by Mr. Ashwinder Raj Singh, JLL India
If you have some surplus
funds and are looking to invest in a property purely for generating rental
income, your highest chances for success lie in educating yourself about the
right opportunities and avoiding the wrong ones.
Among many other things, you need
to know how the different rental markets (read ‘cities’) are performing across
the country, and how you can make your potential rental income grow faster than
the market trends. But first, you need to understand how the rental property
business works in the first place. A central concept here is rental yield.
Rental Yield..!
In simple terms, rental
yield is the ratio of annual rent of a property to the total cost of the
property. For example, if your annual rental income is Rs. 1,20,000 and the
value of your house is Rs. 50 lac, the rental yield will be Rs. 1,20,000/Rs. 50,00,000,
or 2.4%.
Rental yields vary across the globe, but an average of 2% of rental
yield is considered a good deal for residential properties in India.
The next ingredient in a
successful rental income strategy is to be up to speed on which the cities to
invest in are.
Best Cities For Rental
Income Generation:
In India, the cities which
currently offer a higher rental yield are Mumbai, Pune, NCR-Delhi, Bengaluru,
Kolkata, Chennai, Hyderabad, Ahmedabad.
All these cities offer a rental yield
of 2% and above, and you can be assured that the average is not going down
anytime soon. Investing in these cities will offer you the maximum returns on investment in properties bought for
generating rental income.
These cities do not rank
high by pure chance – there are sound market fundamentals driving their
strength as lucrative rental markets:
Employment Opportunities
All the above-mentioned
cities are driven by a lot of employment opportunities for both skilled and
unskilled labour.
In other words, inward migration in these cities happens not
only from different cities, but also outlying towns and villages. This
invariably results in higher demand for housing.
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| Ashwinder Raj Singh, JLL India |
High Prices
One defining aspect of most
migrants into these cities is that they do not immediately want to invest in
self-owned homes to live – often because they cannot immediately afford such an
investment, but also because they are not sure whether they will actually want
to continue living in the city over the long haul.
This causes the very healthy
demand for rental homes in these cities.
Low Supply
The supply of residential apartments in the
primary workplace hubs of these cities is invariably lower than the demand.
Both near the business districts as well as the peripheries, tenants are ready
to pay higher rents for flats which allow them some degree of ease in the daily
commute to and from work.
Realty Sector Pressures
In the past couple of
years, despite various residential projects
coming up in these cities, not enough have been sold. This has led to a lot of
unsold inventory and a pressure on demand-supply equation, which eventually
leads to higher rentals for a few properties on the block.
In terms of rental demand,
no single type or size of property rules the roost. Since there is a shortage
of space, all kinds of residential flats have
potential tenants vying for them. This results in a very favourable equation
for landlords.
However, to command a good
rent from your property compared to other residential units on the market,
there are certain vital guidelines to follow:
·
Make sure your property is in the right locality, meaning that it
should have the right kind of local amenities nearby. The convenience of having
a school, hospital, bus and train station and a market nearby has a lot of
impact on the kind of rentals you can earn.
·
If your property is in a building, the floor it is on and the kind
of window view it offers also play a role in how much rent you can ask for.
This is an important thing to keep in mind while purchasing a rental property.
·
How well is your property maintained can earn you brownie points,
and has a direct correlation to the size of the rental cheques. Make sure the
flooring, plumbing and paint job of the unit is good order to attract the kind
of tenants who are willing to pay a premium for living in well-kept,
fully-functioning homes.
·
The size of a flat is often not as important as much as its
constituent parts. For example, bedroom, kitchen and bathrooms should be, on
scale, as spacious as the living rooms. This simple factor can tilt the odds in
your favour when it comes to attracting tenants.
·
Finally, the amenities a potential tenant gets along with therental house can play a significant role
in the rent you can earn. For example club facilities, swimming pool, central
air conditioning and reserved, covered parking will always be attractive
features for prospective tenants.
Rental income-producing
properties are one of the safest forms of investments which can give you
lifelong returns, and the simultaneously appreciate in capital value as well.
It therefore makes sense to do your homework and ensure that you are investing in a property that works well
on every front.
About the author..
Mr. Ashwinder Raj Singh, CEO – Residential Services, JLL India
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