The return of rent

Delhi | where's the capital?
"For the last couple of months, we are mainly doing lease rental deals. The only ones looking to buy are those who have property to sell and stand to gain from the price rise. But there are hardly any new buyers." Tarandeep Singh, senior broker from Pitampura
In 2003, a three-bedroom flat in the middle-income areas of Patparganj, Mayur Vihar and Pitampura areas used to carry a price tag of around Rs 24 lakh.Today, that's doubled to Rs 50-55 lakh. In suburbs like Noida and Gurgaon, a Rs 16-lakh flat now fetches Rs 55-60 lakh.
Still interested in buying? Wait till you calculate the interest. Since interest rates have increased from 7.5% per annum in 2003 to 9.5% at present, EMI on home loans has gone up by 150 to 200%.
So, if you had to pay EMI of Rs 18,000 for 20 years to buy a flat in 2003, today you would have to shell out a minimum Rs 45,000 per month to repay the increased loan amount at a higher interest rate. Rentals, on the other hand, have risen marginally by 20-25%.
The going rate for a two- bedroom flat is Rs 6,000-8,000 per month while a three-bedroom one costs Rs 8,000-10,000. So, are would-be buyers backing out? Property dealers in the Capital and its suburbs admit the market mood is changing.
Says Pawan Sarpal, a broker in Dwarka: "A couple of years back, brokers had little time for the rental business; they were too busy with sale-purchase where fees were hefty. But with prices going beyond the reach of the middle-class buyer, many are settling for rented homes."
What's putting off buyers is not just the high price tag but also the inflated 'cash element' that comes with it. As Jawahar Singh of Jupiter Estate in Gurgaon points out: "The demand for cash in most resales has also risen, which is a major dampener.
The cost of an average two-bedroom apartment in Gurgaon has gone up to Rs 45 lakh from Rs 15 lakh a couple of years back. So a 40% cash payment amounts to around Rs 20 lakh. A salaried professional would find it hard to pay that kind of money."
So, who's buying up all those fancy new apartments coming up all around the city? Those in the trade say it's mostly people looking to make an investment. That's one reason why rentals are not keeping pace with property prices.
Although heavy demand did see a rise in rates over the last one year, supply of 'fresh' apartments has helped reverse the trend in the last couple of months.
— Prabhakar Sinha
Kolkata | up, up and away
"It is taking longer to sell projects but sales have not dried up. The slackening of demand has, however, led to stock build-up in low-end 'para' developments and high-end formated properties." Abhijit Das, office head, Trammell Crow Meghraj
Unlike Mumbai or Delhi, the rush for rented homes in Kolkata is not led by customers deferring purchases. It is the influx of IT and other professionals.
"With industry paying handsome packages, there's a healthy demand for high-end rentals," says Das, adding that high-value rentals in the residential sector have spiralled in the past year.
And how! Deals have been struck for Rs 50,000-1 lakh per month, figures truly astronomical and unprecedented in Kolkata. And they aren't for posh bungalows alone. Furnished duplex in sought-after south Kolkata localities like Queen's Park and Ballygunge are fetching as much.
At Elgin Road, four-bedroom flats are going for Rs 55,000 per month. And at Ironside Road, the rate varies from Rs 40,000 to Rs 50,000 for two and three-bedroom flats.
"A burgeoning group of executives posted in the city are opting for apartments at fancy addresses. Since they could be taking up a job elsewhere in a couple of years, they see sense in paying rent rather than make a purchase," explains Jitendra Khaitan of realtor firm Pioneer Properties.
Traditionally posh localities have competition from condominiums at Salt Lake and along Eastern Metropolitan Bypass. With NRIs buying heavily into these complexes, plenty of apartments are up for rent.
A fully furnished apartment at City Centre fetches a whopping Rs 70,000-80,000. At Highland Park, duplex rent is pegged at Rs 40,000.
Middle-rung executives in call centres and BPO firms are renting flats in Salt Lake due to its proximity to the IT hub. In the satellite township, rents have been revised upwards by 45-50% in the past 12 months alone.
— Subhro Niyogi
Bangalore | IT's buy-buy
"Most of the IT folks who come into Bangalore start scouting for a property within a year of moving. And till now, there's absolutely no change in that behavioural pattern."
— Syed Md Beary, director, Bearys Group
Nearly four years into a real-estate boom, Bangaloreans are still buying. "Out of 20 enquiries we get, about 10 would be for purchasing a residential property, four-five for renting commercial space and another five for renting houses for corporate guesthouses," says Feroze Abdulla of Feroze's Estate Agency.
"There are hardly any enquiries for renting from individuals, except occasionally from people in businesses like FMCG and pharma who have moved here from elsewhere and probably expect to be transferred again in a few years."
As Beary points out, many IT professionals coming to Bangalore prefer to buy property. Reason: IT salaries, he says, have increased pretty much in line with property prices.
On an average, property prices have increased by nearly 50% per annum for the past four years. Apartment prices in the region of Rs 1,100 per sq ft in 2002, are today pegged at about Rs 3,000. Rents have risen much more slowly.
A two-bedroom apartment, available for Rs 7,000 per month four years ago is only Rs 10,000-11,000 now. Yet, the itch to buy has not diminished. Apart from rising salaries, the tax incentive is another reason to buy. "It's a very big incentive.
So even if people have to borrow a little more, they will do that," says Farooq Mahmood, MD, Silverline Realty. But experts expect renting to become a more preferred option as capital values and interest rates rise further.
"We may soon reach that situation," says Ankur Srivastava, MD of property consultancy DTZ Debenham Tie Leung
— Sujit John
Mumbai | sell & rent
"Rented accommodation suits my pocket. What's more, I am able to stay in Bandra. Had I gone in for a house of my own, I would have had to compromise on location." — Rohan Verma, bank employee
Rohan Verma had been looking for a flat in Mumbai for almost a year. Finally, he gave up his quest and settled for a rented place in Bandra. Recently married, Verma and his wife, an HR consultant, earn over Rs 10 lakh per year.
They pay Rs 18,000 per month as rent for a Rs 60-lakh flat. Had they taken a loan to buy the same property, he would have paid upwards of Rs 35,000 as EMI.
No wonder the math of rent suits the Vermas. As it does many other young couples in the city who are increasingly going in for rental apartments. "The cost of flats in certain areas such as Bandra, Mulund and Central Mumbai has gone up by over 40%.
Rentals, on the other hand, have seen only a marginal increase," says Pankaj Kapoor, CEO, Liases Foras, a real-estate rating and research agency.
In the last three years, rental yields (comparable to investment returns on property value) have come down from as high as 12% to an average 4.5%, he points out. "The more you go towards north (suburbs), the lesser the rental yields."
The trend is more visible in the expensive housing segment areas such as Churchgate, Malabar Hill, Colaba, Peddar Road and Altamount Road. An amendment to the Rent Control Act a few years ago set things on track.
The amendment stated that government employees, semi-government, multinational companies, consulates and companies with paid-up capital of more than Rs 1 crore cannot seek protection under the Act. This, along with the increase in property prices, gave a boost to high-end property rentals.
"Many corporates are selling their high-end residential properties and unlocking the value. Executives are shifted to similar high-end apartments, and companies are paying the lease rentals," says Pranay Vakil, chairman, Knight Frank India, an international property consultancy.
Recently, many banks including HSBC and companies such as HLL sold their flats. Their cost ranges from Rs 2 crore to as much as Rs 20 crore. This segment has an average rental yield of 6%, according to Vakil.
"This market has also seen the demand and supply equilibrium changing. Owners are more confident now and are willing to lease out their flats to big corporates."
— Tinesh Bhasin
Hyderabad | on hold
"Owners are now charging rent on per square foot basis up to Rs15-18 per sq ft in areas like Banjara Hills and Jubilee Hills, where rates have gone up by 100-150% in the last six months."— Satheesh Reddy, housing broker
Ask any Hyderabadi and they'll tell you that owning a house is a lifetime goal. However, in a city where real-estate prices have gone up by 200-300% in less than a year, the aam aadmi has little choice but to live on rent.
Compounding the problem is a huge demand-supply gap. With a recent government order stipulating strict norms for new apartments, construction activity has virtually come to a standstill.
There's not even a single application pending with the Hyderabad Urban Development Authority for a residential apartment building. Result: Apartment prices have skyrocketed, leaving prospective buyers with no option but to put their plans on hold.
Not surprisingly, the rentals market is booming like never before. And although these rates are on the rise as well, the hike is comparatively less.
Says Y Kiron, MD, Sreemitra Group, a leading real-estate firm: "With hurdles in acquiring a house or flat increasing by the day, many people are still comfortable being in rented houses.
The huge number of malpractices by realtors too is making people wary of buying property in the city."
— P Aneel Kumar