Metro rental yields hit record lows in 2012

As the price of real estate properties remains stagnant in 2012, rental yields - or rent as percentage of the value of property - have been falling drastically in metros, say industry analysts.

Rental yields, which were between 3-5% till about 2010 and around 2-3% in 2011, have now reduced to around 1% in the Mumbai Metropolitan Region and the National Capital Region (NCR), say industry trackers.

"Price of real estate has been very high but rents have not increased. This clearly shows how properties, especially in and around big cities like Mumbai, have become unaffordable," said Pankaj Kapoor, managing director, Liases Foras.

Real estate prices in Mumbai have been stagnant and have only increased by about 0.3% in the September quarter this year, according to a report by Knight Frank.

Industry trackers say this is mainly because the prices have been high and any increase from here would reduce the demand. Already, sales figures of residential properties show a 25% decline, on a year-on-year basis.

"Unlike real estate prices, rents of properties are not controlled by any group, say of real estate developers, and so they reflect the real demand and supply situation. In a transparent economy, real estate prices are a reflection of the country's growth, but in Mumbai an NCR property prices have increased fast, and rents are unable to catch up with it," said a senior executive at a real estate consultancy.

"Industry data indicates that investors and not actual users buy more than 50% of the total properties. But even investors would feel the heat when they are unable to get an exit because every investor needs an actual user for the final exit," said Kapoor.

In both Mumbai and NCR, there is an inventory pile-up, which is also reflected in the balance sheets of the listed real estate players.


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