Residential rental yields have gone up as high as 4.5% in cities such as Bengaluru – perhaps the highest in five years – as rents went through the roof. Rental yields in the country have been traditionally low and before the pandemic, they were hovering between 2% and 3.5%.
Rental yield is the annual rate of return an investor can earn from the capital invested in a property. In the short-to-medium term, several factors such as interest rates and the demand-supply matrix influence their movement.
Residential yields in Bengaluru have gone up from 3.6 % in 2019 to 4.45% in Q1 of 2024. In Mumbai, they have gone up from 3.5% in 2019 to nearly 4.15% in Q1 2024. In Gurugram, the figure currently stood at 4.1%, according to Anarock Property Consultants.
The demand for rented properties has soared as employees return to the workplace in key economic hubs after the pandemic. A pronounced demand-supply imbalance and elevated pricing have become prominent features of the rental market, said Saurabh Rathi, co-head, real estate funds, Motilal Oswal Alternates.
In Bengaluru’s eastern suburbs, the asking rent for a two-bedroom apartment has increased by 50-60% since 2019. In Gurugram, in the national capital region, localities like Golf Course Extension have witnessed a rise ranging between 55% and 60% since 2019, Rathi said.
In some cities, the rental surge was rapid. For instance, Whitefield in Bengaluru saw its average rental zoom by 44% in Q1 of 2024 as against the last quarter of 2022. Gachibowli in Hyderabad saw a 37% surge in average rent during this period, according to Santhosh Kumar, vice chairman at Anarock Property Consultants.
“Several residential complexes in key areas in cities such as Bengaluru, Mumbai and Gurugram saw a surge in rental demand post the pandemic, thereby leading to a demand-supply mismatch. Resultantly, we saw rental values heading north — as high as more than 40%,” Kumar said. Moreover, after the Covid-19 pandemic, there has been less new ready-to-move properties, which “in a way led to the surge in rents and this rental yield,” he said.
Rathi of Motilal Oswal Alternates said that challenges like limited transparency, regulatory complexities, and legal uncertainties have significantly influenced India’s rental housing landscape, where residential rental yields typically range between 2% and 2.5%.
Adding to the complexity, India’s rental market faces an elevated house price-to-rent ratio, particularly in cities like Mumbai and New Delhi. This ratio contrasts with global counterparts like London and New York, signalling relatively lower returns as compared to property purchase prices in Indian metropolises, he said.
“Factors contributing to India’s comparatively lower rental yields include high land costs, elevated interest rates (8-9.5% for home loans), and a lack of market transparency,” Rathi said.
Amit Kumar Agarwal, co-founder and CEO of NoBroker.com, feels rental yields will stabilise when rents get moderated or prices go up.
“It is a good opportunity for people to buy (houses) if they are getting a yield of 4%. Many tenants are looking to buy as they think why pay so much rent,” Agarwal said
