Rental housing is not an option for developers, says DLF's Rajeev Talwar

While the Union government has issued the draft of a model tenancy law, to promote rental housing, real estate developers are not keen.

“Rental housing is not an option for developers. Government has to change policy to make it viable for property developers,” said Rajeev Talwar, chief executive at DLF, the largest company in the sector. The annual yield on investment in housing is 2 to 3 per cent. Those on commercial property are between 8 and 10 per cent. “Developers get loans at 13-14 per cent (interest a year), if not higher. Therefore, at the current yields, rental housing is not viable,” Talwar said.

He says the government should increase the allowance allowed on maintenance to 50 per cent for citizens and corporate entities, to make the return attractive.

According to data collated by Business Standard, developers had unsold inventory worth Rs 1.13 trillion at the end of September 2018. However, says Anuj Puri, chairman of Anarock Property Consultants, it is doubtful if developers would build anew for rental housing. “It is possible that they can use their unsold inventory for rental housing but it does not make sense to build, given the current yields. The draft policy does not address the issue of low rental yield.”

Kamal Khetan, chairman and managing director of Mumbai-based Sunteck Realty, says for rental housing to take off, the annual yield has to reach 4 to 5 per cent. Also, there some prospect that this will appreciate.

In Mumbai, the price of housing has stagnated since 2013. On the other hand, Niranjan Hiranandani, chairman of Hiranandani Group, says his company would look at developing residential projects for rental housing. 

“We have already given apartments on rent in Mumbai. With the new policy, there is a bigger opportunity for creating residential stock for renting,” he said.

The company, he added, had given about 250 apartments on rent in Powai (Mumbai) and about 50 in Thane. Both their townships in Powai and Thane house commercial buildings of many corporates. “We have sold the leased commercial property portfolio in Powai to Brookfield. We can look at a similar option in residential,” he said.

According to estimates, there is a demand for 18.8 million homes in urban areas.

Among others, the draft law on model rent agreements proposes a cap of two months’ advance rent at the time of letting out a property. Also, owners would not be allowed to impose any mid-term hike. Thye must give a notice three months’ notice before any such hike and also be required to repair the property.