Why does Noida command the lowest rentals in India?

Rakesh Sharma, a retired doctor, spent his lifetime savings to buy an apartment along the Noida-Greater Noida Expressway. Sharma, who already owned a house in Delhi, hoped to lead a comfortable life after retirement, from the income he would earn by renting out his new property. Today, he regrets his decision of spending Rs 1 crore for the property, only to get Rs 13,500 as the rental return, including Rs 3,500 as maintenance outgo. Moreover, after paying the EMI and adjusting for inflation, he feels that his investment is more of a liability than an asset.

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Sharma’s experience highlights the harsh realities of Noida’s property market, which is likely to deter any investor but tempt the tenants, due to its affordability.

Noida commands the lowest rental value among the top 10 cities.
In some of the locations, the rental yields are lower than 1%.
Tenants in this market, are renegotiating with their landlords to reduce the rent or include maintenance charges in the rent.
Investors in Noida are struggling as rentals have taken a 5%-15% hit in recent times.

See also: Rents in Noida on a downward slide

Noida: An ideal market for tenants but not for buyers?

While a low number of transactions generally leads to an increase in rental values, in Noida, this conventional market trend does not hold true. On the contrary, Noida has huge supply, few transactions and some of the lowest rental values. This can be attributed to the imbalance between demand and supply in the same catchment area.

So, what makes Noida one of the worst markets for rental yields? While there are many contributing factors, the single biggest stumbling block is the absence of economic activity in the district.

Analysts believe that the absence of an international airport, means that multi-national companies are reluctant to set-up base in this part of the Delhi-NCR. This makes the region the last choice and only attracts tenants who cannot afford the rentals in any other part of Delhi-NCR.

Hence, Noida continues to be and affordable and low-cost market. This is reflected in both, the property sales velocity, as well as in its rental yields.

Will rental rates in Noida increase?

Ashok Sinha, a local property consultant, predicts that Noida’s rental yields will continue to remain low in the foreseeable future, unless there are quality Grade A offices and quality occupiers in the market that could create jobs.

“I recently negotiated for an office space with much difficulty. On an extended lease of nine years, the occupier agreed to pay only the maintenance part for the first three years, followed by 50% rent in the next three years and full rental only for the last three years. Unless quality employers enter this market, low rental yields will continue to be a reality,” says Sinha.

Rental yields across different segments

Nikhil Hawelia, managing director of the Hawelia Group, points out that the developers have to introspect, over why the rental values have gone down over the years. According to him, the higher one goes up the value chain, either in terms of luxury elements or size, lower are the chances of commanding decent rental yields. “I do not think that affordable houses in Noida are not commanding rental yields of around two per cent, like other parts of the country. The problem is with premium housing and projects with bigger units, where the supply far exceeds demand. Here, the owners have no option but to compromise with even one per cent rental yields or lesser, because there are hardly any takers,” says Hawelia. Ultimately, property owners are left with the hope that a property rally in the future, will compensate for their stuck investment.

Reasons for Noida’s low rental yields

Absence of economic infrastructure and employment prospects.
No takers for Grade A office space, due to absence of an international airport in the region.
Perceived to be the cheapest market of Delhi-NCR.
Oversupply in select pockets, without proper development of catchment areas.
Demand-supply mismatch leading to tenants controlling price points.

(The writer is CEO, Track2Realty)

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Ravi Sinha

Ravi Sinha is a journalist with nearly two decades of cross-discipline media exposure. He is the CEO of real estate think-tank group Track2Realty. He has been writing extensively on the real estate sector for nearly a decade. Evaluation of real estate brand performance is his expertise and he has immense insight into consumers’ psychograph in the property market.

Twitter: https://twitter.com/ravitrack2media