High property prices and lack of completed housing units increase cost of home rentals; consumers are being forced to look for alternatives
You might receive a hike of more than double the usual appreciation in your monthly home rent bill when you lease comes up for renewal this time around.
Jit Nandi of Vashi, Navi Mumbai, received a 20% increase in his home rent bill this year compared to the usual 10% every year. But despite the high rent and a desire to move to cheaper accommodation, Mr Nandi says that he is unable to move to a new location. “At the back of my mind, I know that I need to shift as rent is on the higher side. But due to certain problems such as shifting, paying deposits and brokerage, getting adjusted to a new landlord and society, I’m not able to move to new accommodation. But sooner or later, I’ll have to shift,” he told Moneylife.
However, for some, getting a new apartment was an outright solution to the rising residential rentals in Mumbai. Rajat Kumar of Powai (central Mumbai) said that increasing rentals triggered the idea of opting for a house on ownership. His rent increased from Rs18,000 to Rs25,000 in three years — an increase of 40%. He will get the possession of his 2BHK next month.
Mahendra Ahuja (name changed on request) of Sanpada, Navi Mumbai, who recently purchased a 3BHK in Thane and will get possession next year, said he found it prudent to invest in property rather than paying monthly rent. He said, “My rent has more than doubled in five years. With my increase in income levels, I found it wiser to invest in an apartment as real estate prices are on the rise. Plus, I will get the much-needed tax benefits, whereas, the monthly rent doesn’t accrue any benefit as it goes into the landlord’s pockets.”
According to real-estate dealer Abhay (who uses only one name), the number of persons opting for outright purchase has increased by 8% this year. But Mr Abhay maintained that these are mainly those who are looking to get settled in the financial capital of India. Others such as BPO or private firm employees usually take apartments on rent as they keep shifting from one city to another for better opportunities, he added. Such people don’t hesitate to pay high rent and live in plush localities and apartments, according to Mr Abhay.
In the second quarter this year, residential rentals have risen alarmingly. According to a study by real estate portal 99acres.com, residential rentals have seen an escalation of more than 20% in Mumbai. Khar, a western suburb of Mumbai, has seen 47% appreciation in rentals in the second quarter this year compared to the same period last year. Mahalaxmi and Napean Sea Road saw 28% and 13% rise in rentals over the same period. Bandra (West) witnessed an 11% rise in residential rentals.
“Home rentals in Mumbai have always been on the higher side,” said Sandeep Reddy, a former real-estate analyst with Kotak Institutional Equities and co-founder of GrOffr.com, a real estate website for group buying. According to a report, the city needs 84,000 houses every year additionally, but the combined effort of private housing companies and government housing authorities yields only 55,000 houses annually. The deficiency in supply of houses keeps on propelling the real estate prices to a new zenith every year.
According to Mr Reddy, lack of completed housing units has led to the rise in residential rentals. “In the last two years, many housing projects have been launched but as they take time for completion, the lack of completed units has led to rise in rentals as the demand for accommodation continues to rise due to various factors such as migration of work force.”
According to Yashwant Dalal, president of the Estate Agents’ Association of India, high property prices are responsible for the rise in rentals in the city. Mr Dalal told a tabloid recently, “Property prices have gone up beyond the 2008 peak and are consistently going up since the last three quarters. So people are waiting for the prices to correct and have postponed their purchasing plans for some time. As preference is more towards leased property, the rentals have gone up in the city.”
It’s the same story in other metropolitan cities. According to the study, Saket in South Delhi saw a 31% rise in rentals in the second quarter this year compared to the same period last year. South Extension, Safdarjung and Malviya Nagar followed at 24%, 22% and 21% respectively.
But according to Pankaj Kapoor, founder and managing director, Liases Foras, the rental market is stable and there has been only a slight increase. He said places where high appreciation is reported are mostly high-end locations and these places don’t come under the rental market. “These (places mentioned in the study) are high-end locations. It all depends on the kind of property leased out. You can have a gamut of properties but there is something called high-end or exclusive properties and all of a sudden if it goes off at a certain premium, it will have an impact on the kind of rent,” Mr Kapoor said.
In the case of Mr Nanda who is unable to shift to a new location due to logistical problems, Mr Kapoor said there is no solution other than to bear the high expenses or move to locations far off from the main business areas where rents are cheaper. — Ashok Shaw