Imagine this scenario: You're a savvy investor looking to diversify your portfolio and you're considering investing in real estate in India. You've done your research on the location, property prices, and potential appreciation, but have you considered the rental yield?
Rental yield is a crucial factor to consider when investing in real estate because it measures the return on investment you can expect to receive from renting out your property. In India's rapidly growing real estate market, rental yield can be a game-changer for property investors. By understanding the importance of rental yield and its impact on your overall returns, you can make informed investment decisions and maximize your profits. So, let's explore why rental yield is such a critical factor to consider when investing in real estate in India.
If you want to make a good income from your investment, let's walk a journey through this article to know how you can get the highest rental yield in India.
Rental Yield In India - Do You Know What It Means?
Rental yield is the annual rental income earned from a property, divided by the property's market value. It is a financial metric that measures the return on investment (ROI) for a rental property. It is typically expressed as a percentage of the property's market value, and it calculates the annual rental income earned by the property divided by the property's value.
For example, if a property generates an annual rental income of Rs. 5,00,000 and has a market value of Rs. 1 crore, the rental yield would be 5%. Rental yield is an important metric for real estate investors as it helps them determine the profitability of their investment.
Factors To Consider While Investing In Real Estate In India for Rental Income
Now, you may get an idea about rental yield and which property will give you the best percentage. Even though commercial properties have higher rental yields, you need to consider some basic factors before buying them.
Location : The location of the property is one of the most important factors to consider as it can greatly influence the rental income and property value. Look for areas with good connectivity, infrastructure, and amenities such as schools, hospitals, shopping centers, and public transportation.
Demand and Supply : It is essential to evaluate the demand and supply dynamics in the local real estate market to determine the potential rental income and capital appreciation. Look for areas with high demand and low supply as it can help in generating higher rental income.
Property Type : Consider the type of property that aligns with your investment goals, whether it is residential or commercial, and whether it offers high rental yields or capital appreciation potential.
Investment Budget : It is important to establish a realistic investment budget and stick to it. Consider the cost of acquisition, maintenance, and repairs, and any other additional expenses such as taxes, legal fees, and brokerage charges.
Legal and Regulatory Compliance : Ensure that the property complies with all the legal and regulatory requirements such as property registration, tax compliance, and building codes.
Tenant Profile : Consider the profile of the potential tenants such as their financial standing, creditworthiness, and occupancy history. A reliable tenant can help in generating stable rental income and reduce vacancy rates.
Why are Rental Yields Low in India & What can you do?
There are several reasons why the rental yield is relatively low in India, particularly for residential properties.
1. Low rental appreciation : Rental appreciation in India has historically been lower than property appreciation. This means that landlords are not able to increase their rental income at the same rate as the value of their property.
2. Rent control laws : Rent control laws in India limit the amount landlords can charge for rent, which can reduce rental yield.
3. Lack of quality housing stock : Many rental properties in India are poorly maintained and do not meet basic living standards. This can make it difficult for landlords to charge high rents and attract tenants.
What you can do instead:
Commercial rental yield in India is a good source of passive income because rental yield, in this case, is higher than residential. Commercial properties typically have higher rental rates, longer leases tenures, higher occupancy rates, and lower maintenance costs making them a lucrative source of passive income for those looking to invest in real estate.
If you are looking to reap the benefits of high commercial rental yield in India, PropReturns has a wide range of properties to choose from for your investment needs.
Rental Yield in India: Residential Vs Commercial
Like every other field, this also has its ups and downs. But lately, residential rental yield in India has been trending downwards and the ups seem to always be with commercial properties rental yield in India.
The rental yield for residential properties in India ranges from 1.5% to 3%, which is relatively low compared to other countries. However, the commercial rental yield in India, such as office spaces and retail shops, ranges from 6% to 10%, making it a more profitable investment option for real estate investors.
The same report also highlights that the rental yield for residential properties in Mumbai ranges from 2.5% to 3.5%, while the rental yield for commercial properties in Mumbai ranges from 8% to 10%. Similarly, in Delhi-NCR, the rental yield for residential properties ranges from 1.5% to 2.5%, while the rental yield for commercial properties ranges from 7% to 8%.
This shows the trends in rental yield suggesting that we take the commercial properties as they offer a higher return on investment due to the longer lease periods, higher rental, and the high demand in prime locations.
Commercial Rental Yield in India
The commercial rental yield in India has been on an upward trend in recent years. This is due to a number of factors, including the growth of the Indian economy, the increasing demand for commercial space, and the limited supply of available properties.
The average commercial rental yield in India is currently around 8-11%. However, this can vary depending on the location of the property, the type of property, and the current market conditions. For example, properties located in prime commercial areas, such as Mumbai and Delhi, tend to have higher rental yields than properties located in smaller cities.
The growth of the Indian economy is one of the main factors driving the increase in commercial rental yields. The Indian economy is growing at a rapid pace, and this is leading to an increase in demand for commercial space. Businesses are expanding and opening new offices, which is creating a need for more commercial space.
The increasing demand for commercial space is also being driven by the growth of the e-commerce sector. E-commerce companies are rapidly expanding their operations, and this is leading to an increase in demand for warehouse space.
The limited supply of available properties is another factor that is driving up commercial rental yields. The demand for commercial space is outpacing the supply, which is leading to higher prices. This is especially true in prime commercial areas, where there is a limited amount of available land.
The current trends in commercial rental yield in India are positive. The growth of the Indian economy, the increasing demand for commercial space, and the limited supply of available properties are all factors that are driving up rental yields. This is good news for investors who are looking for a profitable investment in commercial real estate.
City-Wise Rental Yield in India
Not all cities in India have the same rental yield. Few examples from different major cities in India which make the highest rental yield in India:
| City | Rental Yield Percentage | |
|---|---|---|
| 1 | Mumbai | 2-4% |
| 2 | New Delhi | 5.95% |
| 3 | Bangalore | 2-8% |
| 4 | Pune | 2-6% |
| 5 | Hyderabad | 3.7% |
Rental Yield in Mumbai
Mumbai is the commercially growing geographic region in India. While comparing the past five years it has reached the maximum rise of 6% in the yearly average in 2022 making it the highest rental yield in India. There are few localities as Malabar Hill, Juhu, and Tardeo are home to a few billionaires. So these places have the highest cost for commercial properties too and thus results in the increase of the rental yield in Mumbai too.
Rental Yield Trends Expected for 2023
Around the world, inflation and cost-of-living hardships are on the rise, including significant rises in monthly rent and rapidly increasing interest rates on home mortgages. The property rates have increased up to 13.5 percent in that year. And it is expected that the growth will continue with a 5 to 8 percent increase in 2023 also.
Trends like these are putting the squeeze on living situations, with people possibly more willing to live with roommates or family members to lower or eliminate monthly rent costs.
2023 will see a need for real estate investors and landlords to consider making upgrades to their properties to better suit the needs of multi-generational living situations, the work-from-home lifestyle and the increased demand for home technology. Offering additional amenities while being aware of the impacts of inflation and the cost of living crisis will be important in the coming months. As the marketplace continues to be unpredictable, keep a close eye on trends like these so you can begin to prepare for what might potentially lie ahead.
Conclusion
Investments are always for the betterment. Likewise, you need to make your investment in a better option. If you are more likely a real estate investor then you need to consider gaining more from your investment by investing in high rental yield generating commercial properties rather than the low rental yield generating residential properties.
But it's not just about the numbers - maximizing rental yield is also about providing quality housing options that meet the needs of tenants and create a positive impact on the community. By fostering strong relationships with tenants, being responsive to their needs, and investing in the upkeep and maintenance of properties, landlords can create a win-win situation for both themselves and their tenants. Buying commercial properties is one of the best ways to generate a high rental yield in India.
Ultimately, success in the rental property market requires a combination of financial savvy, operational excellence, and a commitment to creating value for all stakeholders.
