COVID-19 impact: Rental housing may drive realty sector; here's why

Vikash KhandelwalUpdated: Wednesday, September 01, 2021, 11:54 AM IST
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The appetite for residential property in the mid-income segment is growing, with people looking to move homes in the next 12 months because of the pandemic and subsequent lockdowns |

The demand for real estate in India has witnessed fluctuations since the outbreak of COVID-19 last year. The lockdown and the resultant Work from Home (WFH) led to a mass migration leaving behind vacant houses and worried landlords.

With vaccination picking up pace across the country, state governments lifting lockdown to allow normal business activities and a large number of businesses looking to resume operations from office, a good part of the population that migrated last year is likely return to the cities.

WFH however is likely to stay, as companies have realised the benefits in the form of reduced costs and improved productivity. The extent is yet to be seen though.

Let’s take a look at the factors that will drive the future of rental housing in India.

Rapid urbanization

India has seen rapid urbanization in the past two decades. In 2001, over 29 percent of India's population were residing in urban areas growing to around 35 percent a few years back. It is expected that over 40 percent of India's population will reside in urban areas by 2030.

The rapid urbanization will fuel the demand for more residential units – both rental as well as ownership.

Over the years, we have also started witnessing a distinct shift in preference in the younger generation – from ownership to renting, as many of them do not like to be locked in to lengthy mortgages. Work-related mobility has hastened to the shift from ownership to rental further as well.

Realty prices in India, among highest globally

Real estate prices in Indian cities are probably amongst the highest in the world. Rental yields in India on the other hand is the lowest as compared to the other parts of the world.

Buying a home in any metro city of the country is a herculean task and a distant dream for many. We are now seeing an increasing trend of home buyers moving out of city centres towards the suburbs. The reasons for this shift include larger houses at affordable rentals in the suburbs versus the steep rental of the city apartments, improved transportation and metro rail connectivity which has eased the hassles of commuting and lower housing density.

Digital nomads

The trend of remote work or work from anywhere has created a category of digital nomads who are ready from any location. They can travel to any location basis the requirement of their work. Earlier the demand for rental housing was primarily in the urban areas, metros, and Tier-I cities but with this growing segment of the workforce, the demand will likely rise in Tier II & III and in other parts of the country. Further, with better connecting infrastructure in the form of expressways and rapid rail, we are possibly going to witness an increased demand for rental housing in the satellite towns as well.

For example, the cities of Meerut, Agra, Mathura & Rohtak may now be considered as part of NCR – they might be anything between 180 – 200 kms away, but take only a couple of hours or so by car. We are also witnessing a similar trend around Mumbai, Bengaluru & Chennai.

Model Tenancy Act

The Model Tenancy Act was approved by the Cabinet earlier this year. This was a landmark reform that attempts to define and govern the landlord-tenant relationship, lay an efficient regulatory structure that will bring much needed transparency to a segment that has been by and large structured and rather opaque so far.

The creation of the 3-tier redressal system will help in the speedy resolution of the disputes between the landlord and the tenant. The MTA will also encourage institutional investments in to residential renting which will come as a huge relief to the developers thus help bring increased number of houses in to residential renting.

Rental Bonds

Rental bonds are a relatively new offering in the Indian residential markets. It is an institutional guarantee in favour of the landlord that the tenant will fulfil his obligations under the tenancy agreement. It safeguards the interest landlord in the event of a default by the tenant and does away with the need for inefficient & bulky security deposit. The landlord also get access to a credit verified and an assessed tenant.

According to a Knight Frank report, there are approximately 11 million houses that are lying vacant in India as the landlord preferred to keep them vacant rather than let it out to unverified tenants.

With the MTA laying down the regulations and the rental bond assuring the landlord of a good, credit verified tenant, it is expected that these landlords will eventually overcome their hesitancy and will be now open to letting out their houses on rent.

Renting a house vs owning one

While the last year and a half has been a living nightmare for many of us, it has also accelerated many trends which have become more pronounced . One of them is the preference for renting a house over owning it. As per a report by RICS- Knight Frank, approximately 30 percent of the people in India live in rental houses. This is against over 50 percent in developed countries like the United States and Germany. If this were any indication, there is significant head room for growth for residential renting in India.

(Vikash Khandelwal is CEO, Eqaro Guarantees)

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