Rental mar­ket poised for healthy growth

Hindustan Times (Chandigarh) - Estates - - HT ESTATES - Ash­winder Raj Singh feed­back@livemint.com Ash­winder Raj Singh is CEO, ANAROCK Prop­erty Con­sul­tants

The In­dian real es­tate mar­ket in the coun­try is go­ing through some ex­cit­ing times - not only have sales started pick­ing up, but even the rental mar­ket is grow­ing at a healthy rate.

A sur­vey in 2009 pointed out that al­most 35% of ur­ban fam­i­lies were liv­ing in rental homes - an­other sur­vey in 2011 in­di­cated that a mas­sive 24.7 mil­lion fam­i­lies lived on rent. Since then, fac­tor­ing in pop­u­la­tion growth, the devel­op­ment of new work­place hubs and the hugely in­creased rate of job cre­ation and the for­ma­tion of new res­i­den­tial precincts in and around our cities, the cur­rent de­mand for rental homes can well be imag­ined.

CUR­RENT TRENDS

The rea­son for the mas­sive growth in de­mand for rental hous­ing in In­dia is that buy­ing a house is still a fi­nan­cial un­der­tak­ing which is more or less out of reach for most of the pop­u­la­tion, ow­ing to high prop­erty prices. The mi­gra­tion from vil­lages and small towns to big­ger cities has re­sulted in a con­stantly es­ca­lat­ing hous­ing re­quire­ment, but there are sim­ply not enough hous­ing projects that cater to the bud­gets of lower-in­come home­buy­ers. Nat­u­rally, they end up liv­ing in rented premises. Most of the af­ford­able hous­ing in In­dia is lo­cated on the pe­riph­eries of the cities, while peo­ple re­quire homes near their work­places in the city, which are also close to schools for their chil­dren.

In con­trast rent­ing a home within the city is still quite af­ford­able, as ren­tals are just 1-3% of the value of the prop­erty. Even if ten­ants have to rent a house on the pe­riph­eries of a ma­jor city, there are usu­ally enough modes of travel avail­able to con­nect them to their work­places and good schools.

Other trends sup­port­ing the growth of In­dia’s rental mar­ket are the ef­fects of the de­mon­e­ti­za­tion move late last year, and the lull on the prop­erty mar­ket in past cou­ple of years. With prop­er­ties on the re­sale mar­ket not find­ing enough buy­ers or the cor­rect prices sellers, own­ers are opt­ing to rent out their prop­er­ties in­stead. This re­sulted in an over-sup­ply sit­u­a­tion on the mar­ket, and ei­ther stabilization of rents or even de­cline sin cer­tain pock­ets. Asp er an in­de­pen­dent sur­vey, there was an av­er­age de­cline of about 7% in an­nual rent in Delhi in the last 1 year.

FU­TURE TRENDS

The In­dian real es­tate mar­ket is now show­ing sig­nif­i­cantly in­creased ac­tiv­ity in terms of sales, and with sta­bi­lized prices along with more af­ford­able hous­ing sup­ply hit­ting the mar­ket, the over­all sales sce­nario is show­ing re­booted po­ten­tial. How­ever, the rental mar­ket will con­tinue to thrive since buy­ing a home is still not af­ford­able to a vast ma­jor­ity of peo­ple, and the em­ploy­ment op­por­tu­ni­ties avail­able in ma­jor cities are not pro­por­tional to hous­ing avail­able there.

Also, de­spite home loan rates com­ing down and mak­ing it eas­ier to buy a home com­par­ing the ex­pense of EMIs with rental outgo still tilts many peo­ple’s de­ci­sion in favour of rent­ing.

The up­ward ly mo­bile youth of today wants to stay in projects that of­fer the best ameni­ties in lo­ca­tions that en­sure a good qual­ity life. Own­ing a home may not meet these re­quire­ments as one lit­er­ally pays for ev­ery­thing that adds com­fort and con­ve­nience - from lo­ca­tion to project ameni­ties - while rent­ing means one can stay wher­ever one wishes, and move at any time.

THE IDEAL IN­VEST­MENT

Today, a vast num­ber of young­sters are de­cid­ing against buy­ing a home and in­stead in­vest­ing the funds which would have gone into EMIs into fi­nan­cial prod­ucts for bet­ter re­turns, while stay­ing in rented ac­com­mo­da­tion that does not pinch their pock­ets as much as an EMI do.

Adding to this are the Gov­ern­ment’s ef­forts to boost rent­ing to help solve In­dia’s mas­sive hous­ing chal­lenges. The Gov­ern­ment is com­ing out with the Na­tional Ur­ban Rental Hous­ing Pol­icy to help re­duce hous­ing short­age and bring 11 mil­lion empty un­sold houses onto the rental mar­ket.

All in all, the rental mar­ket is poised for re­ally healthy growth. From the point of view of a prop­erty in­vestor, buy­ing a home to rent out is a sound de­ci­sion, as steady rental in­come along with cap­i­tal value ap­pre­ci­a­tion of the prop­erty in the long term can make such an in­vest­ment quite lu­cra­tive.

MINT/FILE

A vast num­ber of young­sters are de­cid­ing against buy­ing a home.

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