With more supply hitting the top 7 cities’ markets, over-heated housing rents are stabilizing. Latest ANAROCK data shows that average residential rental prices across key markets in these cities saw a 2-4% quarterly rise in Q2 2024 to date over the preceding quarter. Q1 2024 saw rents in these markets rise by between 4-9% quarterly against Q4 2023.

Santhosh Kumar, Vice Chairman – ANAROCK Group, says, “In India, the second quarter of most years typically sees rents increase more than in other quarters due to the commencement of the new academic year and the employment of new staff. This year, declining rental value growth coincides with substantial new housing supply entering these markets.”

The top 7 cities are set to deliver approx. 5.31 lakh new units in 2024 while in 2023, these cities saw approx. 4.35 lakh units hit their markets. This denotes a 22% annual supply increase this year if delivery schedules remain on track.

Average rents for a standard 1,000 sq.ft. 2 BHK in Bengaluru’s Whitefield rose by 4% – from INR 32,500/month in Q1 2024 to INR 35,000/month in Q2 2024 to date. In Q1 2024, the quarterly jump against Q4 2023 was double at 8%.

A Quick Look

• Avg. rents in Noida’s Sector 150 rose by a mere 4% – from approx. INR 24,000/month in Q1 2024 to approx. INR 25,000/month in the current quarter. The quarterly hike stood at 9% in Q1 2024 against Q4 2023. Sohna Roadand Dwarka saw their respective quarterly rents increase by 3% and 2% in Q2 2024; in Q1 2024, the hikes stood at 4% and 6% respectively.
• MMR’s key markets Chembur and Mulund saw avg. rents rise by just 2% against the preceding quarter (Q1 2024); in Q1 2024, they rose by over 4% against Q4 2023.
• Hyderabad’s HITECH City and Gachibowli saw avg. rents rise by 3% each in Q2 2024 to date over the preceding quarter. In Q1 2024, the quarterly avg. rent hike in both these markets was 5%.

Source: ANAROCK Research

City-wise Completions in 2024

“ANAROCK data indicates that approx. 5,31,470 units are expected to be completed in 2024 across the top 7 cities, provided there are no delivery delays,” says Santhosh Kumar. “In 2023, approx. 4,35,045 units were completed in these cities.” 

Source: ANAROCK Research

Among the top 7 cities, MMR is slated to see the highest completions at approx. 1,60,900 units in 2024. In 2023, the region saw approx. 1,43,500 units completed.

• NCR is expected to see approx. 1,44,315 units delivered in 2024, against approx. 1,14,280 units in 2023.
• Pune is expected to see approx. 97,000 units completed in 2024. In 2023, approx. 65,000 units were completed here. 
• Bengaluru, the key rental hub with the highest rental value hikes, will see approx. 51,685 units delivered in 2024, against approx. 52,565 units in 2023.
• Hyderabad is slated to see approx. 34,770 units completed 2024-end; in 2023, approx. 20,500 units were completed.
• Kolkata is expected to see approx. 25,220 units delivered in 2024. In 2023, approx. 25,075 units were completed here. 
• Chennai will see the delivery of approx. 17,580 units in 2024, against 14,125 units in 2023.

Also Read: Occupiers across major markets in India willing to pay higher rentals for quality office supply

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Based on the preference of over 2 crore customers on Magicbricks platform, the report further observed that rental demand has increased a significant 16% QoQ during this period, led by Chennai (24.9% QoQ), Navi Mumbai (20.1% QoQ) and Noida (19.2% QoQ). However, the supply has increased marginally by 1.8% QoQ, due to swift absorption of available rental units.

Explaining the dynamics, Abhishek Bhadra, Head of Research, Magicbricks, elaborated, “Prior to 2020, residential rental yields in India were averaging around 3 percent. However, since 2022, following the resumption of office operations, we’ve witnessed a notable surge in rental demand, consequently driving up rents and offering higher yields to landlords. We anticipate this upward trend in rents to persist over the next few months, particularly as rental activity typically peaks in the first two quarters of the fiscal year. Notably, residential and IT hubs like Bengaluru, Gurugram, Hyderabad and Noida have experienced significant increases in their rental yields, in line with our expectations.”

The report also observed that the demand for rental accommodation within the budget of Rs 10,000 to Rs 30,000 per month is the dominant segment accounting for 42% of the total demand share.

Source: Magicbricks Research

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With a steep rise in rental housing demand in the top cities, average rental values have soared and rental yields – the annual ROI investors earn from capital invested in a property – have been heading steadily north. Latest ANAROCK data indicates that as before, IT-dominated Bengaluru tops the list with a rental yield of 4.45% in Q1 2024.

Backed by strong post-pandemic rental demand, rental values in the city’s key areas have been rising inexorably after IT companies’ return to office call. Bengaluru’s rental yield in pre-Covid 2019 stood at 3.6%, which amounts to a growth of 24% in this period.

Mumbai comes next among the top cities with a rental yield of 4.15% in Q1 2024 as against 3.5% back in 2019 – a 19% growth. Gurugram is close behind with a rental yield of 4.1% in the last quarter against 3.5% in 2019.

Source: ANAROCK Research

 “Residential rental yields in India had chronically stagnated before the Covid-19 pandemic, with the national average at just 3% for many years,” says Santhosh Kumar, Vice Chairman – ANAROCK Group. “With post-pandemic rental demand soaring after offices resumed, rental yields are heading north too. IT-dominated cities including Bengaluru, Gurugram, Pune and Noida, and also MMR, have seen considerable upticks in their rental values, and therefore yields.”

Residential rental values in India’s top cities have resurged tremendously after the pandemic, with 2023 seeing them soar by over 30% y-o-y. In the last quarter of 2023, rental values stabilized in most cities as renting activity usually abates in the last quarter of the year. However, the rental real estate market picked up momentum again in the first quarter of 2024.

Rental Value Growth in Q1 2024

In the prominent localities of the top 7 cities, there has been average jump of 4-9% jump in residential rents between in Q1 2024. Considering that the typical annual increase is 5-10%, this is very significant and while it certainly bodes well for landlords, it signifies a worrisome element of cost-of-living inflation for tenants.

India’s Silicon Valley Bengaluru leads this trend. As per ANAROCK data, the average rental values in Sarjapur Road and Whitefield rose by 8% each in Q1 2024 against the previous quarter. In Sarjapur Road, the average monthly rent in Q4 2023 stood at approx. INR 31,600 for a standard 2 BHK flat of 1,000 sq. ft. – in Q1 2024, it went up to approx. INR 34,000/month. Similarly, Whitefield saw average monthly rents go up from INR 30,200 in Q4 2023 to INR 32,500 in Q1 2024 – an 8% jump. A comparison of rental values between 2022-end and Q1 2024 shows that top localities in Bengaluru saw a staggering hike of 40% and above.

The trend is not limited to Bengaluru; other key cities have also witnessed rental values inflation, though not to the magnitude seen in Bengaluru. In NCR, Noida’s Sector 150 saw average rents rise by 9%, and by Delhi’s Dwarka by 6%. In Mumbai, Chembur and Mulund saw 4% growth each in rental rates. In Chembur, the avg. rental rates in Q1 2024 stood at approx. INR 62,500/month as against INR 60,000/month back in Q4 2023.

Kolkata’s Rajarhat saw the lowest increase (3%) in the period – from approx. INR 18,500/month in Q4 2023 to approx. INR 19,000/month in Q1 2024. In both Chennai and Mumbai, rents rose by a more sedate 4% while in Hyderabad, prominent localities like HITECH City and Gachibowli saw rents rise by 5% each in the quarter.

Source: ANAROCK Research

“Going by the current momentum, there are no immediate prospects of the rental inflation trend slowing down,” says Santhosh Kumar. “In fact, it is expected to pick up in the next few quarters, as rental activity typically remains high in the first two quarters of as fiscal year.”

Also Read:At 27% Mumbai Sees Highest Coworking Rental Growth Since FY20 Among Top 5 Flex Workspace Hubs 

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Sudhir Pai, the CEO, Magicbricks, commented, “Over the past year, rental housing demand surged in major Indian cities, driven by returning employees and students. Return to office culture boosted the need for workplace-proximate housing while educational institutions resumed in-person activities, drawing students back to city centers. Meanwhile, as property values soared, homeowners seized opportunities for profitable property sales over rentals, reducing supply. This, coupled with high demand, notably hiked rents across prominent Indian cities..”

As per the Magicbricks Report, the popularity of 2 BHK units remains unchallenged, commanding a significant 53% share in both demand and supply, followed by 1 BHK (27%) and 3 BHK (18%). The demand for 3 BHK units declined from 36% in Q1 2023 to 18% in Q2 2023, while the demand for 1 BHK units increased from 17% in Q1 2023 to 27% in the present quarter. This shift highlights a growing inclination toward compact apartments.

The report concludes that beyond the factor of proximity to employment hubs, a significant driving force for demand this quarter is affordability. Rental accommodations with a monthly rent within INR 10,000 to 20,000 emerged as the favored choice among tenants. These preferences were predominantly observed within unit dimensions spanning from 500 to 1,000 square feet of covered area.

Also Read: Indian Real Estate Industry Soon To Become a RealTech Industry

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According to documents accessed by SquareFeatIndia, provided by Propstack, the two deals took place in Maker Maxity located in BKC.

The first deal lease deal is between Advanced Technical and Management Consultants Private limited, who is the owner, and the tenant is Petrochina International (India) Pvt Ltd.

This deal is of a property comprising of two offices on 6th floor of the building. The monthly rent here is Rs 19.23 lakh, whereas the deposit is Rs 2.3 crore. The chargeable area is 3771 sq ft. The rent escalation is 4.5% every year. The tenure here is for 60 months. The lease commences on OCtober 1, 2023.

The second lease deal is between Advanced Realty Pvt Ltd, and the tenant is Tourism Australia Services and Business Operations LLP. The office is located on 9th floor whereas here the tenure is 27.2 months. The monthly rent is Rs 11.28 lakh, the deposit is Rs 1.35 crore. The chargeable area is 2226 sq ft (built-up). The rent escalation is 5% every year. Teh lease commences from July 1, 2023.

Also Read: BKC property goes for Rs 1.15 crore rent per month

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Commenting on the impact on rental business, Dr. Sachin Chopda, Managing Director, Pushpam Group said, “The decision by the Government to implement the new GST rules will curb the rising demand for rental business across the real estate industry. In recent years, the rent has been an important source of income for many, therefore the current regime is going to impact the sentiments of the homebuyers for the period to come. The Government should soon intervene and provide a few measures that shall encourage the end-users to continue their investments.”

Reiterating the same, Jitesh Lalwani – President, Homesync Real Estate Advisory said, “The introduction of 18% GST on residential rentals will have a major impact on the homebuyers sentiments. The decision will also have a severe effect hampering the demand for rental real estate.”

“Rental businesses have become one of the major sources of income for people and with the new rule in GST, the residential rental market is expected to get impacted. Earlier the GST was only levied on the commercial properties that were open for rent, now focus has shifted to the current soaring residential rental market which might experience a little downside,” said Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory.

Also Read: Slash GST Rates, New Demand After Stamp Duty Cut

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Indian real estate is once again poised to grow at a rapid scale. It is holding a firm ground, marked by healthy economic sentiments and low-interest rates. Alongside end-user activities, investments are also getting a shot in the arm.

Meanwhile, the old debate to invest in Commercial Real Estate (CRE) or Residential Real Estate (RRE) is also resurfacing. Both asset class has their pros and cons. There is no standardized set of parameters to compare CRE and RRE. However, CRE outperforms its residential counterparts significantly, if we talk about rental yields. Commercial assets such as offices, retail, warehouses, etc. remain safe assets to bet on, as they can be a source of recurrent rental income.

The Rental Yields are higher in CRE in India

Globally rental from housing can be a source of smart returns. The downtown area of London can easily give a yield of around 4.5%. Likewise, Dubai and Bangkok can post returns of 5.5% and 5.3% respectively, fostering a conducive environment for better investor participation.

However, the same perspective does not hold true in the Indian market. In India, the growth in the rental rates has not been in proportion to the growth in property prices.

Housing yields are around 2-3%. , significantly lower compared to international markets. The rental yields are a little less than 3% in Delhi NCR.  In the Mumbai Metropolitan Region (MMR), it mostly ranges between 2.5-2.7%.  In the South, upcoming IT corridors in Bangalore can yield up to 3.3% (the general average is 2.4- 3 %.).

Meanwhile with the help of furnishing or other value addition, one can increase yield by 25-50 basis points. However, beyond a certain point, they can’t be increased.

In comparison, commercial properties render much higher yields. Grade-A office spaces can easily offer an average yield in the range of 6-7%.  Heightened economic activities coupled with a stable macroeconomic outlook in FY 23 are also auguring well for the commercial leasing in the country. Meanwhile, after a prolonged period of WFH, most organizations are implementing Back-to-office initiatives, fuelling demand.

Retail is also resuming after facing the whiplash of the pandemic. FY 23 is expected to be marked by a surge in transactions in the high street, hypermarket, supermarket, mall spaces, etc. Retail units can give yields to the tune of 8-9% and can be a prudent investment option.

Alternative CRE assets to invest

In the commercial segment, other subcategories are also climbing up the curve and piquing investor interest. For instance, warehousing is drawing investor interest in big volume. As per Knight and Frank’s research, in FY 21, warehousing transactions amounted to slightly less than 2.95 million sq. ft, jumping significantly from FY 20, when it totaled 1.29 million sq ft. The warehouse market in India will continue to spiral upwards, stemmed by growth in the consumer internet space, packaged food, FMCG, etc. Warehouses in India can easily give returns in the range of 5-6%, much higher than the residential market.

In a time, when there is a growing appetite for low-risk but high-return investment, commercial assets will be the preferred investment option. Despite fallouts from the rise in oil prices, the Indian economy will continue to recover in the current fiscal, thereby ensuring an enabling environment for commercial leasing. Meanwhile, the residential sector will also grow in a positive direction fuelled by an expansive middle class and growth in urbanization. However, the rental yields will continue to be in the lower range, weighing on the overall ROI.

Nakul Mathur, is MD, Avanta India, views expressed in this article solely belong to the author and do not represent those of SquareFeatIndia.

Also Read: Stamp Duty extension to boost Real Estate

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