Homing in on low rents

Naresh Pal has been staying in a rented two-bedroom apartment in Pune for the past year. He’s not too sure he wants to stay on in the same apartment. “Many projects are coming up near my society and the builders say they will be ready in the next 4-5 months. This may give me more options to choose from,” says Pal. So, when his lease came up for renewal, instead of the standard 11-month extension, he asked if he could have it for six months. His landlord was surprised, but agreed.

Pal has stumbled on to a fact that experts are only now beginning to voice: the residential rental market is looking up. “Real estate markets, which saw property prices doubling in a span of two years, are now witnessing an overwhelming focus towards affordable housing. When most of these projects hit the market in 2010-11, they will help keep rentals in check in some locations at least,” says Anuj Puri, chairman & country head, JLL Meghraj.

Experts reckon that residential rentals, especially in the budget segment, are likely to stabilise over the next two years because of a shift towards affordable housing. “In 1994, we went for premium luxury. The market was such that anything would sell,” says Sandeep Runwal of Mumbai-based developer Runwal Group. “Similarly, in 2005, we earned very high profits. In 2008, we had to re-launch our projects, cutting flat sizes. In two days, we had 2,000 people walking in. The cycle has changed and it provides a good barometer of people’s requirements,” he adds.

“It is sad that today no single developer is creating a stock of rental housing. This is either because of the archaic Rent Act or because the yields are low. Almost every city has a 30-35% floating population that wants to rent,” says Pranay Vakil, chairman of property consultants Knight Frank India. “The US has real estate investment trusts (REITs). They can own 500 complexes of 300-500 flats each only for rental housing. Why is nobody in India doing it? We have guidelines framed for REITs, but no developer is implementing it,” he adds.

Investors, however, are entering the area that developers seem to be shunning. “As two-bedroom apartments are now available for Rs 20-25 lakh, I have started getting queries from investors who are expecting a revival in the real estate market,” says Sandeep Solanki, a Navi Mumbai-based property dealer. But, most shortterm investors are unlikely to be able to sell as easily as they could previously, given the supply that has been building up in some markets. “If you account for the projects that have already been delayed and the increase in new launches in most Tier 1 cities, a significant amount of supply will be available in the market two years from now,” says Samir Jasuja of PropEquity, a Delhi-based real estate research firm. This means that investors will not be able to sell as easily as they could during the previous property boom. The next best option is to rent out.

Another reason for the muted price appreciation for affordable housing projects is that the budget segment is not willing to pay a premium for box-sized apartments, which may suit a migrant for rental purposes.

Some projects are coming up in areas that are farther away from the existing work areas. However, in case of cities like Delhi, the central business district (CBD) is shifting to suburbs like Noida, creating potential markets for rental housing. “Projects with full support infrastructure, even if at a distance from the CBD, will find takers if the connectivity is good,” says Solanki.

Does this mean that you can renegotiate your current rent? “While in cities like Delhi, Chennai and Pune there are areas close to the CBDs where many new projects have been launched, this is not the case in Mumbai, where there’s hardly enough area left near the CBD to expand,” says Anil Singh of Vibgyor Properties, which sells projects in Delhi. So, if you don’t live in a micro-market that has seen significant construction recently, chances are that you’ll have to live with a higher rent.