COVID-19 impact on rentals: Investment properties to witness correction

Prime rental markets across India have witnessed corrections of varying degrees, with businesses adopting remote working practices, to survive during the Coronavirus pandemic

Buyers and investors who have invested in immovable assets in India’s rental markets, expecting handsome returns, are a disappointed lot presently. The Coronavirus pandemic has not only triggered a depreciation across India’s leading rental markets but has also left landlords scouting for tenants, amid a large-scale exodus from metro cities.


How remote working has affected the rental market

Worldwide, businesses of all scale and sizes asked their employees to work from their homes, as the Coronavirus advanced, making a significant percentage of the global population ill. As the world was forced into the largest remote-working experiment, starting December 2019, to keep businesses, employments and thus livelihood going, there wasn’t much time to analyse the by-products of this exercise. Without casting any aspersions on the merits of the work-from-home (WFH) concept, which has indeed been a saviour for businesses in these times of extreme difficulties, it would be safe to say it has also brought upon complications of its own. Those who had invested in property markets in India, with an aim to generate rental income, have been at the receiving end of the disruptions caused by the WFH culture that has, in a very short span of time, become the mainstay in work operations.


Rental yield in top cities after COVID-19

Although local brokers are more forthcoming in conceding that rentals are falling, industry experts paint a different picture. According to Kapil Kapur, director – sales and strategy, Bullmen Realty, rentals usually see a growth of 4%-8% on an average every year across India’s leading cities. With the pandemic playing spoilsport, the rental markets in metro cities have registered a ‘marginal fall for only a few projects’, he says. “Some of the key markets in the National Capital Region (NCR) and the Mumbai Metropolitan Region (MMR), which are known to have high rents due to their strategic locations, are expected to have a downward price correction, as remote working becomes the new normal,” says Kapur.


COVID-19 impact on rentals Investment properties to witness correction

See also: Can a tenant not paying rent in India during COVID-19 be evicted?


How Coronavirus has affected property rentals in Mumbai

The degree of impact of the Coronavirus on rental yields in various prime markets, differs widely. The hardest hit from the extraordinary change, are cities like Mumbai, which are highly overvalued. While industry estimates peg the average reduction in rentals in Mumbai between 20% and 25%, since the Coronavirus pandemic struck, the percentage varies depending on the area. Unaffordable housing prices have made the rental market successful.

Nevertheless, in prime locations like Bandra, where monthly rents could easily be Rs 1 lakh a month for a fairly large 3BHK home, landlords are finding it extremely hard to get Rs 70,000 a month. In Worli, rents are down to Rs 1 lakh to Rs 1.20 lakhs, from Rs 1.50 lakhs per month.

“Business is so bad that I have not been able to close any deal since March 2020. If anything, tenants who are still living in the city, regularly call me, asking me to get in touch with the landlord for rent reduction,” says Raghav Kulbey, a realty broker operating in Bandra. Kulbey expects a further correction in rentals, as the unlock process allows more people to vacate the city and move to their hometowns, as they continue to work from home.

In spite of the phased unlocking of the economy, freelancers employed in the city’s film industry do not expect production activity to get in full swing any time soon. They are actively looking for alternative employment options, as they bide their time while hoping the world would soon find a cure for the Coronavirus. “I am currently freelancing for a leading tech company, helping them write taglines for their new products. I am putting my writing skills to some use during this tragic period,” says Lipi Rastogi (name changed on request), a scriptwriter, who moved to her hometown of Lucknow in May 2020.  In the absence of any income, it was certainly not possible to use my savings to pay the rent, she says.

Aneesh Kulkarni, a broker operating in the Thane market, adds: “Some of my clients want to move to smaller and more affordable places. However, as virus infections increase within the city, people are highly skeptical about moving to new rented places. Nothing seems to be moving in the rental market.”

Check out properties for rent in Thane


Rental rates in Delhi-NCR after COVID-19

Premium localities of Delhi, including parts of Greater Kailash, Hauz Khas, Vasant Kunj, etc., located in the southern part of Delhi, have also seen rents dropping by over 10%, with the pandemic denting individuals’ incomes. Gurgaon, the most coveted rental market in the NCR, also presents a sorry picture. Highly-paid salaried individuals, who worked with some of the biggest corporates in the country, have been forced to either quit the city altogether and move to their native places as they continue to work remotely, or have preferred to buy a home. Consequently, rents have undergone a correction of 4% to 7% in the past six months. Even though the fall is much lower, as compared to Mumbai, it comes as a rude shock to investors who bet on this market, to generate rental income.

If renters are not re-negotiating the terms of the rent agreement and have yet to vacate the premises to leave for their hometowns, they are busy giving notices to landlords about their imminent exit. “I have been living in a rented plush independent bungalow in DLF Phase-II, in Gurgaon, for the past five years,” says 38-year-old Sonika Rathi (name changed on request), adding that she was never absorbed by the idea of owning a house. The COVID-19 situation has forced me to look at home ownership differently,” says Rathi, who works as a finance analyst with private equity firm Blackstone. Rathi is currently looking for festive deals, to book a 3BHK home for her family in Gurgaon.

According to a recently-unveiled joint report by and industry body NAREDCO, titled ‘Concerned Yet Positive’, people are more likely to buy a property than stick with renting. “While rents have fallen in case of independent homes and average apartments, not much change is seen in rents of luxury homes in premium high-rise buildings. Acutely aware of the fact that landlords would not cut back beyond a point, tenants do not even initiate a dialogue demanding rent reduction,” says Nagesh Kadan, a Gurgaon-based property broker. “The demand for rental homes is the lowest since I started working in this business in 1998. I have not closed a single deal in the past three months,” he adds.

Check out properties for rent in Gurgaon


Low-priced Noida market shows resilience

The depreciation in rents has been nominal in the Noida region, where rents were already quite low, especially in housing projects in the Greater Noida and Yamuna Expressway areas. The reduction has not been over 1%-2%.

“In these markets, renters could afford to get 3BHK homes for monthly rents as low as Rs 13,000 – Rs 15,000. There is hardly any scope for rentals to fall any further,” says Awadhesh Bihari, a property broker operating in the Greater Noida and Yamuna Expressway markets.  “However, since people are currently refraining from switching places, there is absolutely no business. The past few months have been terrible for the brokerage business,” Bihari adds.

“A chunk of home owners, looking to establish a stable pattern of earning from rental yields, are offering competitive price points. However, it would be too early to declare this marginal fall as an overall market sentiment in metro cities based on these occurrences,” maintains Ashok Gupta, CMD, Ajnara India Ltd.


Bangalore, Chennai suffer under rental demand slowdown

In Bengaluru, where landlords would typically demand a year’s rent as security deposit, the pandemic has made a visible change in the approach of landlords. However, industry experts rule out any chances of a drastic drop in rents in Bangalore, which is acknowledged as the most successful rental market in the country, owing to its IT industry.  While landlords are willing to lower the security deposit in view of the prevailing situation, experts say rentals in some of the overvalued markets might drop to the extent of 10%-20% in 2020.

In some of the erstwhile fastest-moving areas of Chennai such as T Nagar, Alwarpet and Teynampet, the situation is quite similar, as landlords show willingness to lower monthly rents by 10% to 20%. Considering that a majority of them may also be servicing home loans that they have taken against the property, they have little option but to succumb to the pressure of lowering rents. To avoid losing an old tenant and having to bear the additional burden of maintenance charges in these difficult times, landlords are already offering lower rents to their existing tenants.

Some, however, advise landlords against succumbing to the pressure. “Dropping rental charges to a rock-bottom level, just to attract tenants, is no way a viable option for home owners and developers,” says Kapur, adding that the demand for rental homes is slated to grow with people returning to the cities to continue their jobs, amid the partial reopening of offices.

Also read our article on How to avail of cashbacks on rent payment


Rental markets in peripheral areas of cities to benefit

Living close to city centres is not a necessity anymore, with the adoption of remote working. According to Gupta, the peripheral areas of cities are likely to benefit, as renters change their preferences, mainly because of the price benefit that these locations offer, along with large spaces and facilities that are not typically possible in centrally-located properties.

“The lockdown has helped people realise the value of homes. Consequently, the majority of people looking to live in rental homes are seeking all essential amenities in proximity to their residential unit, in addition to reasonably-priced accommodations. With staggered work timings and remote working becoming the norm, peripheral locations have an edge over central locations,” Gupta says.


Will rentals drop due to the Coronavirus outbreak?

Among the people monetarily impacted from the ongoing coronavirus crisis are the 28% of people who live in rented accommodations in India’s urban areas. These people are yet to get any relief from the government on the rent payment front

April 10, 2020: Many landlords weren’t able to get monthly rents for April 2020 as sources of income for a large part of migrant workers in India dried up amid a 40-day nation-wide lockdown to slow down the spread of the novel Coronavirus outbreak. The government initially imposed a 21-day lockdown from March 25 to April 14. The lockdown was subsequently extended till May 3, keeping in the rise in infections.

Those landlords, who have been able to secure the monthly rent for now, aren’t at ease either, as the pandemic could cause an extraordinary shock to the global economy, annihilating millions of jobs. The future prospects of generating regular rental income are looking quite bleak, for now. The predicament of tenants, also known as renters is much worse.

According to the Economic Survey 2017-18, 28% of people live in rented accommodations in India’s urban areas. This means a large part of the country’s urban population might find it extremely hard to have a roof over their head at a time when India has already launched the world’s largest self-quarantine experiment. Large swaths of the economy are already shut, ending all sources of income for migrant workers, making it impossible for them to pay rent. Equally ironic and tragic is the fact that they can’t leave the premises legally for now, but they would become illegal occupants if they fail to pay their rents soon enough.

Under the provisions of India’s Model Tenancy Act 2019, landlords could approach the rent court asking for eviction, if the tenants fail to pay the rent for two months in a row. Indian authorities hastened to announce various relief packages to offer respite, even if partial, to its 1.3 billion people after prime minister Narendra Modi declared a lockdown starting March 25, 2020, to flatten the curve of the Coronavirus spread in the country. While the centre announced a Rs 1.7-lakh-crore stimulus package to provide direct cash transfers and food security measures to millions of poor people, the RBI infused Rs 3.7 lakh crore in the banking sector, declared a three-month moratorium on loan repayments and brought down the repo rate to a record low of 4.4%.

While most of these measures have been designed to help the home owner in general and the common man in particular, none of them offer any direct security to those living in rented accommodations. For instance, the three-month moratorium announced by the RBI would provide some breathing space to home owners who are servicing a home loan.


Rents waivers

Barring appeals from Delhi and Odisha chief ministers to landlords to offer rent waiver for two to three months, not much relief has been offered to tenants so far.

“I appeal to all landlords not to force tenants to pay rent for two or three months. Please postpone it for a few months. When the situation becomes normal, if anyone is unable to pay, the government will pay for them. If any landlord still forces his tenants to pay the rent, strict action will be taken against him,” Delhi CM Arvind Kejriwal said while addressing a digital press conference on March 29.

“Appeal to all landlords to be compassionate during this hour of crisis and waive off or at least defer the rent for our tenants for three months. Tenants shouldn’t be asked to vacate for non-payment during this crisis period,” tweeted Odisha CM Navin Patnaik.

As the situation plays out, it would be important to assess the impact of the pandemic on India’s rental realty market and its various stakeholders.


Impact on rents data shows rents in some of the major Indian markets declined in 2019 amid increased housing supply. Despite the fact that housing ownership is easy to obtain now with easy availability of home finance, developers in India’s nine key residential markets were sitting on an unsold stock consisting of 7.5 lakh units.


Will rents fall?

City Average rent/month in 2019 Decline from 2018
Delhi Rs 13,532 -8%
Noida Rs 10,499 -8%
Gurugram Rs 18,064 -5%
Mumbai Rs 18,476 No change
Bengaluru Rs 16, 498 -1%
Hyderabad Rs 13,604 -3%


Would house rents fall further, in the aftermath of the COVID-19? Sector stakeholders believe they would. “Looking at the upcoming economic situation, rentals will be under severe pressure. Although we don’t see a general trend, the chances of reduction in rentals are high, especially in the areas that command high rentals,” says Kushagr Ansal, director, Ansal Housing.

The fall in rents would be in proportion to the number of job losses in India. “Rental housing is totally dependent on the tenants, who are mostly from the working class. If there is any reduction of salaries as many are predicting, there definitely would be a reduction (in rents),” says Ashok Gupta, CMD, Ajnara India Limited.

“The amount of reduction will be different in different cases. We don’t predict a (general) percentage change, but it will be significant, if the job market gets affected,” Gupta adds.



Will rents fall in 2020 because of COVID-19?

Rents are likely to fall in the highly expensive rental markets.

What is the market for rental housing in India?

As per the Economic Survey of 2017-18, urban areas in India have 28% people living in rental houses.

When can a landlord evict a tenant?

As per the provisions of the Model Tenancy Act 2019, landlords can approach the rent court, seeking eviction of the tenant, if s/he fails to pay the rent for two consecutive months.


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