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Rent rescues realty investors

The economics of rent have come to the rescue of over-burdened property investors, report Lalatendu Mishra & Vandana Ramnani.

india Updated: Aug 31, 2008 21:50 IST

The economics of rent have come to the rescue of over-burdened property investors.

Investors are holding on to their costly purchases in upmarket localities such as Colaba, Malabar Hill, Worli Sea Face and Gurgaon where rental incomes have more than offset the growing monthly payouts due to rising interest rates.

Real estate analysts said these class of high-income investors have the capacity to hold on to their investments as rental income in most of these areas have exceeded the monthly installment payout.

“It does not make sense to sell now as the monthly installments that I pay is much less than what I am getting as rent,” said Mumbai resident MP John who pays Rs 22,000 installment a month for his two bed-room flat in Powai.

“I am getting a rental income of Rs 40,000. This is why I have preferred to wait till the property appreciates further rather than selling at a discount now.”

In Delhi, a similar pattern is emerging. The upcoming Metro rail services and the construction of the Commonwealth Games Village have pushed up house rentals in east Delhi almost at par with those in more elite South Delhi colonies.

“Rentals in the Mayur Vihar area have hit the roof,” said Abdul Bari of Majestic Properties. “From Rs 15,000 per month last year, a three-bedroom apartment in a good housing society today commands a price of Rs 25,000 to Rs 60,000.”

Anshuman Magazine, managing director of CB Richard Ellis, said improvement in infrastructure gives confidence to real estate investors.

“Both for residential and commercial real estate, prices are a function of demand and supply and the overall market sentiment,” said Magazine.

The craving of multinational firms to house their top executives in such areas have also contributed to higher rents.

Analysts said in some areas closer to the business districts in Mumbai rents have gone up by 40 to 60 per cent as compared to last year.

“Despite the fact that demand has fallen, the developers are holding on to the prices,” said Joy Sanyal, Local Director (Development Initiative), Jones Lang LaSalle Meghraj.