Rental Yield in India
Rental yield is the annual rental value received from an income-generating asset, as a percentage of the property’s value. In India, the rental yields are painfully low in comparison with other countries. The downtown area of London can easily give a yield of around 4.5%. Likewise, Dubai and Bangkok can post returns of 5.5% and 5.3% respectively. However, this outlook does not hold true in India, only yielding around 2 to 3%. The rental yields in Delhi NCR are a little less than 3%, and in Mumbai Metropolitan Region (MMR), it mostly ranges between 2.5-2.7%.Yields in Bangalore range from 2.4 to 3%. This is a shame because even fixed deposits provide interest rates of up to 7%.
Why are investors still investing in real estate?
The low rental yields have luckily not influenced the value of properties in the country. In terms of capital appreciation, the return on investment obtained somehow crosses over 20 percent compounded annually, which is one of the highest in the entire world. This is the major factor that attracts investors in real estate.
Why is the rental yield in India so low?
One of the causes of the nation’s poor rental income is the fact that the rental laws give the tenants far too much control and power and the landlords, far too little. The demand for residential units has expanded massively over the last decade and there is an ample supply of rental units in the market. The high inflation rate, landlords’ unwillingness to repair their premises, and legacy problems around the landlord and tenant relationship have also had a huge impact on the Indian rental market.
Rental yield for commercial estate
In terms of profitability, commercial real estate turns out to be a more appealing investment. Commercial properties consist of workspaces, stores, offices, hotels, restaurants, etc. These can easily yield a return of 6 to 10%. But they also require a great deal of maintenance.
Alternative of renting
Renting property comes with serious time and effort commitment. Finding a reliable tenant, doing all the paperwork, and maintaining the property are tedious tasks some people might want to avoid. In this scenario, REITs (real estate investment trusts) appear to be more attractive. REITs are companies that own, operate, manage or finance income-generating estates. Modeled after mutual funds, they pool the capital of numerous investors. The property purchased is leased and the rental income is distributed as dividends. They save investors from all the hassle and also provide fractional ownership.
