Rental Trends in the Real Estate Market for 2019 By Nagaraju M CEO Rentprop4U
The Indian real estate industry has seen an overall uphill climb in 2018, with demands outgrowing supply, improvement in sales and a notable decline of unsold inventory across the 7 major cities. This in turn has contributed to the growth in the rental realty market, estimated to be valued at $41 billion by 2023 with a total supply of 18 million units. The affordable housing segment has also shown a positive outcome, bringing a boost to the overall market share of rental housing in India; contributing about 45 percent to the total residential market by 2019. These growth patterns have brought about a disruption in the Indian rental market, with bigger corporates and developers, tapping into the disorganized rental trends like managed rentals, co-living spaces and student housing.
Buyers are more confident now more than ever in investing their money in the residential market; the government has made it convenient for them to rely on the builders to give them the assurance that their property development will be completed on time, of the transparency in plans and the accuracy of carpet area. This transparency in the market is brought by regulations such as RERA and GST, protecting the investments of buyers through every stage of development of their property. As a result, overall sales stand at an annual increase of 16% by the end of 2018, with annual sales in the affordable housing segment escalating by 7%, predicting a steady growth in the coming year.
Most home buyers these days buy their properties on home loans and by generating a rental income from these properties they are able to pay off their EMI on home loans. On the other hand, more people are renting apartments or houses in the metropolitan cities of India, instead of waiting to be financially stable in order to buy a house for themselves. Renting an apartment has also made it easier for these folks to live closer to work, avoiding the hap-hazards of commuting through the heavy traffic to get to their workplace. This in turn has attributed to increase in rent returns and home owners are focusing on making an investment in the residential rental market. The trends in the residential market have diversified, adopting a more efficient rental return schemes like Co-living Space, Paying Guest Model and Service apartments. Returns from such commercial/residential properties are about nine to twelve per cent far exceeding the average traditional rent returns in the country.
The Paying Guest models have been existent in the market but the latest trend of co-living has become a booming market for investments and startup funding, gaining traction from a consumer base of the younger generation or the millennials, who migrate from other states for work or study. They find the services offered such as beds, housekeeping, living space for entertainment and cohabitation to be a feasible bargain within budgets of Rs.15000. In the last two years, reports indicate that over $51.14 million have been invested for 10 Co-living Start-ups and this industry is set to soar in the coming years. These spaces also entertain a social bonding between inmates, making the residences more comfortable to occupy. This has also influenced the older generations, to adapt to this modern way of living, as it caters to a hassle-free lifestyle in terms of commute and restrictions forced by owning a conventional rental home. Experts say that this segment of the residential market will continue to grow if the keen focus is placed on administering safety measures for these properties.
Service apartments offer corporate businesses, the much-needed economic support to accommodate their employees working outstation. These furnished apartments come with value added services such as the menu option and room service. Furthermore, the corporate clients need not bear the expense of maintenance and rent, for the time that the rooms remain vacant. Some of these companies are providing service apartments to corporate clients across the country, arranging a private and peaceful stay for the employees embarking on corporate travels. This trend is bound to grow as it provides a comfortable option for corporates to transfer their employees’ for outstation projects.
Commercial Rental Market:
The commercial market has seen a definite growth in absorption space, by 42 million sqft. across the major cities like Delhi, Mumbai, Bangalore, Hyderabad, Pune and Chennai. But, these demands outstrip the current supply of 30 million sqft which is further estimated to cross 43 million sqft by the end of 2019. With these growth patterns, it is no surprise that office micro markets have experienced a subsequent rental hike which further strengthens the completion of new offices spaces, as the industry steps into the new fiscal year. Adding to the increase in office rental values is the rising demands for office space along with the vacancies observed across Grade A buildings in major markets across the country. Commercial real estate which is staked at 9% including malls, warehouses, office spaces etc. have contributed significantly to the growth of the rental realty sector.
Knight Frank reports estimate that warehouses account for about $3.4 billion, or 26%, of private equity real-estate investments between 2014 and 2017 and returns for a warehouse development can reach 28%, and exceed 20% in most major markets. Demand for warehouse spaces have escalated after the implementation of goods and service tax as well as the explosive growth in online shopping, with E-commerce giants such as Amazon and Flipkart generating the need for seamless delivery of goods in cities and remote villages and towns. The Tech industry body Nasscom and PricewaterhouseCoopers reports have projected the $35 billion e-commerce market to grow at 25% a year for the next 5 years and exceed $100 billion by 2022. Bangalore is leading the leasing activity in logistics and warehousing segment with 39% share-or 4mn sqft in the second half of last year. Bangalore was followed by Delhi NCR at 20% and Chennai at 13%, while Mumbai, Kolkata, Ahmedabad made up the rest.
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