Net rental yields in India one of the lowest in the world: Report
- The government’s proposed Draft Model Tenancy Act 2019 would be key in institutionalising the rental housing market and boosting the yield going forward
- Rental yield across eight big cities has remained static over the past few years
Net rental yields in most Indian cities including Mumbai, Bengaluru and National Capital Region (NCR) are currently hovering around 2-3%, making it one of the lowest in the world, said a report by property consultant Knight Frank and law firm Khaitan &Co.
However, the government’s proposed Draft Model Tenancy Act 2019 would be key to institutionalising the rental housing market and boosting the yield going forward, the report said.
Rental yield across eight big cities – Benguluru, Mumbai, NCR, Ahmedabad, Chennai, Hyderabad, Kolkata and Pune, has remained static over the past few years. This low rental yield has made end-users cautious of buying properties for investment, the reported added.
Despite a massive housing shortage, India has around 11.09 million vacant homes, of which 78% or 8.64 million are in the top states and union territories including Maharashra, Gujarat and Uttar Pradesh, as per data from Census 2011. Maharastra has the highest number of vacant homes, accounting for 19% of the total, followed by Gujarat at 11%.
“With better interest rates and returns available in bank fixed deposits, public provident funds and other instruments such as stocks and mutual funds, the lucrativeness of residential real estate as an investment class has lost its sheen,” said the report.
India has a total of 27.37 million rented households, of which 79.4% or 21.72 million are in the urban areas, as per Census 2011 data. However, share of rentals to total housing in India has declined from 58% in 1961 to 28% in 2011. The report attributed this sharp drop to a low base of housing stock as well as to several factors like low rental yield, archaic rental control acts, no regulatory backbone and rental housing industry body among others.
“Some of the global cities like Dubai or in countries like Canada have seen rental yields reaching up to 6-7%. India is far from reaching that level. But having a legal framework is the first stepping stone,” said Gulam Zia, executive director, Knight Frank India.
The report also pointed out that with no capital value appreciation for residential properties, investor participation in housing stock in India has also been restricted. For instance, weighted average residential prices have stagnated across cities, with Mumbai, Pune, Chennai and Kolkata witnessing a price decline of 3%, 4%, 3% and 2%, respectively in the January-June 2019 period. Ahmedabad, Bengaluru and NCR saw 1%, 2% and 3% price uptick while Hyderabad was the only outlier with a 9% price growth, the report said.
However, on the back of rising demand for rental housing and the Model Tenancy Act, rental housing has the potential to attract investments in future, it said.
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First Published:14 Oct 2019, 04:06 PM IST
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