How does the neighbourhood impact the rental prospects?

Location is one of the most important aspects to consider when investing in real estate because it impacts property prices and rental values. Having a house close to the main road, metro or a commercial hub and key amenities adds to its allure, attracting prospective buyers and tenants. The kind of developments in a location can cause appreciation or depreciation in property prices. Similarly, it also affects the rental prospects in the region.

If you are planning to rent out a property, it is necessary to have a fair understanding of the market trends, the demand and supply dynamics and other factors that influence rental rates. In this article, we discuss how the neighbourhood where your property is located impacts the rental prospects.

How does location impact the rental prospects?

The location of the property is the main driving factor for the rental market in any city. It can be further classified into several factors that influence the desirability of a property.

Proximity to commercial centres, offices and business districts

City centres and business districts play a key role in shaping the real estate landscape in a city. A Central Business District (CBD) is an area comprising a cluster of commercial, retail and business centres. These regions are characterised by maximum urban density and transportation networks. Increased economic activities in the area drive demand for commercial spaces, including offices, retail spaces, restaurants, hotels and residential properties.

Owning a property close to CBDs will attract potential tenants, especially those working in the surrounding areas. This is a key factor that will drive the rental market in the region, resulting in high rent. So, if you have a property near a business hub, you can expect good rental returns compared to other locations. 

For example, Connaught Place is a well-known CBD in Delhi. The rent for residential properties near this area ranges from Rs 25,000 to Rs 1 lakh.

Presence of educational institutions nearby

Proximity to schools and colleges is a key consideration for home seekers. The demand for properties, including rented apartments in an area, is expected to be higher if educational institutions and offices are located nearby. Top-rated schools and colleges tend to attract more students in an area. This is a prime factor that can significantly increase the rental value of properties.

Given the growth of the education sector in India, the demand for quality accommodation among the student population has increased. While on-campus and paying guest accommodations cater to a majority of these students, there is also a significant demand for rented apartments. So, the market has become more competitive due to the evolving student needs, which impacts property prices and rental rates.

Access to social infrastructural facilities

Social infrastructure is an important factor to be considered when evaluating property values and rent in a location. Facilities such as schools, colleges, medical centres, sports clubs, convenience stores and malls, etc. cater to the needs of the urban populace. It enhances the liveability quotient of the area.

Social infrastructure presence in an area typically drives the demand for new housing projects. Moreover, the type of facilities may attract a particular category of tenants. If there are many educational institutions, the number of potential student renters is likely to increase. On the other hand, if there are several renowned hospitals and medical facilities, it is likely to attract more families with senior citizens.

Infrastructural developments in the neighbourhood

One of the biggest factors that drives real estate growth in any region is the development of infrastructure projects such as expressways, flyovers, metro, etc. Expansion of roads and metro networks pave the way for urban expansion, boosting connectivity across regions. Further, such projects attract businesses and investments, creating more demand for commercial properties. In addition, demand for residential properties also increases. This results in rise in property values. This also has an impact the rental segment leading to high rental rates.

For example, a metro station near a housing project is an advantage and the rent will be higher compared to other areas. This will drive more tenants to the area, creating an increased demand for rented homes. So, when determining your property’s rental value, you must consider the infrastructure in the vicinity.

Safety and maintenance of the locality

The safety and crime rate in a locality affects the demand for homes to a great extent. Houses within a gated community are considered more secure than independent buildings since such communities have proper security systems in place. Modern apartment societies mostly have technologically advanced safety features and quality construction, which make the residents feel secure.

Similarly, well-kept surroundings can play a major role in influencing decisions around renting or property buying. The municipal authority is responsible for the upkeep of the areas. Limited access to public toilets and poor waste disposal facilities can lead to unhygienic conditions. Such factors can discourage potential tenants in the area. 

Government regulations

Government regulations such as the Model Tenancy Act play a key role in regulating the rental market in a city by laying down guidelines that protect the interests of landlords and tenants. It also governs how much rent landlords can charge for properties and put a limit on the increase in rent in the future.

Supply and demand in the market

The rental prices in an area are influenced by the availability of properties and the number of prospective tenants.

In a situation where the demand surpasses the supply of rented properties, landlords tend to increase the rent in a locality. On the other hand, if there is lesser number of prospective tenants compared to the availability of the apartments, it can result in landlords lowering the rental rates in order to attract tenants.

Future growth potential

The potential for future growth in a locality will influence the rental prospects. For instance, if the locality is witnessing some significant development, such as an upcoming metro route, airport or expressway, it is expected to impact the real estate property values in the region. In turn, this will affect the rental rates in the locality. People tend to invest in areas with significant growth potential to earn long-term profits. So, it is important to find out the future prospects in your area when determining the rental rates. For example, landlords are likely to charge a higher rent than current rates if an upcoming metro station or a similar project is coming up in the neighbourhood.

Type and age of buildings in a locality

Further, the age and type of properties are other factors closely influencing the rental trends in an area. Modern properties with advanced features and facilities tend to have higher values, generating more demand and resulting in higher rent. If a residential property has a parking facility, the rent will be even higher.

On the other hand, older apartments without lifts and modern conveniences can drive away prospective tenants. So, the landlords may have to lower the rent to draw tenants.

Similarly, a particular type of property in an area can drive the rental demand. Standalone and luxury houses tend to have higher rent than smaller flats or studio apartments in the same locality. Moreover, the size of the property is another factor to consider. Bigger and more spacious flats will attract more rent compared to smaller houses.

Tips landlords should follow to attract potential tenants

Analyse the rental market

If you are a property owner and plan to rent out your house, it is important to do a property valuation to determine the rental value. The analysis of the rental market helps you get a clear picture of the rental market dynamics in the locality.

For this, you must consider factors such as average rental prices, vacancy rates, tenant demand and the type of rental properties popular in the market. Check how much rent other property owners in your locality are charging for similar properties. Some owners charge high rent for properties that have been vacant for a long time.

Click to read more on how to determine the rental value of your house?

Connect with a real estate agent

Local real estate agents may be more equipped with information about rental trends and tenants in your area. So, it is important that you find a reliable real estate agent who can find suitable tenants. Make sure to discuss your requirements in terms of the type of tenants you are seeking. Share details about the property, expected rent, security deposit and duration of the lease. Many brokers also assist with prepare rent agreements.

List your property online

You can also list your property on an online real estate platform to help you find tenants and directly connect with them. You can add key details about your house, upload pictures and videos, etc., which will help potential tenants make an informed decision.

Maintenance and repairs

Landlords should focus on improving the value of their property by undertaking necessary repairs and maintenance. A property in good condition will attract quality tenants. You can also consider renovating by adding a fresh coat of paint, landscaping, etc., which will help set an attractive rental rate.

Factors that bring down rentals in a locality

• Lack of facilities: While facilities such as parking areas increase the value of a property, lack of such facilities in a property can bring down rentals, especially if other properties offer these facilities.
• Age of the property: Houses in older buildings are likely to have lower rentals compared to newer buildings in the area.
• Lesser demand: Lesser demand for rented homes or lesser number of prospective tenants can compel landlords to lower rent.
• Local factors: The supply and demand at a local level influence the rental markets. For example, if a major employer or an educational institution pulls out of the area, it can impact the number of prospective tenants.

Rental market trends in top 8 cities

Source: Housing.com

Housing.com News Viewpoint

A neighbourhood analysis should be done to determine if a landlord is planning to rent out a property. This will help them understand the liveability of the area and set the right rental rates for their properties. If you are renting out your house, find out the major factors that will contribute to a higher rental value. You can work with a local broker to learn about market value and understand market trends.

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