The report states that in a socioeconomic environment where people are not assured of their future employment prospects, there is limited willingness to purchase a property and, therefore, the demand for rental units may go up
Covid-19 is altering the way we live. In the wake of the pandemic, the demand for rental units could grow, as many people will choose not to buy homes in the near future.
But despite the demand, most vacant home available across major cities are not listed as rental units, according to a report, titled Brick By Brick—Development of Renting Housing in India, released by RICS (Royal Institution of Chartered Surveyors) in association with Knight Frank.
According to the report, Mumbai has the highest number of vacant homes in the country at 500,000, followed by Delhi and Bengaluru with 300,000 units each. Pune (200,000), Ahmedabad (200,000), Jaipur (120,000) and Hyderabad (100,000), among others, also feature on the list. But why the gap?
What the report terms as “floating population", including students, households with transferable jobs and people in the early stages of their careers who haven’t decided where they want to settle, make up the main body of tenants in urban centres.
The report states that in a socioeconomic environment where people are not assured of their future employment prospects, there is limited willingness to purchase a property and, therefore, the demand for rental units may go up.
“The pandemic has created a lot of question marks about the economy and jobs. Real estate is a sentiment-driven market, so low sentiment means a lot of people will put their home-buying decisions on hold, so there will be a further increase in the demand for rental housing," said Saurabh Mehrotra, national director, valuation and Advisory, Knight Frank India.
The pandemic might result in some fresh listings but not enough. “Strained income might mean that more owners will list their homes as rental units as an additional source of income, even at a low yield," said Mehrotra.
But why are so many owners unwilling to rent out their vacant homes despite a healthy demand? According to the report, rental yields in most of the cities continue to be very low, going up to a maximum of around 5%, which is seen as insufficient to cover the risk of renting. The risk also extends to possible litigation due to disputes with the tenant, which can be long-drawn and expensive.
Other issues include the cost of transactions, including brokerage, which is high in urban areas. Renting homes is treated as a commercial activity, which increases property tax for landlords and further reduces their net realization. Another problem is the absence of an organized marketplace to rent properties.
According to Mehrotra, the biggest hurdle for the rental market in India is its fractured and disorganized nature, which allows for mismanagement. “The way to ease transactions would be to organize and corporatize the market. If rental management companies and online platforms come in and regulate the market, it will make things transparent and remove the problems for both landlords and tenants by eliminating the intermediaries. It will also reduce the risk perception for landlords, as rental management firms can provide insurance against litigation, among other facilities," he said.
Such companies pool properties and regulate rent, agreements and other things to streamline the renting process. The pandemic might push the demand for rental units in India, but whether the supply rises to meet it, despite the hurdles, remains to be seen.
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