Why is India’s rental yield one of the lowest?
Rental yield in India’s eight biggest cities, namely Bangalore, Delhi NCR, Mumbai, Chennai, Hyderabad, Pune, Ahmedabad, and Kolkata, has been stable for several years. Whereas the rental market has grown at a reasonable pace, the rental yield has held steady. The average return on furnished properties in India is only 3.3 percent, which is much lower than the 3.5-4 percent average return in other Asian nations and the 4.5-5 percent average yield in European countries. Although increasing rental yields has been a problem in recent years, the low rental yield has made purchasers wary of investing in real estate, especially individuals hoping to use real estate to generate income.
For those who are unfamiliar, rental yield is the annual rate of rental return on an investor’s invested money in a property. It is negatively proportionate to the property cost, which indicates that the greater the rental returns, the lower the property value. This also means that investing in low-cost or mid-tier enterprises might yield larger returns than high-ticket ones. Nevertheless, the likelihood of this occurring is determined by criteria including such specific project, locality, facilities provided, degree of repair, and the developer’s brand.
One of the causes for the nation’s poor rental yield is that rents have not grown following the rise in property values over the years. In truth, renting out houses is not particularly profitable since the rental laws give renters far too much control and landlords far too little. Furthermore, in nations with greater yields, interest rates tend to be lower, implying that the potential cost of renting is not extremely significant. This is the polar reverse of the issues in India, wherein financial implications appear to be larger due to low rental rates.
According to a Knight Frank analysis, superior interest rates and returns available in term deposits, public provident funds, and other instruments have diverted investors’ interest. Furthermore, the lack of policy action for rental housing has been a key hindrance to the country’s rental housing stock expansion. As a consequence, the proportion of rents in total housing in India has fallen dramatically, from 58 percent in 1961 to 28 percent in 2011.
Another key factor for India’s poor rental return is that renting dwellings is considered a business operation, attracting property tax for individuals and service tax for institutional rental housing providers. Furthermore, the power and utility prices are computed at the same rate as commercial premises, lowering the rental income.
In addition to the aforementioned causes, the high inflation rate, landlord unwillingness to repair their premises, and legacy problems around the landlord and tenant relationship have all had an impact on the Indian rental market. Yet, with millennials preferring to rent rather than purchase a home, analysts believe that it is now time for India’s rental sector to thrive.
Experts recommend that purchasers find micro-markets that give a higher yield to maximise rental yield. In this sense, low-cost investments may be a wise decision. Furthermore, given the fact that a variety of factors influence rental yield, including location and requirement relations, owners must exercise caution when deciding between conventional and novel rental models, such as co-living.
Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.
