio apartments, 1 & 2 BHK apartments find the most takers, thanks to relatively lower rent, easier upkeep and lower maintenance charges.

Nevertheless, there is still demand for larger independent houses from the corporate sector - especially in Delhi, Gurgaon and Mumbai - where landlords with such properties can attract long corporate leases (the Indian landlord's 'gold standard').

Related Topics