Sanmukh

After information technology, the property or real estate rental sector is the most dynamic sector in the Indian business scenario today. Major factors that are responsible for bringing about this change include, increasing popularity of electronic commerce among people, growth in information technology/information technology-enabled services industry, emergence of India as an important investment centre in the world market, growth in foreign direct investments and others. This budding sector is today witnessing development in all its major segments like, residential, retail and commercial in all of the metropolitan cities of the country like Delhi, Mumbai, Chennai and Kolkata.

At present the countrys commercial and residential real estate market has a price tag of about $50 billion, and is expected to grow 25% in a yearly basis. This growth in the property market is being led largely by the rapid expansion of its information technology industry and the simultaneous growth in the purchasing power of the Indian middle class. Major growth is being witnessed by the commercial property sector as more and more multinational companies are entering the Indian market. Foreign information technology and customer services companies of the BPO sector are renting large commercial spaces in order to expand their business process in India.

The growth and the highly nature of the Indian middle class have brought about a boom in the residential real estate segment. Today, people are ready to pay large sums as rent for apartments, flats and homes in metros. The rapid rise in the number of lessee has been compensated by reciprocal growth in the number of lessor. People have come to know the residential real estate as an important investment option. Today, they are investing heavily in the residential real estate market and leasing their homes and apartments for rent and this has further boosted the property rental sector in India.

Moreover, the key factor behind the sudden rise of the Indian real estate sector is the changing policy of the Indian government toward foreign direct investment and joint ventures. The Indian government is relaxing and is keen to liberalize its trade regulations for multinationals. So, from investors point or price everything is gearing up for a rapid growth in the property rental sector in the next few years. For those who are interested to invest in India this seems to be the right time

Rashmi

Excellent presentation Sanmukh

There are numerous factors that contribute to this incredible situation in the Indian rental property market.

Major factors that are responsible for bringing about this change include growth in information technology/information technology-enabled services industry like BPOs as they are renting large commercial spaces in order to expand their business process in India.

Apart from this, emergence of India as an important investment hub in the world market, growth in foreign direct investments and simultaneous growth in the purchasing power of the Indian middle class plays a pivotal role.

In order to overcome this demand for good accommodation in the big cities and surrounding areas which can meet the requirements of the population migrating to the cities for employment, people renting their properties soon realized that it is an amazing source for income as well.

Moreover with people aspiring rich lifestyle and an accommodation that matches their taste further drives the prices of rental property up the wall and makes it a lucrative business opportunity.

At this point it can be very conveniently said that rental property market has great potential and can turn out to be a reliable source of income generation.

The advantages of investing in rental property market can be summarized as below:

1. Demand for accommodation is ever increasing and people are willing to pay huge amounts for an accommodation that matches their taste and meets all the mentioned specifications.

2. In case immediate selling of any property is not possible, renting the accommodation is a good business and the returns are amazingly high.

3. Only apartments in multistoried buildings are not in demand but people seeking independent houses for rent are also many. As a result investment in building independent houses for renting purpose is also a money-spinning business with high rate of return.

raguraam

I feel the rental rates in India are not that good compared to the cost of acquiring or building a house or apartment. For example if you look at the GRM (Gross rent multiplier) of a typical apartment in Chennai it is well beyond 23+. Also,even after a 20% down payment, there wont be any positive cash flow from such a property after paying mortgages and other rental related expenses. So, we have to purely speculate on appreciation.

I would like to understand how investing in rental property in India makes sense. I was trying to do some investment in rental property in India but couldn't make sense out of it. Probably I am missing something. I would appreciate if you can guide me.

An example:

Renting an apartment in Tnagar, chennai

Price: 54L
Monthly rent: 14,400
Annual rent: 1.728L

GRM = 31.25

If you put 20% down payment and take a loan on the remaining amount@12% interest for 20 years, the EMI will be 47,567PM. It is negative cash flow.

So you need to pay almost 3.3 times of rental as mortgage.
The rental yield is 3.2%.

So, how does this make sense at all(as rental property)?. Any guidance is appreciated.

I even planned to build a small 8 unit apartment to rent but the numbers didnt make sense.

vikram

Hello Mr Raghuram !

I agree that buying a property on home loans does not make any much sense, especially when you avail of a loan in consideration of getting the rent of amount as same as the EMI.

Basically, renting a property ensures regular inflow of cash to the landlord and thus, the factor of financial security comes in.

The returns are never as equal as ROI in businesses but then you don't have to venture your funds that way. Your investment in property appreciates with rise in value of the property while you continue getting rent as well. You don't have to employ yourself in the same.

As far as the matter of maximising returns from a property are concerned, concepts like service apartments are gaining ground and here you can expect greater returns than rent but again it needs enterpreneurship and business management..