Renting is in as flat prices hold up
Parth Desai, 29, a chartered accountant with a heavy engineering firm in Mumbai, pays Rs 25,000 per month as rent for an apartment in Andheri west. Sachin Dave reports. Rent vs buy: How the two stack upindia Updated: Mar 28, 2012 02:02 IST
Parth Desai, 29, a chartered accountant with a heavy engineering firm in Mumbai, pays Rs 25,000 per month as rent for an apartment in Andheri west. Though he can afford to buy the apartment, he refrains from the same because he believes that if invested judiciously, the difference between the cost of buying and renting an apartment would make him a millionaire by the time he retires.
As prices in real estate continue to skyrocket, more people are opting for rented apartments than buying them out, said industry experts. According to a Kotak research, sales of properties in January have hit a 30-month low of 12 million sq ft.
"Mumbai recorded 1.7 mn sq ft of sales, a three month low in January," the report said. Property registrations in Mumbai also fell by 11% in February at 4,203, according to another report by Prabhudas Lilladher.
Rentals have been unable to keep pace with the rise in property prices, said experts. While prices in most pockets of Mumbai and the National Capital Region (NCR) have jumped by more than 100% despite the 2008 crisis, rentals have not risen sharply.
"Till 2005, rental values were around 6% of residential property, now it is around 1-1.5% of the property value," said Pankaj Kapoor, managing director, Liases Foras.
Meanwhile in certain pockets of the NCR, prices have jumped tremendously since 2010, but not rentals.
"Certain properties in Gurgaon near golf course were about Rs 2,700 per sq ft in 2010, which jumped to Rs 6,500 within the next six months and now quoted anywhere between Rs 8,000 and Rs 8,000 per sq ft. The increase is because of lack of supply," said Sachin Sandhir, MD, RICS.
According to industry experts, even for investors the situation is becoming grim. As the year-on-year jump in properties would not be as tremendous from hereon. "I am saving at least R40,000 per month by not buying a property, and to make it more literal, I invest the amount every month in instruments that get me 10-12% returns," said Desai.
According to CRICIL Research, prices of houses in Mumbai are unlikely to reduce in 2012 despite a 40% decline in sales in 2011. With that in mind, many buyers may postpone the buying decision and opt to rent out the house.