Sanjay Sanghvi, a broker in Dadar area of central Mumbai, admits that most of his clients prefer to rent rather than buy. Yet, that is not translating into higher rental yields for the owners.
Recently, one of his clients chose to rent a flat priced at Rs 2 crore for Rs 42,000. The yield: Just 2.52%. This is a far cry from the days when rentals used to be six-right% of the flat price.
In 2005, the average rental yields used to be six%. But it has been steadily declining to four% in 2009 and now, it stands at 1.25 to 2.5% in Mumbai suburbs such as Bandra, Powai, Kharghar in Navi Mumbai, property consultants said.
And this is happening despite the number of rental deals rising consistently. In the January-March quarter, property deals have fallen by 15% in Mumbai while the number of residences on leave and licence has risen by 12%.
The story is no different in other metropolitan regions for rental yields. In Gurgaon and Noida in National Capital Region, the average rental yields have come down from four% in 2009 to two to three% in 2011.
Though Bangalore, the country’s infotech hub, has a different story to tell, experts say that it may not be for too long because of the steady rise in capital values. On an average, rental yields in Jayanagar area of Bangalore have risen from 2.5%, three years ago to over 3.5% now. In Whitefield, yields have risen from 3.6% four years ago to 3.75%.
“Though in value terms, rentals have not gone down, property prices have shot up significantly, pushing down the yields,” said Pranay Vakil, chairman, Knight Frank, a property consultancy.
According to PropEquity, a realty research firm, average residential prices in Mumbai Metropolitan Region has risen up 32% between 2009 and 2011, 25% in NCR and 17% in Bangalore during this period.
The high prices, in many areas, have largely been aided by investor interest which is helping the property prices to stay firm and rise consistently, even in the absence of strong demand. “In the markets where rental yields have dropped, mostly on the peripheries of Mumbai, NCR, capital values are largely fuelled by investors,” said Sanjay Dutt of REZone, a real estate investment firm.
As a result, though the prices have stayed high, in the absence of genuine buyers, rental yields have fallen. “In most of the areas, huge supply is available on rent because buyers other than end users have bought them and want to give it out on rent,” Vakil added.
Obviously, rentals are under pressure. For instance, in Kharghar in Navi Mumbai, closer to the new Mumbai airport site, two bedroom apartments are on sale for Rs 60 lakh to Rs 65 lakh, but the same units are available for rent at Rs 6,000 to Rs 7,000 a month, indicating the rental yield of around 1.29%.
No wonder, K Madhusudan, co-investment officer of Azure Capital, a realty fund manager, believes commercial properties are a better bet for investors than residential given the higher yields carried by the former. “Residential properties are not a best bet for investment. If you can put Rs 1.5 crore to Rs 2 crore in commercial properties, you can expect an yield of 11 to 11.5%, said Madhusudan.