The average rental yield in residential real estate assets in India is 3%, however in cities with cheaper real estate rates, like Kolkata the rental yield is higher at 3.9% reveals the latest Magicbricks report – ‘Rental Yield in Residential Sector’.
With the residential prices being stagnant or witnessing marginal gains, Magicbricks’ report ‘Rental Yield in Residential Sector’ takes a look at rental yield to understand the kind of returns that can be expected in the current scenario. The report covers 14 major cities and considers multi-storey apartments, builder floors, independent houses and villas.
‘Rental Yield in Residential Sector’ reveals that while the average rental yield for India across residential asset types remains low at 3%; builder floors with 3.1% rental return have the highest yield followed by multi-storey apartments with 3% yield. Large format and high capital value assets like villas and residential houses have lower yields of 2.4% and 2.9%, respectively.Magicbricks data also revealed that properties for rent are 10% smaller in size as compared to properties available on sale.
Magicbricks analysis of rental trends across 14 cities showed considerable variation. In general, markets with cheaper real estate were found to have the higher yields. With 3.9% return, Kolkata has the highest rental yield. This is followed by Bangalore, Hyderabad, Ghaziabad and Ahmedabad. The average capital value (Rs./sq.ft) in all these cities is equivalent or less than Rs. 5,500 per sq.ft. On the other end of the spectrum, the bottom five cities (from lowest to highest) in terms of rental yields are Navi Mumbai, New Delhi, Thane, Gurgaon and Mumbai; all these cities have capital value in excess of Rs. 9,000 per sq.ft.
Other low average capital value cities like Noida and Greater Noida have mid-level yields because over the last 12-18 months, considerable fresh supply has entered the market with many under-construction projects receiving occupation certificates. This over supply has dampened the rentals and hence, in spite of low capital values, the yields are in mid-range.
Another aspect that impacts the rental value is the state of furnishings. Other things being equal, furnished properties command higher rental and yield is disproportionate to investment made towards furnishings. At pan India level, the yield on furnished properties is 3.3%. Semi and un-furnished have yield of 2.9% and 2.7%, respectively. The reason behind the marginal difference is due to the lack of any definite benchmark of furnished and semi-furnished.
Low rental yields point to the fact that residential investment purely on the basis of rental yield is not sustainable. Especially considering the fact that national rental yield average at 3% is less than half of prevailing fixed deposit rate offered by the banks.However, low rental yields mean that Indian rental residential market remains affordable. Almost 2/3rd of properties listed for rent fall in Rs. 35,000/month and less rent bracket. Within this segment, almost 50% properties are in Rs.15,000-25,000/month rent range.
Cities with large number of premium and luxury properties like Mumbai, New Delhi and Gurgaon have much higher than national average share of rental properties in premium (Rs. 35,000-50,000 per month) and luxury (>Rs. 50,000 per month) bracket.
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