Bengaluru, India’s Silicon Valley, has emerged as the leader in terms of rental yield. Data from property consulting firm Anarock reveals that the city boasted a rental yield of 4.45 per cent in the first quarter of 2024. This represents a significant 24% increase compared to pre-pandemic levels in 2019 (3.6%).
“Backed by strong post-pandemic rental demand, rental values in the city’s key areas have been rising inexorably after IT companies’ return to office call,” noted Anarock.
Rental yield explained
Rental yield refers to the annual return on investment (ROI) that a property owner earns from the rent they receive. It’s essentially a way to measure the profitability of an investment property. Here’s a breakdown:
Example:
Imagine you own a property valued at Rs 1 crore (Rs 10,000,000) and it generates a monthly rent of Rs 50,000. Here’s how to calculate the rental yield:
Annual Rental Income: Monthly rent x 12 months = Rs 50,000/month * 12 months = Rs 6,00,000/year
Rental Yield: (Rs 6,00,000 / Rs 1,00,00,000) x 100 = 6%
In this example, the rental yield is 6%. So, for every Rs 1 crore invested in the property, you’re earning a rental income of Rs 6 lakh annually.
The data suggests a nationwide uptick in rental yields. Cities like Pune, Noida, Delhi, Navi Mumbai, and Thane have all seen improvements in their rental yield compared to pre-pandemic times. ANAROCK’s Vice Chairman, Santhosh Kumar, attributes this trend to chronically stagnant yields prior to the pandemic, which hovered around a national average of just 3% for many years. The post-pandemic surge in rental demand, particularly in IT-dominated cities, has finally pushed yields upwards.
The positive trend extends to rental values as well. India’s top cities witnessed a significant rebound in rental values during 2023, with year-on-year growth exceeding 30%. While the last quarter of 2023 saw a temporary stabilization due to seasonal trends, the momentum picked up again in Q1 2024.
“In the prominent localities of the top 7 cities, there has been average jump of 4-9% jump in residential rents between in Q1 2024. Considering that the typical annual increase is 5-10%, this is very significant and while it certainly bodes well for landlords, it signifies a worrisome element of cost-of-living inflation for tenants,” said Kumar.
Bengaluru leads in rental values too
Bengaluru once again takes center stage, showcasing the most significant growth in rental values. Prominent localities like Sarjapur Road and Whitefield experienced an impressive 8% increase in average monthly rent for a standard 2 BHK flat between Q4 2023 and Q1 2024. This growth is even more striking when compared to 2022, with some top Bengaluru localities witnessing a staggering hike of 40% or more in rents.
In Sarjapur Road, the average monthly rent in Q4 2023 stood at approx Rs 31,600 for a standard 2 BHK flat of 1,000 sq. ft. – in Q1 2024, it went up to approx. Rs 34,000/month.
Similarly, Whitefield saw average monthly rents go up from Rs 30,200 in Q4 2023 to Rs 32,500 in Q1 2024 – an 8% jump. A comparison of rental values between 2022-end and Q1 2024 shows that top localities in Bengaluru saw a staggering hike of 40% and above.
In NCR, Noida’s Sector 150 saw average rents rise by 9%, and by Delhi’s Dwarka by 6%. In Mumbai, Chembur and Mulund saw 4% growth each in rental rates. In Chembur, the avg. rental rates in Q1 2024 stood at approx. Rs 62,500/month as against Rs 60,000/month back in Q4 2023.
Kolkata’s Rajarhat saw the lowest increase (3%) in the period – from approx Rs 18,500/month in Q4 2023 to approx Rs 19,000/month in Q1 2024.
In both Chennai and Mumbai, rents rose by a more sedate 4% while in Hyderabad, prominent localities like HITECH City and Gachibowli saw rents rise by 5% each in the quarter.
“Going by the current momentum, there are no immediate prospects of the rental inflation trend slowing down,” says Santhosh Kumar. “In fact, it is expected to pick up in the next few quarters, as rental activity typically remains high in the first two quarters of as fiscal year.
First Published: Apr 29 2024 | 2:08 PM IST
