Why de­vel­op­ers pre­fer to sell and not to rent

This is be­cause the rental yield is barely 5% com­pared to cost of debt

HT Estates - - Front Page - Van­dana Ram­nani

Arental hous­ing pol­icy can go a long way in en­cour­ag­ing de­vel­op­ment of rental hous­ing in the af­ford­able hous­ing seg­ment by set­ting up pub­lic hous­ing as­so­ci­a­tions that con­struct, own, op­er­ate and man­age the rental hous­ing units.

Fir­dose Van­drevala, chair­man, CII National Com­mit­tee on Real Es­tate and Hous­ing, points out that there is a crying need to de­velop an in­sti­tu­tion­alised mar­ket for rental hous­ing in In­dia. To­day, when pri­vate own­ers of apart­ment rent/ lease their apart­ments the yield is in the range of just 5%, which is tax­able. There­fore, most de­vel­op­ers pre­fer to build and sell rather than build and rent.

Given the de­mo­graph­ics of In­dia with a grow­ing young pop­u­la­tion and the ur­ban­i­sa­tion that is tak­ing place, rental hous­ing is a crit­i­cal suc­cess fac­tor for In­dia’s growth and de­vel­op­ment. Any pol­icy that will pro­mote and en­cour­age the de­vel­op­ment of this mar­ket is absolutely nec­es­sary.

Chin­tan Pa­tel, di­rec­tor, trans­ac­tion ad­vi­sory ser­vices, Ernst & Young, says that the rental hous­ing yield is far lower in In­dia than in other coun­tries where the cost of debt is less. In In­dia the cost of debt is any­thing be­tween 10% to 15% and the rental yield be­tween 3% to 5%. This is not enough to in­cen­tivise the rental hous­ing play into a rev­enue model. That gap needs to be re­duced.

“Cities like Mum­bai, Delhi NCR and Ben­galuru will ben­e­fit from such schemes as th­ese cities at­tract mi­grant work­ers who ini­tially can­not af­ford to in­vest in their own houses. More­over, the cost of a ba­sic hous­ing unit is very high com­pared to Tier II and III cities in In­dia which makes it dif­fi­cult for an aver­age worker to own a house.

Hence, ten­ant hous­ing be­comes an easy op­tion for such a seg­ment. Ex­tra FSI along with tax in­cen­tives for the de­vel­op­ers should en­cour­age more such projects which will en­able ten­ants with more op­tions,” adds Ro­hit Kumar, head of In­dia Re­search, DTZ In­dia.

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