Living on rent became more expensive in the last two quarters and is likely to pinch you harder over the next 12 months.
According to data from property portal, 99acres.com, rentals of residential properties have been rising over this period and will continue to do so for the next one year. Says Vineet Singh, business head, 99acres.com: “I expect that rental rates in the next 12 months will continue to inch up further by another 10-15%.”
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The findings of ICICI Securities Ltd also corroborate the fact. According to a report by ICICI Securities, the average rental rate hike observed between August and December last year stands at 4.3%. A significant 64.4% respondents to the survey across eight cities have seen an increase in rentals in the past three months.
Where it hurts most
The hike is significant for the two- and three-bedroom categories, says data provided by 99acres.com.
However, not all properties in these categories have witnessed a hike. The ICICI Securities report says that properties in the Rs10-30 lakh bracket witnessed maximum increase in rentals between August and November last year compared with apartments in the higher price band.
Why the upswing
Constant factors: Rental rates are primarily a function of location, the surrounding infrastructure and connectivity with important destinations. Unlike capital values, rental rates are more end-user-driven. The increasing number of people migrating to metros in search of jobs have a short-term view on property. They don’t want to invest in a place where they may not stay 20 years later. In other words, all of them need a house on rent and would prefer to stay close to their workplace.
Limited supply: There are innumerable advertisement about new apartment projects in various mediums. However, they are not enough to meet rising demand.
Adds Singh: “With a healthy supply of residential units, rental rates should come down. However, on annual basis there is not enough supply in the market. New projects that were announced in 2006-07 are still lagging behind their delivery time. This is putting pressure on the rental market as people will hold on to their accommodation.”
Home owners, too, forced to live on rent: Even people who may have bought a house may be scampering around for a rented house.
Case of delay in delivery of ongoing projects are still not uncommon. Owners of such under-construction projects are forced to live on rent.
Moreover, not all new suburbs are completely habitable. Lack of schools, hospitals and market could stop you from relocating to this place. So, even for those who have got possession, living on rent in these places makes little sense. They would rather stay at central areas that are close to their offices or schools.
Says Himadri Mayank, manager (research and real estate intelligence services), Jones Lang LaSalle, property consultants: “A large proportion of buyers who had bought properties during the downturn are not comfortable with moving to far-flung suburban locations, where they bought houses. As a result, they are holding on to their existing rental houses.”
What to do
In spite of rising rentals, India remains a capital value market. To put it simply, the appreciation in capital values is much more compared with appreciation in rentals for the same property. Adds Mayank: “Though residential rental rates have strengthened since the lows it saw during the slowdown, the capital values appreciated by a greater rate every quarter.”
If you are looking for a rented house: So what can you do to safeguard against rising rentals? Look for suburbs that are well connected with central areas. Though you may have to compromise on the surrounding amenities, you will get cheap rentals. Another way to reach a decision is to compare the overall living cost. Add the commuting cost to cheap rent in a faraway location and the overall expenditure may come close to what you would spend living close to your workplace.
If you are already living on rent: The best strategy is to continue living in the house you are already living in. Chances are your landlord will hike your rent by the mandatory 10% as specified in the rent agreement lease. On the other hand, if you look for another house in the same area, your rent could go up by up to 20%.
Graphic by Yogesh Kumar/Mint