Why developers prefer to sell and not to rent

This is because the rental yield is barely 5% compared to cost of debt

Updated on: Jun 21, 2013, 19:59:36 IST

None | By Vandana Ramnani, Delhi

Prefer HTon Google

Share via

Copy link

A rental housing policy can go a long way in encouraging development of rental housing in the affordable housing segment by setting up public housing associations that construct, own, operate and manage the rental housing units.

Firdose Vandrevala, chairman, CII National Committee on Real Estate and Housing, points out that there is a crying need to develop an institutionalised market for rental housing in India. Today, when private owners of apartment rent/lease their apartments the yield is in the range of just 5%, which is taxable. Therefore, most developers prefer to build and sell rather than build and rent.

Given the demographics of India with a growing young population and the urbanisation that is taking place, rental housing is a critical success factor for India’s growth and development. Any policy that will promote and encourage the development of this market is absolutely necessary.

Chintan Patel, director, transaction advisory services, Ernst & Young, says that the rental housing yield is far lower in India than in other countries where the cost of debt is less. In India the cost of debt is anything between 10% to 15% and the rental yield between 3% to 5%. This is not enough to incentivise the rental housing play into a revenue model. That gap needs to be reduced.

“Cities like Mumbai, Delhi NCR and Bengaluru will benefit from such schemes as these cities attract migrant workers who initially cannot afford to invest in their own houses. Moreover, the cost of a basic housing unit is very high compared to Tier II and III cities in India which makes it difficult for an average worker to own a house.

Hence, tenant housing becomes an easy option for such a segment. Extra FSI along with tax incentives for the developers should encourage more such projects which will enable tenants with more options,” adds Rohit Kumar, head of India Research, DTZ India.

ABOUT THE AUTHOR
Vandana Ramnani
Vandana Ramnani leads the real estate vertical at Hindustan Times Digital, bringing over two decades of journalism experience across real estate, education, human resources, and foreign affairs. She specialises in India’s real estate sector, covering residential and commercial markets in Delhi-NCR, Mumbai, and Bengaluru, with in-depth reporting on regulatory developments, urban policy, housing trends, and interviews with industry leaders. Her work has also appeared in the Hindustan Times newspaper and HT Estates. Earlier, Vandana played a key role in establishing the real estate vertical at Moneycontrol (NW18 Group), shaping its editorial direction and market coverage. She has also written extensively on international education for HT Education, tracking global study destinations, policy changes, and student mobility trends, earning the Singapore Education Award 2009 for Best Media Coverage (Print). Her reporting portfolio includes human resources and employment trends for HT ShineJobs and PowerJobs, as well as lifestyle and interior design features for HT Premium Homes. Vandana began her career with the Press Trust of India, gaining strong editorial and reporting expertise. She was also selected for a prestigious fellowship at Fondation Journalistes en Europe in Paris, where she wrote for EuroMag. One of her notable reporting assignments included covering Germany’s capital relocation from Bonn to Berlin. Outside of journalism, Vandana is a passionate traveller, constantly seeking out charming hideaways across India and the lesser-known, offbeat corners of Southeast Asia.Read More

Stay updated with latest Real Estate news and updates from India and around the World, explore the latest market moves and premium property listings updates now on Hindustan Times