What kind of residential real estate can get you higher rental return on investment? Find out

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Rental solutions have been key to addressing India’s housing challenges, and the country’s rental real estate holds immense potential. In 2017, the rental real estate market was pegged at one crore units and was valued at $22 billion (Rs 1.53 lakh crore). By 2023, its volume is expected to be 1.8 crore and valuation $41 billion (Rs 2.85 lakh crore).

However, maximising rental yields has been a challenge for the rental real estate market. Low rental yield and poor capital appreciation, especially in the past two-three years, have hurt investors.

However, smart choice of investments, value-added services and a host of online rental disrupters can be a game-changing recipe for India’s rental real estate market and investors. You can earn a higher rental yield, if you keep the following factors in mind:

  • Invest in affordable homes

Magicbricks data suggests that yields in the affordable homes segment are higher compared to the mid-level or luxury segment. There is also a significant variation between yields based on their capital values(Rs/sq. ft). We have observed across cities that properties priced below Rs 6,000/sqft have an average rental yield of more than 3%.

Lower the property costs, higher the rental yields

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On the other hand, properties priced at Rs 6,000 per sq ft or more had rental yields between 2.4% and 3%. Hence, from a rental income perspective, it makes more sense to invest in affordable properties. This trend holds across most cities.

  • Invest in affordable real estate markets

Homebuyers must keep in mind that while the broader real estate market has remained flat, there are some micro-markets across metros and large cities where property prices are reasonable and investors can expect good returns. On a pan-India level, the average yield per sqft stands at 3%, but there are some micro-markets where the rental yield can go up to almost 4.5%.

Cities with the highest yields

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Cities with the lowest yields

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In general, markets with cheaper real estate were found to have the higher yields. With 3.9% return, Kolkata has the highest rental yield—in localities like Barasat and Garia the rental yield was around 4.4% and 4.3% respectively. Besides Kolkata, Bengaluru, Hyderabad, Ghaziabad and Ahmedabad also have higher rental yields.

  • Invest in co-living solutions

There is a huge latent demand from India’s millennials, be it the student community or the migrant working professionals, in the 18-35 age bracket, for co-living options. Given that millennials make up around 30% of the population, co-living players have an opportunity to service this upcoming demand. These new models have the capacity to push effective rental yield to 8%.

Magicbricks data suggests that most of the demand for co-living spaces is currently from the Delhi NCR, the Mumbai Metropolitan Region (MMR) and Bengaluru. These cities account for almost 50% of the co-living segment on our platform. Compared to the overall rental market in the top 10 tier-1 cities, the supply for co-living is just 4% of the overall rental supply.

Magicbricks data also shows that 70% to 90% of all co-living supply is fullyfurnished, as against just 10%-30% of the overall residential rental supply. The state of furnishing has a direct impact on the rental value of the property. At a pan-India level, the average yield on furnished properties is 3.3%. Such apartments are now also being preferred by co-living players.

But the differentiator for the players in the co-living market would be the experience they offer in terms of fully furnished apartments, social events, amenities, frictionless on-boarding and exit, etc.

[“source=economictimes.indiatimes.”]