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Old June 18 2013, 02:54 AM   #1
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Default Rental trends in Chennai

I'm opening this to discuss rental trends in Chennai. Lately rental is hot topic among forum members- may be a good place to start all prospective trends and regions.

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Old June 18 2013, 03:39 AM   #2
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Quote:
Originally Posted by Clairvoyant View Post
Had anyone wondered why we don't hear from investors in Vijayshanthi Art, Sky villa, TVH Q, ....... there's a market and caters to specific need. It is amusing to see people don't differentiate opinions and facts.

If we are unable to break-into rental markets (Rs 30+/sqft) , one should identify root-cause and plug it. I don't think by dragging the market down, to reach parity is a sound principle.

There's market at high end (you can get glimpse- search prime locator web site) and one can find plenty of property in ECR and OMR at Rs 50+ par/sqft in rental.

I will be looking at Chennai rentals shortly for personal requirement- will post my findings (Please note only my opinion, not facts ). Initial feel- rental prices inside the city had grown manifold.
Thanks for the link. It is very helpful.
It is hard to get a read on Rental Markets. There are a lot of variables.

I think, 2 to 3% is pretty easy to get anywhere in Chennai city residential market. 4% is hard but possible to get, 5% is extremely hard, above that is close to impossible. Again this is for regular 2-3 BHK apts under 2000sqft.

I do think Vijayshanthi Art will not come to rental market. There are less than 20 apts and most people would not care about yeild in this segment.

But the other luxury apts might come to the market.
40-50+ is the base price for units under 2000/sqft in size in central Chennai areas of PG, BC, Ngm, Alwarpet, etc. Embassies are renting most of the high end properties in PG, Ngm. Complexes like Raintree, Courtyard, etc all go for 1.5L+.
Location is one factor, Rates could also vary a lot depending on furnishings, complex type, car parks, amenities, etc. Corporates also shell out extra for Expat clients.
 
Old June 18 2013, 06:06 AM   #3
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Rental yield is one of the main yardstick used by investors to arrive at a buy decision.Looking at rental value at a locality is like taking ECG to ascertain investment risk. Many people consider rental yield equivalent to P/E ration of stocks. Generally it is said a rental yield of 4-5% is good time to buy.

Rental yield = (rent per month * 12)/Cost of flat * 100

Alternatively, some use (240 - 280) * (rental income per month) = cost of the flat

In chennai we find it hovering at 2% in most region. Corporate rentals are not the norm and should not be considered. Such purchases should be treated as commercial RE IMO. Unless you have the resources to furnish and let-out through established network its not possible to get long-term leases. Its not dependable on long-run.

Lets take, A 2 BHK of 1000 sqft in say Alwarpet is going for 30K per month. Going by the calculation value of the flat should be

(30000*12)/x * 100 = 4

Cost of flat X => 90,00,000 i.e. 9000/sqft

Strictly speaking, Unless the market corrects by more than 30% it is not attractive to buy in CBD for investment. In reality, we cannot find a house less than 1.5C.

The point I am trying to make is..one should not be too obsessed with rental returns, they should instead focus only scope for growth in terms of capital appreciation. In my opinion, rental returns should be consider like interest on a fixed deposit or at best as dividends from LT stocks.
 
Old June 18 2013, 07:34 AM   #4
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A welcome thread. I am repeating (to point of boredom) - Rentals play a very important role in deciding the overall ROI for a LT investor in built real estate aka flats, apartments or GCs.
 
Old June 18 2013, 07:36 AM   #5
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Quote:
Originally Posted by nabishek View Post

The point I am trying to make is..one should not be too obsessed with rental returns, they should instead focus only scope for growth in terms of capital appreciation. In my opinion, rental returns should be consider like interest on a fixed deposit or at best as dividends from LT stocks.
IN stock markets, dividend yield or PE is indeed important but what decides the price trend of share is not just PE/Dividend yield but the rate of increase(or decrease) of this earnings or dividend.

Thus I am afraid you are incorrect - present rental yields alone cannot be factored. Rentals do not stay static. They vary with time. Over a long period - say 15/20 years, Rentals change vastly and ultimately as an apartment ages , and common area deteriorates, it is rentals that drive the value of the RE apart from the UDS share (which itself is more like a endowment policy that can be encashed only when the concerned individual dies - in case of flats UDS is encashable only on the redevelopment of the property)
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Old June 18 2013, 07:40 AM   #6
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Here is some sample data to hint how much rentals play a role in the ROI of built RE (flats/apartments /GCs in long run).

* In 1988 - an apartment in South Chennai's middle class residential areas used to cost 250 rupees per sqft. So a typical 800 sqft 2BHK flat costed Rs 2 lakh, all inclusive to acquire.

* In 1988, typically the rentals commanded by such a flat used to be btw Rs 700 to Rs 800 per month, or rather Rs 10000 per year max. Fair enough, rental yields were in 4% or so range.

* 25 years have gone. The same apartment today will command 60-90 lakh rupees, but the difference is wide - and it depends on how much UDS the flat is tagged to...

* Now for rentals part - the rent commanded by that flat will be anywhere from Rs 14000 to even Rs 20000 per month, or Rs 1.7 to 2.4 lakh per annum. If things like parking are there, rentals can be even higher !

* Do the math. Cumulatively, the rental earnings if reinvested (in say Recurring deposits et al) have made so much difference to overall ROI in a long period (25 years)...
 
Old June 18 2013, 07:46 AM   #7
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k11 is right, rental yields today dont go more than 3% . But this was not the case always...

Rental yields used to be 5%+ in late 1980s and early 1990s. I dont exactly know but the yield crashed in late 1990s. But in early 2000s, yields were good..

Generally speaking - Huge increase in supply of flats plus stagnant job market = Low rental yields plus falling rental yields.

Converse is the case in 2000-2005 period - Huge increase in job opportunities due to IT+BPO boom but supply of flats was not much increased in chennai, so rental income soared.

The best investment strategy is to invest in built RE(flats/apartments/GCs) at the start of economic turnaround and ride on rising rental values,so yields (on the cost of acquisition keep increasing).

Conversely, anyone investing for yields at time job market stagnates and supply increases is in for a poor ROI.

In big cities like Chennai, job market drives RE. Unlike in west, people in india can downtrade in rental markets - young couples adjust and live in the homes of their parents/inlaws and siblings (and even in homes of their uncles and cousins) if rentals are not affordable and single folks stay as paying guests. We (indians) are masters in adapting to anything to cut costs, so if job market stays poor, a lot of those costly apartments will remain empty.
 
Old June 18 2013, 07:58 AM   #8
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I do agree with some of you and Ramki. Rental yeilds are a nice measure to estimate the value.

The whole country has 2-2.5% as avg. We are much better there are pockets with 3-4% yeilds, not hard to find.

A 50L apt giving a rent of 20K is 4.8%.
4% is not that hard. But again these are smaller units 2-bhks that give good yeild but they do not appreciate as much as bigger units, 3+ bhks.

I do not like to take rental yeild as most important parameter but it will be in my list. I would be happy with a rent growth, relatively.

Most people take a loan to buy property and avg length of a loan is prob 7 years or so. Many people close the loans early so looking over yeilds across 10 or 20 years might not be useful.

So if the rent can pay my EMI or atleast most of it after 3-4 years one should be happy.
 
Old June 18 2013, 09:48 AM   #9
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Quote:
Originally Posted by k11 View Post

A 50L apt giving a rent of 20K is 4.8%.
4% is not that hard. But again these are smaller units 2-bhks that give good yeild but they do not appreciate as much as bigger units, 3+ bhks.

So if the rent can pay my EMI or atleast most of it after 3-4 years one should be happy.
Im not a flat investor and hence some of these past performances are some times so rosy but does not relate to current day scenario.
i want to pick on the above 2 points and lets try to get some concrete examples
Just a few mins ago a IREf member checked with me on some opinion on Natwest aura - 2 BHK costs about 55 to 59L , the rental prospect there is about 10-12k
Can you find or show me a 50L 2bhk or 3bhk Yielding 20K / month rent ? im trying to find value and where does it exist ?

second question
If rent can pay EMI or atleast most of it - 80% in 3-4 years how ?
if we take the same 50L - 20k rent assumption
50L apartment will have a 35 too 40L loan = 37 to 38K EMI
in that case will rents go up to 30 k from 20K in 3-4 years in today's situation
If this is true, then im selling all my land and lining up to buy the 50L 2bhk flats
?
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Old June 18 2013, 09:56 AM   #10
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natwest aura is in urapakkam.

powercuts and lying outside city limits lack of basic amenities reduce the rents.

but if in omr siruseri or near mahindara city sure it gets 20k
 
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