Rentals lukewarm - Times of India

Sign of things to come ? If somone is getting a 4% return and paying 8% interest on the loan. I think this calls for a perfect storm in the times to come.


Property hot, but rentals lukewarm



By Sujit John/TNN



Bangalore: If you are investing in a residential property in Bangalore, make sure your rental expectations are realistic. For all too frequently, they are not.
Rentals, though rising, have not done so anywhere close to the rate property prices have. Consequently, residential rental returns which were in the range of 6-7% a few years ago, are no more than about 4% now.
There are many who have invested over Rs 50 lakh in an apartment and got Rs 18,000 a month as rent, a return of about 4%. There are others with inflated expectations who have been endlessly searching for tenants willing to pay the rent they are hoping for — in the process keeping their apartments locked up for months.
Kapil Phadke is buying an apartment off the Airport Road that will cost him Rs 46 lakh. It’s a second sale. Three years ago, the same apartment was bought from the builder at about Rs 19 lakh and fetched the buyer Rs 10,000 a month as rent, a return of nearly 6.5%. Phadke today will not get a rent of more than Rs 15,000 a month, a return of 3.9% on his Rs 46 lakh investment. The rent will not even be enough to cover the interest payment on the loan he takes. Still, if Phadke is buying the flat, it is because he thinks property price appreciation will make the deal attractive.
One reason for rentals rising much more slowly than property prices is that the number of flats bought for investment purpose has risen dramatically, creating a lot of options for tenants. Besides, as Manisha Grover, associate director in property consultancy Jones Lang LaSalle India says, rent payment capacity depends on people’s disposable incomes. “And since remuneration is growing at about 11-12%, rents will also grow at roughly this pace,” she says.
Difficulties in finding family tenants willing to pay reasonable rents is now compelling many to hand over their properties to service apartment operators. The opportunity in service apartments is still growing strongly. A spokesperson of Indus Inns, a service apartment operator, says hotel rooms in Bangalore remain too few and expensive, even as business travel and short-term stay requirements is rising fast. So if your next door flat has turned into a service apartment, you know why.