Rental Rates Surge Amidst High Demand and Property Prices
Despite indications of easing real estate prices, homeownership remains a challenge. High property prices coupled with escalating loan interest rates contribute to this difficulty, concurrently driving up rental costs.
Analysts and developers observe a strengthening residential rental market, experiencing a notable 10% growth. This heightened demand for rental accommodations is fueled by India's considerably low residential rental yields, which linger between 3% and 6%.
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Simultaneously, home loan interest rates fluctuate between 11% and 13%. While new property sales experience a slowdown, the rental market exhibits an upward trajectory. Many prospective homebuyers are postponing purchases, anticipating a decline in prices, and consequently seeking rental accommodations in the interim.
“People are nervous about spending the capital they have in times of uncertainty. Therefore renting remains the only option. Though India is also unique as lot of people prefer to park money in residential projects and lock up apartments, which reduces the supply of apartments for rent, putting an upward pressure,” says Abhilash Lal, director at global real estate advisory DTZ.
Kushagr Ansal, director at Ansal Housing and Construction, highlights the low real estate yields in India, which are estimated between 4% and 6%, making renting a financially attractive choice. He stated, “Real estate yields in India are very low, pegged at 4-6%. This makes renting a lucrative option.”
Despite the addition of new residential properties to the market, rental rates have not stabilized effectively. Dr. B. P. Dhaka, COO of Parsvnath Developers, explains that the new supply isn't concentrated in desirable, centrally located residential areas. Furthermore, the rising maintenance and construction costs over the past year have ultimately contributed to higher rental prices. He said, “New supply is not coming in the preferred centrally located residential areas. Also maintenance and construction costs have gone up in the last one year. All this has contributed to higher rentals.”
Vipin Agarwal, executive director of Omaxe, notes that due to the long-term nature of residential rentals and leases, individuals currently residing in rented accommodations haven't experienced substantial rental increases in the past six to eight months. He pointed out, “Since residential rentals and lease are long term arrangements, there has not been a significant increase in rentals in last 6-8 months (for people already living in rented properties).’’