Over the years, the evolution of the Indian rental housing market has been curiously lop-sided, even as the trends driving it have changed considerably. The demand for rental properties is mainly driven by the salaried population.
Performance as an investment asset class
Prashant Thakur, director & head – Research, Anarock Property Consultants, says, “The lower the property cost, the higher is the rental yield. Therefore, investing in affordable or mid-segment properties will yield better rental returns (depending on external factors like location, project type, developer’s brand, etc.) For the same reason, luxury and super-luxury homes are not at all rewarding from a rental yield point of view.”
Despite the relatively low rental yields, residential property investors increasingly prefer to earn a steady rental income over selling the property (after appropriate appreciation). Anarock’s consumer survey found that more than 53% respondents looking to invest in real estate in 2019 preferred to earn a steady rental income while only 39% would sell the property.
Thakur says, “If we look at the city-wise performance for rental yields, Hyderabad tops the list with a rental yield of 3.7%. In Bengaluru it is 3.6%, Pune 3.3 % and in entire MMR - surprisingly – it is just 3%. Interestingly, residential rental yields in India are higher than in Beijing, Singapore and Hong Kong but lower than cities like Manila and Jakarta. However, the Indian rental yield average of 3% is lower than that of other Asian countries that are pegged at 3.5 - 4% and European countries at 4.5%-5%.”
Evolving tenant preferences
Some of the basic rights of tenants and duties of landlords in India:
A tenant has the right to a safe and secure house and the onus to ensure basic standards of accommodation is on the landlord.
The landlord cannot bar essential services such as power and water to recover rental dues. In such a situation, a tenant can register a complaint against the landlord with the Rent Control Court.
In order to evict a tenant, the landlord must file a petition before the Rent Control Court. Eviction can only be under specific grounds such as wilful default in rent payment, subletting without prior consent, causing nuisance or when the landlord requires premises for personal occupation.
The tenant has the right to privacy and the landlord cannot enter the premises without prior permission or intimation.
The landlord must reimburse the tenant for any repairs that he/she carries out.
The tenant must be served notice of the termination of tenancy and is entitled to receive the deposit at the end of the lease term.
Legal heirs of the tenant are also considered tenants and are covered by the Rent Control Act of various states.
According to Thakur, the proposed Model Tenancy Act, 2019 aims to simplify the complex dynamic of the tenant-landlord relationship. The first draft of the policy was released in October 2015 and aimed to promote rental housing through public-private partnerships. In September 2017, the housing ministry announced a new public-private partnership (PPP) policy to promote private investment in affordable housing, including rental housing.
Development of rental housing