Rental Housing – The Ideal Investment

Ashwinder Raj Singh, CEO – ANAROCK Property Consultants

The Indian real estate market in the country is going through some exciting times – not only have sales started picking up, but even the rental market is growing at a healthy rate. A survey in 2009 pointed out that almost 35% of urban families were living in rental homes – another survey in 2011 indicated that a massive 24.7 million families lived on rent. Since then, factoring in population growth, the development of new workplace hubs and the hugely increased rate of job creation and the formation of new residential precincts in and around our cities, the current demand for rental homes can well be imagined.

Current Trends
The reason for the massive growth in demand for rental housing in India is that buying a house is still a financial undertaking which is more or less out of reach for most of the population, owing to high property prices. The migration from villages and small towns to bigger cities has resulted in a constantly escalating housing requirement, but there are simply not enough housing projects that cater to the budgets of lower-income homebuyers. Naturally, they end up living in rented premises. Most of the affordable housing in India is located on the peripheries of the cities, while people require homes near their workplaces in the city, which are also close to schools for their children.

In contrast, renting a home within the city is still quite affordable, as rentals are just 1-3% of the value of the property. Even if tenants have to rent a house on the peripheries of a major city, there are usually enough modes of travel available to connect them to their workplaces and good schools.

Other trends supporting the growth of India’s rental market are the effects of the demonetization move late last year, and the lull on the property market in past couple of years. With properties on the resale market not finding enough buyers or the correct prices sellers, owners are opting to rent out their properties instead. This resulted in an over-supply situation on the market, and either stabilization of rents or even declines in certain pockets. As per an independent survey, there was an average decline of about 7% in annual rent in Delhi in the last 1 year.

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Future Trends
The Indian real estate market is now showing significantly increased activity in terms of sales, and with stabilized prices along with more affordable housing supply hitting the market, the overall sales scenario is showing rebooted potential. However, the rental market will continue to thrive since buying a home is still not affordable to a vast majority of people, and the employment opportunities available in major cities are not proportional to housing available there.

Also, despite home loan rates coming down and making it easier to buy a home, comparing the expense of EMIs with rental outgo still tilts many people’s decision in favour of renting. The upwardly mobile youth of today wants to stay in projects that offer the best amenities in locations that ensure a good quality life. Owning a home may not meet these requirements as one literally pays for everything that adds comfort and convenience – from location to project amenities – while renting means one can stay wherever one wishes, and move at any time.

The Ideal Investment

Today, a vast number of youngsters are deciding against buying a home and instead investing the funds which would have gone into EMIs into financial products for better returns, while staying in rented accommodation that does not pinch their pockets as much as an EMI do.

Adding to this are the Government’s efforts to boost renting to help solve India’s massive housing challenges. The Government is coming out with the National Urban Rental Housing Policy to help reduce housing shortage and bring 11 million empty unsold houses onto the rental market.

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All in all, the rental market is poised for really healthy growth. From the point of view of a property investor, buying a home to rent out is a sound decision, as steady rental income along with capital value appreciation of the property in the long term can make such an investment quite lucrative.

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