BENGALURU | MUMBAI: Rental property market is edging out capital property market now as end users await clarity before deciding on outright purchase. The residential property market across Mumbai, Delhi, Bengaluru, Pune and Chennai has witnessed an increase of 812% in average weighted rental values against dormant capital values for the year 2016, property brokers said.
Real estate, in particular, is bearing the brunt of the currency ban due to a high dependence on unaccounted cash transactions, with residential sales taking a direct hit. Home sales have come to a halt across major cities.
“Rental market remains strong and transactions have not been impacted due to demonetisation.With customers postponing property purchase decisions and expecting some demonetisation-led correction in prices, rental market will benefit in the short term.We expect rental prices to grow 5-8% in next one year,“ said Amit Agarwal, founder and CEO of a real estate rental platform.
According to property brokers, postponing of purchase decision is benefiting rental transactions and the demand for rented houses has been going up across localities. The end users’ preference, for now, has shifted to renting property and waiting for an expected softening on prices and home loan rates, thereby enhancing affordability.
“In the short term, rental demand is likely to increase, leading to a possible hardening of rental yields subject to inflow of rental supply, of course. For some of the popular localities such as Chhatarpur in Delhi, Mumbai suburb Malad (East), Koramangala in Bengaluru and Kondapur in Hyderabad, we are already witnessing rental yields crossing the 4%-mark post demonetisation,“ said Sudhir Pai, CEO of a real estate portal.
According to the Anurag Jhanwar, Business head (Consulting and Data Insights), at a online realty portal, 2016 was promising to break the falling trend of residential launches and sales, with both of them showing consolidation with marginal increase over the last 4-5 quarters; the momentum was broken; although temporarily, on account of the demonetisation drive.
“At present, the residential prices (capital values) largely remained range-bound across the top nine cities of India…The impact of demonetisation is expected to fade as we move to the April-June quarter. Excess cash flows and a likely reduction in liability of RBI and tax inflow on account of income declaration scheme is expected to provide ammunition to the government to announce measures to boost investment, and hence, demand for housing and price increase in some growth corridors across cities,“ Jhanwar said.
Reform Real Estate
We need follow through reforms in real estate. Stamp duty rates do need to be rationalised, and we need transparency in earmarking land for housing and attendant urban development. In parallel, we need independent oversight for the sector.
Abroad, in the mature markets, almost 50% of growth is on account of real estate. In sharp contrast, the contribution here is far lower. If we can get our act together in real estate, it would provide solid growth opportunities, for years.
Credits ET Realty