Follow Us
Vinod Behl
In the current residential real estate scenario where sales have been agonisingly slow and capital prices have been more or less stagnant for over a couple of years, the pick up in rental rates for residential properties is offering some ray of hope to investors.
After many years of low increments or stagnant rents, the year 2018 saw residential rent hike in key cities.
Explaining this phenomenon, Ankur Dhawan, Chief Investment Officer, PropTiger.com says that slow sales have shifted customer demand to renting which in turn is driving rental rates. In addition, new players with branded rental spaces, have also added premium to rental returns. Amit Agarwal, CEO of Nobroker.com adds that due to increased mobility, rental market has shown more demand.
The new niche concept of co-living that has emerged as a new asset class in real estate investing, with a higher rental yield of 8-11 per cent, compared to average return of 1-3 per cent in residential properties, is contributing to higher demand for rented properties, according to Anuj Puri, Chairman, Anarock Property Consultancy.
Students and millennial workforce are increasingly opting for co-living spaces propelled by organised players like OYO Living, Nestaway, CoHo Living and backed by global investors. Otherwise also, renting could be a more feasible option for lot of professionals as it provides flexibility to rent a property, as per their lifestyle and the transferable nature of their job, according to Nikhil Bhatia, MD & Co-Head Capital Markets, CBRE.
Affordable option
Moreover, renting a house seems more affordable than buying one in metro cities for working professionals. For example, Mumbai has least rent to buy ratio of 0.22, meaning that renting a house is 75-78 per cent cheaper than buying.While on one hand, the factors like higher rental yield and lifestyle choice of working professionals is driving demand for rented spaces, many others who are looking at rented accommodation as stop gap arrangement till opting for home ownership, are also contributing to this demand.
Trend tracking in rental space
There are also distinct trends with regards to increasing demand and higher yield for rental housing. The Makaan.com survey reveals that customers are preferring 2BHK homes and opting for apartments over independent homes due to safety aspect.
Those looking for rented property prefer to stay close to work place, with shopping, entertainment and education institutes in the near vicinity. And due to reasons of job changes and promotions, young professionals prefer rented house to buying, with fully or semi-furnished homes for easy mobility. There is also growing trend of young people searching online for rental housing, especially through C2C websites, than through brokers.
To invest or not to invest
In the backdrop of growing demand for rental housing and rising rental yields, does it then make sense to invest in rental housing? The real estate investment experts believe so. Though the rental yield in commercial properties can well be in double digit(6-11 per cent), compared to 2-4 per cent yield in residential properties, investment in rental housing has many advantages.
By going for a rental home, one gets a wide choice of properties, keeping proximity to office, metro station, schools, shopping and leisure in mind. Unlike commercial property, the rental value in residential property remains largely unaffected by slowdown.
According to Ankur Dhawan, commercial properties require higher investment and do not even enjoy loan subsidy like in residential realty. Residential real estate is also relatively free from risks of leasing and vacancy seen in commercial property.
There is also a tax advantage in rental housing. According to Nikhil Bhatia of CBRE, rent saves taxable income as major or whole portion of rent paid, can be saved by claiming it under Section 10 as HRA. Tax savings through Section 24B and Section 80C of Income Tax reduce the net payments towards the EMI.
Fact file
2
4
9