Rents Have Increased Across Indian Cities And It's Likely Going To Stay Like That For A While

If you have been ever been on a house-hunt, you would know that it's an uphill task. You like a house, but the landlord won't like you - because you are a bachelor, eat non-veg or work on night shifts. By any stroke of luck if the landlord doesn't mind any of this, your budget will be a hurdle because the rents are so high.  

Last month a techie from Bengaluru made national news by holding up a placard - yes that's all it usually takes - that said "looking for a 2BHK in Indiranagar" during an IPL match at Bengaluru's M Chinnaswamy stadium. The placard made news for the right reasons though. Once a garden city, the rents have gone up by 20% during the first quarter of 2023. But house rents have shot up across the country. 

This gets worse for those who are renting. Rents aren't likely to come down anytime soon. They're expected to rise anywhere between 5% to 12% further towards the end of this year.

Why have the rents skyrocketed?

Mostly because landlords are trying to recoup the losses they sustained during Covid-19 pandemic when more than a million youngsters fled the city and rents crashed. To make matters worse, despite all the construction you see around, supply is not enough. Bengaluru now has the highest rent yield in the country at 3.9%

Not just Benagluru, rents have gone up across almost all major cities in the country. According to Gurugram-based property consultancy Anarock, there was a spike of 23% in average monthly rentals between 2019 and 2022 at key residential rental hotspots.  

The upward trend in house rentals is expected to continue this year as well. In cities like Mumbai, there is an additional set of people house hunting. A massive spate of redevelopment projects have put owners temporarily out of their apartments and buildings in turn putting pressure on rentals across the island city.

How bad can it get? Will things improve?  

From big cities to hometowns and back

Flashback March 2020. Covid pandemic brought the world to a screeching halt as lockdowns were imposed to curb the spread of the virus. Offices moved Work From Home mode and employees found it feasible to go back to their hometowns rather than pay rent and other costs in bigger cities. As a result, the rents fell by even 20% in some cases, explained Vivek Rathi of Knight Frank, a real estate consultancy firm, while speaking to The Core..  

"All of that led to a sharp shrinkage of houses, mostly as it is the ones which are on brand in the cities, consequently, leading to a crash in rental levels during the period between 2020 and 2021.  Now what you're seeing is a completely opposite picture of this," Rathi said.  

As the world gradually moved back to normalcy in 2022, people also returned to offices. "Even when you consider the hybrid work model, which allows you to work from office and work remotely, an employee still has to be in the primary centre. This has led to people coming back to the cities and increased the demand for housing, at least in this period," Rathi said.   

Not just offices, schools have also reopened fully now after operating online for nearly two years. That is another reason that people are moving back to the cities and resuming their lives there as school sessions are beginning. "Generally Q1 and Q2 is a period when schools reopen and people who really want to live in the city, because of school reasons for their kids also need to show some sense of urgency to sign up leases, which has also led to increase in demand and consequently, the rentals during this period," Rathi said. 

Renters are settling for less

Delhi-based property dealer Sanjeev Jaiswal said there has been a hike of at least 16% in house rents in the national capital over the past couple of years. But since shelter is a basic human need, the demand has not gone down. Instead people have adapted. They are taking up whatever rental options they get within the given budget. 

"People need a place to live irrespective of the rents. So, if earlier someone would shell out Rs 30,000 a month for rent, they are now spending Rs 25,000 instead to match up their budget," says Jaiswal.  

There has been a behavioural change among the people as well. Rathi explains that before the pandemic, people only looked for the functionality of a product without giving much importance to the ownership. "Whether it is the young customer buying on their own thing or influenced by the family, they are certainly moving away from the thought process of simply looking at the functional attribute of a house to its ownership attribute," Rathi explained, adding that 40-45% of the consumers are in the age bracket of 21 to 49. 

The difference between cities

According to a 2021 report by Knight Frank, urban India has 21.72 million rented accommodations. Tamil Nadu has the highest share of rented accommodations with 16.5%, followed by Andhra Pradesh (13.8%), Maharashtra (13.5%),, Karnataka (11.3%) and Gujarat(6.1%). Delhi ranks at number 8 with 4.3%.  Eigh states comprise 76.5% of the total rented households in urban India.

"The fact that the states of Tamil Nadu, Andhra Pradesh, Maharashtra, Karnataka, Gujarat, West Bengal, Uttar Pradesh and the National Capital Territory (NCT) of Delhi command a hefty percentage share of the total rented households in urban India is largely attributed to key urban employment hubs in the cities of Chennai, Hyderabad, Mumbai, Pune, Bengaluru, Ahmedabad, Kolkata and the National Capital Region (NCR)," the report notes.  

When we talk about rents, there is always a difference between cities, Rathi explained. And this disparity predates the pandemic. For example, Mumbai has always been known for high house rents. "There are some city-specific factors involved. In the case of Mumbai, where a large amount of redevelopment activity is happening, the redevelopment activity has increased demand for rental apartments. And that has led to a surge in demand, at least for this two to three year period. Once you have new supply coming in, either from the redevelopment properties or the new projects which are under works right now, you will see this intensity subsiding," Rathi explains.