The resounding boom in the India’s property market is trickling down in the rental landscape as well. Across major Indian cities like Delhi-NCR, Mumbai, Hyderabad, Pune, and Bengaluru, the rise in demand for rental properties has driven a significant uptick in average rents, unveiling a dynamic shift in the housing sector.
Price-to-rent ratio
The price-to-rent ratio serves as a barometer of rental returns or yield. While cities like Bengaluru and Hyderabad boast favorable ratios (25) and high rental yields (3.5-4.0 per cent), Indian cities still lag behind global counterparts like New York, Dubai, and Singapore, where the ratio is notably lower, translating to higher rental returns.
Multiple factors contribute to India’s comparatively lower rental yields. High land costs, elevated interest rates (ranging from 8-9.5 per cent for home loans), and lack of market transparency hinder rental income growth. Globally, lower interest rates (averaging 3-4 per cent) buoy rental returns and make the investment more lucrative.
Post-pandemic surge in rents
However post-pandemic, in the wake of limited housing supply and burgeoning rental demand, monthly asking rents have soared by a staggering 25–30 per cent compared to pre-pandemic levels of 2019. The surge isn't uniform; hotspots near office districts in metros like Delhi NCR, Mumbai, Bengaluru, Hyderabad, and Pune have witnessed spikes exceeding 30 per cent.
Take Bengaluru's eastern suburbs, for instance. Localities like Whitefield and Sarjapur have seen asking rents for a 2 BHK unit (approximately 1,500 sq ft) surge from INR 30,000-35,000 in 2019 to a whopping INR 50,000-55,000. Similarly, Gurugram in the Delhi NCR belt has experienced a notable uptick in rents. Areas like Golf Course Extension and Southern Peripheral Road have seen rents shoot up by 55-60 per cent since 2019.
Investment Hotspots: Choosing Wisely
Location remains paramount in maximizing rental income from residential properties. CBDs and office districts in urban hubs promise lucrative returns, while Tier-2 cities offer investment opportunities with lower entry costs. Regardless of the locale, strategic positioning and rental demand are key determinants of rental profitability.
We anticipate the upward trajectory of rents to persist for the next 2-3 years. The confluence of high demand for ready properties and limited supply, coupled with a 15-20 percent appreciation in property prices since 2019, indicates a sustained rental market growth. As India's property market continues its upward trajectory, navigating the evolving rental landscape demands astute investment decisions guided by market dynamics and location-specific insights.
