Rental Properties Pick up Post Demonetisation
For a long time, the property market was going through the problem of excess unsold inventory, but the property rates were not falling. Now, according to various media reports, property rates have fallen, after the government’s demonetisation move. Banks and housing finance institutions, have also surprised borrowers by recently announcing steep cuts in their lending rates. This has forced investors to re-evaluate the prospects for return on investment (RoI), as per the changed scenario.
For investors, potential rental income, is a crucial factor in the purchase decision. Rental income of around 3% to 5% per annum from the property, can add substantial value to the overall RoI.
Experts maintain that the rental market in the residential, as well as the commercial real estate sector, is likely to stay robust.
In a scenario, where cost of purchasing a property has reduced but rental incomes have remained steady, investors can now borrow cheap funds and earn a higher rental return.
Steady rentals, high absorption levels and limited supply, have contributed to the commercial real estate market in India witnessing an improved sentiment. This segment has witnessed a surge, relative to other real estate asset classes, on account of the growth in the IT/ITeS, BFSI and consulting sectors and the growth of high-potential start-ups.
There has been an increase in demand, from 4-5 million sq ft in 2000 to over 35 million sq ft in 2015. It is estimated that around 36.2 million sq ft of commercial real estate was absorbed last year, with approximately 40 million sq ft expected to be constructed in 2017.
Cities with the best rental growth prospects Subash Bhola, associate director – research and real estate intelligence service, JLL India, attributes the healthy demand to each city’s own strength, continued occupier interest in the Indian market and the positive steps from the government towards improving transparency and sustainability in the sector, via various real estate and economic policies.
“The scarcity of office space, has prompted new projects by developers, particularly in cities such as Bengaluru, Pune, Hyderabad and Chennai. In Mumbai, six out of eight sub-markets will see a decline in vacancy rates by the end of 2017, although currently, they are close to the city average at 19%,” Bhola explains.
“The strength of markets such as Bengaluru, Pune and Hyderabad, lie in their competitive rents, quality assets and large floor plates, as well as the availability of skilled human resources and an established IT base. Hyderabad has an excellent road infrastructure that adds to the city’s attractiveness,” he adds. All these factors have resulted in strong demand for office space in these markets and will put upward pressure on office rents in these cities. This, in turn, is likely to boost the overall rental market across the country, he concludes.