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Evolution Of Rental Housing Market In India

Over the years, the evolution of the Indian national average of  the rental housing market has been curiously lop-sided, even as the trends driving it has changed considerably.

Interestingly, residential rental yields in India are higher than in Beijing, Singapore and Hong Kong but lower than cities like Manila and Jakarta. However, the Indian rental yield average of 3% is lower than that of other Asian countries that are pegged at 3.5 – 4% and European countries at 4.5%-5%.

According to the survey found that more than 53% of respondents looking to invest and preferred to earn a steady rental income while only 39% would focus on capital profit on the sale.

If we look at the city-wise performance for rental yields, Hyderabad tops the list with a highest rental yield of 3.7%. In Bengaluru it is 3.6%, Pune 3.3 % and in entire MMR – surprisingly – it is just 3%.

For the salaried population, the demand for rental properties is mainly driven. A maximum proportion of tenants in cities like Bengaluru, Hyderabad, Pune and Mumbai are from the salaried section and belong to IT/ITeS, BFSI, Pharma and services. In fact, the IT/ITeS sector, BFSI, and Engineering & Manufacturing were the other sectors the key drivers for commercial space in cities such as Bengaluru, Hyderabad, Pune and Chennai   have caused a stable migration to these cities. 

Performance as an investment asset class

Peoples think that increasing demand for rental housing would also improve its performance as an investment asset class. Still, as the rental market grew steadily across major cities, rental yield (the annual rate of return an investor can earn from his capital invested in a property) has long since cease developing to a national average of 3%.

 

However, the lower the property cost, the higher is the rental yield. Therefore, investing in affordable or mid-segment properties will yield better rental returns (depending on external factors like location, project type, developer’s brand, etc.) For the same reason, luxury and super-luxury homes are not at all rewarding from a rental yield point of view.

 

 Cities                                              Rental Yield (in %) in 2014                       Rental Yield (in %) in 2019

Gurugram                                                             3.4                                                                              3.5

Noida                                                                         3                                                                               3.2

Greater Noida                                                     1.8                                                                                 2

Delhi                                                                           2                                                                               2.2

Pune                                                                           3                                                                                3.3

Bangalore                                                            3.15                                                                               3.6

Hyderabad                                                            3.2                                                                               3.7

Mumbai                                                                  3.3                                                                               3.5

Navi Mumbai                                                       2.5                                                                               2.8

Thane                                                                      2.4                                                                               2.7

Rental rights

The leasing and renting of residential property currently still fall under the purview of the Rent Control Act, but each state has its own version. The Act primarily secures the rights of tenants while curbing the power of the landlord to evict tenants.

 

Some of the basic rights of tenants and duties of landlords in India:

A tenant has the right to a safe and secure house and the onus to ensure basic standards of accommodation are on the landlord. The landlord cannot bar essential service such as power and water to recover rental dues. In such a situation, a tenant can register a complaint against the landlord with the Rent Control Court. In order to evict a tenant; the landlord must file a petition before the Rent Control Court. The tenant has the right to privacy and the landlord cannot enter the premises without prior permission or intimation. The landlord must reimburse the tenant for any repairs that he/she carries out. The tenant must be served notice of the termination of tenancy and is entitled to receive the deposit at the end of the lease term. Legal heirs of the tenant are also considered tenants and are covered by the Rent Control Act of various states.

 

Policy reforms

The need for rental housing was first mentioned in the National Housing Policy, 1988, but little has been done to expand the scope of rental policy. Many local laws need to be revisited as they are heavily skewed in favor of tenants. In many ongoing instances, tenants have been paying low rents for decades and landlords have not been able to either revise rent or evict them.

The proposed Model Tenancy Act, 2019 aims to make simpler the complex dynamic of the tenant-landlord relationship. The initial draft of the policy was released in October 2015 and aimed to encourage rental housing through public-private partnerships.  The housing ministry announces a new public-private partnership (PPP) policy to support private investment in affordable housing, including rental housing, in September 2017. 

Development of rental housing

 At least on paper, the government has stated its intention to promote ‘Direct Relationship Rental Housing’ by providing land to developers to build rental housing. On his part, the developer would recover the cost of construction through rental income. However, due to lack of clarity on rental policy and other regulations, developers have not shown much enthusiasm to join the initiative.

 

Draft Model Tenancy Act, 2019

As per this newly-proposed Act, intended to replace the Rent Control Act, the government has laid down the following new proposals:

  • It aims to cap security deposits at two months’ rent for housing and one month’s rent for other properties. However, this cap may hurt landlords in cities where much larger security deposits have been the norm. 
  • The landlord is entitled to a compensation of double of the monthly rent for two months and four times of the monthly rent thereafter if a tenant does not leave the place after tenancy has been terminated by order, notice or as per agreement.
  • The landlord heir rent in mid-term, cut off or withhold essential supplies or services (electricity, water, etc.)
  • Before revising the rent value the property owner must give prior notice.
  • A tenant without the prior consent in writing of the landowner won’t be able to sublet whole property to someone else. It is the landlord’s responsibility to rectify structural damages and undertake measures like whitewashing walls and painting doors and windows.
  • An officer of the rank of deputy collector will act as rent authority to adjudicate any issue arising out of a rental disagreement.

While the proposals of the Model Tenancy Act have been widely welcomed, their implementation is not so simple. The Act is not binding on the states as land and urban development remain state subjects, so states and Union Territories can still repeal or amend their existing Acts.

Like in the case with RERA, states may choose not to follow guidelines and dilute the essence of the Model Act. Moreover, the Model Act is prospectively applicable and will not affect existing tenancies. The repeal of rent control acts can be governed by political exigencies and can be very complicated in cities like Mumbai, where tenants have occupied residential properties in prime areas for a pittance.

Another pain point could be the cap on the security deposit which is not likely to find favour with many landlords. In cities like Bangalore, the norm is a ten-month security deposit as a two-month deposit is unlikely to cover any damage to the property or a default in rent payment by the tenant.

Despite these challenges, The Model Tenancy Act is a step in the right direction. It provides a clear roadmap for states to follow, but it remains to be seen to what extent the states will toe the central government’s line. The state of Tamil Nadu had already come out with its Tenancy Act in February 2019 and may or may not follow the Model Act.

Still, a fair and balanced tenancy law protecting the rights of all parties will go a long way in formalizing and stabilizing the Indian rental market – and making it a more profitable investment route. If enforced by states in letter and spirit, it could revive the fortunes of not just the rental market but the housing sector at large.

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NO FUTURE WITHOUT TECHNOLOGY IN REAL ESTATE

Mostly all industries in the world are looking at technology to flourish in the market. Real estate is no far behind & is trying to innovate its process using the power of technology. Real estate is the biggest asset, worth more than all stocks and bonds consolidated. Running such a big industry at full steam in the 21st century requires innovation and imaginative brightness.

Rising development patterns, recognizing shopper desires and client experience with regards to purchasing land, fuelled the property division’s exigency to get innovation ready. Add to that the developing significance of information and the requirement for shrewd innovation got unavoidable. Proptech occurred and changed the financial aspects of the land business. It won’t be too self-important to even consider saying that the future strength of land is helpless before innovation. From improving the home pursuit procedure to anticipating right property estimations, shrewd innovation including AI, AR and Big Data will assume an excellent job for shoppers and realtors the same. 

Consecutive rushes of advancement behind proptech and its splendid possibilities in the years to come have provoked the premium of financial investors who are keen on investing in the technological marvel. Glancing back at 2008, a unimportant $20 million was put resources into Proptech. Quick forward to 2018, this figure swelled to an incredible $10.2 billion and the numbers continue tumbling. 

One of the territories where Proptech is making extraordinary commotion is maintainability. Sustainable buildings are being proclaimed as the eventual fate of the land business. The market for feasible structures is picking up prominence in the development and the renting fields. With the appropriation of new innovations, the real estate industry is practicing its effect on supportability. Decrease of asset usage and expanding productivity of structures to improve the well being of human social orders are the key center zones for this area today. 

Innovation today is assisting land properties with plan, material creation, well being, the board and development procedures crosswise over both private and business resources.

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Indian Real Estate Sector to reach $180 Billion by 2020!

Indian real estate sector is projected to reach a market size of $180 billion by 2020, a sharp rise from $126 billion in 2015. The housing sector’s contribution to the Indian GDP is expected to almost double to more than 11% by 2020 up from estimated 5%-6%, showed a joint report by realty developers’ body CREDAI and JLL India. The contribution of the residential segment to the GDP would almost double to 11 % by 2020. 

The developments like RERA (Regulation & Development Act) and GST (Goods and Services Tax) have created a strong support for the sector to grow, which coupled with India’s strong economic advancement have provided a perfect spring board . On the basis of the Smart City projects, land record digitization, withdrawal of corporate tax from REIT structure, the real estate sector growth is bound to attract funds and confidence of the investors as well in a big way.

Real Estate (Regulation & Development) Act, 2016 RERA is expected to consolidate the Indian Real estate industry with unscrupulous developers to be shunted out. Smaller developers in tier 2 and 3 cities could tap into institutional funding, if they follow higher disclosure norms and efficient financial management. Sales figures are also projected to improve with RERA bound to rebuild the trust deficit between buyers and developers, the report added.

The cost savings on account of the Goods and Services Tax (GST) is expected to between 3% to 4% in the near future as estimated by development community. Apart from eight major cities, JLL said that cities like Nagpur, Kochi, Chandigarh and Patna could be growth centers.

According to the report, India is expected to see over $20 billion Real Estate Investment Trust able office stock with potential rental yield up to 7.5% make Indian real estate very attractive by 2020. Office REITs may pave the way for retail asset REITs in the second phase.

The future altering trends that will transform the Indian real estate sector:
 

Real Estate Regulatory Act (RERA) – (Key Findings and Projections)

  • RERA is expected to consolidate the Indian Real Estate industry with unscrupulous developers to be shunted out.
  • Smaller developers in Tier-II and Tier-III cities could tap into institutional funding, if they follow higher disclosure norms and efficient financial management.
     

Goods and Services Tax (GST) – (Key Findings and Projections)

  • The cost savings on account of GST is expected to between 3-4 per cent in the near future as estimated by development community. Prices will continue to remain dependent on demand and supply dynamics within micro-markets.
  • The report identifies select cities (other than the top eight cities) and evaluated their potential to become the next growth centre of logistics post GST Implementation. Some of them include Nagpur, Kochi, Chandigarh, Patna, among others.

FDI Policy – (Key Findings and Projections)

The recent relaxation in the FDI Policy by the Government of India has also provided a huge boost to the industry in the past, with the report revealing the following findings:

  • Private equity and debt investments in real estate increased by 12 per cent YOY across 79 transactions in 2017.
  • Investments in retail projects in Tier-I and Tier-III cities reached $6.19 billion in the period of 2006-17.
  • Investment inflows in the residential sector since 2014 have been Rs 59,000 crore approximately 47 per cent of the total invested money in real estate over the same period.
  • Private equity inflows in office and IT-ITES segment for 2014-2017 YTD are 150 per cent higher than the previous seven years’ inflows combined.

Key FDI trends that is likely to dominate the future of Indian realty:


Affordable housing is a major theme among investors. With ample policy support, numerous projects are being launched in this sector and FDI will find its way here.
Warehousing and logistics destinations in the country will also be attractive to foreign investors as post GST the sector is getting more organized.
The office segment is likely to remain active in terms of attracting investments.

Affordable Housing

  • Create avenue for developers to make strong presence in real estate as demand for this segment.
  • Being granted infrastructure status, allows developers to borrow capital at preferred rates as well as utilized secured funding routes for growth.

 


Real Estate Investment Trust (REITs):

  • Over 20 billion worth REIT-able office stock in India with potential rental yield up to 7.5 per cent make Indian real estate very attractive.
  • Office REITs may pave the way for Retail asset REITs in the second phase. Higher private equity investment interest in alternative assets such as senior living, student housing. Create a long-term strategy to strengthen development portfolios in those asset classes.


Technology and Use of Prop – Tech

  • Tech-enablement of the sector is expected to increase efficiency in building construction, sales and marketing management and property management aspects
  • Four big technological revolution that will have lasting change include – Big Data Analytics, Artificial Intelligence (AI) and Internet of Things (IOT) and Block Chain


Alternative Asset Classes

  • The real estate sector will benefit greatly from specializations that are seeing the dawn now. These are expected to pick pace in the next decade
  • High growth asset classes for the next decade will be Senior Living, Student Housing and Healthcare.
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What are the Ready to Move & Under Construction Projects in Noida?

There are plenty of 3 BHK flats in Noida, which are under construction and some are ready to move in which leave the investors with many choices. 3 BHK flats are available in the following apartments – ATS Pious Hideaways, Gaur City, Galaxy North Avenue, ABA Cleo County, ATS Le Grandiose, TATA Eureka Park, Godrej Palm Retreat, Civitech Stadia, Supertech Ecociti, Purvanchal Royal Park, ATS Greens, Ajanara Daffodil and many more.

ABA Cleo County is a recently propelled Project by ABA Corporation situated in Sector 121. Noida Cleo County is lavishly spread over 25 acres which aims at providing resort style living to the people with a host of world-class amenities to enjoy. Cleo County offers 3 / 4 BHK apartments extravagantly outlined lofts and penthouses. TATA is launching its new residential project TAT Eureka Park in sector 150, Noida. 

ATS Pious Hideaways project is located at Sector 150 Noida. It is the best to project of people those who looking to invest in real estate at an affordable cost. All flats in the projects are designed by using luxury equipment that offers outstanding look to investors. This residential project comes with some possible facilities which include schools, colleges, commercial shops, shopping complexes, hospitals, sports, and others. The area of its 3 BHK flat varies between 1400-1600 sqft. The possession year is 2026. The price starts from 66 lakhs. Godrej Palm Retreat also offers 3 bhk flats with the price starting from 53 lakhs. It is spread over an area of 14 acres. 

Supertech Ecociti is located in sector 137, Noida. The price of 3BHK flats starts from 52 lakhs and is ready to move in. The size of 3BHK flat is approximately 890 sqft. Purvanchal Royal Park is presented by the Purvanchal Group & has a range of residential projects spread over the North India with elements of good living. The project is located in sector 137, Noida. 

Ajanara is a well known developer which has come with the residential project Ajanara Daffodil. Ajnara Daffodil is a new kind of residential project that offers a huge collection of 2BHK and 3BHK apartments facing the lush green environment. The rate of 3BHK starts from 1 crore. It is a ready to move in apartment with 19 floors, the project spreads over an area of 10 acres. Th project is located in sector 137, Noida. The project has a good demand from investors as Ajanara is well-established developer in the North India.

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COMING SOON …!List of new Properties in Noida

Noida has turned into a brilliant attraction for the developers just as the investors. Consistently, the developers & properties in Noida are gaining area to convey the best foundation to the city. The major builders in Noida include – Godrej Properties, ACE Group, Lotus Greens, TATA Homes, Prateek Group, Eldeco Group, ATS, Bhutani, Xpress, Elite, Ace, Mahagun, Civitech & many more. ATS has many residential projects like Pious Hideways, ATS Pristine, ATS Knightsbridge, ATS Pristine Golf Villas, ATS Dolce, ATS, Rhapsody, ATS Homekraft Happy Trails, ATS Nobility, ATS Allure, ATS Hedges.

Their commercial projects include ATS Cabana Heights, ATS Khyber Range and ATS Bouquet. Godrej is one of the established & recognised builders catering to both commercial & residential projects. Their properties include Godrej Nurture, Godrej Crest, Godrej Exquisite Villas, Godrej the Suits, Godrej Golf Links, Godrej Nest. Mahagun also has many projects to its credit including Mahagun Mirabella, Mahagun Moderne, Meadows, Mahagun Mywoods, Mahagun Mantra, Mahagun Mascot, Mahagun Montage.

The latest project form the highly esteemed Tata group covers a large amount of area near Noida. TATA Value homes have always come up with something special, which is clearly reflected form these apartments, which have best in class interior and living facilities. TATA value homes sector 150 Noida are developed with utter perfection. Tata Housing’s Value Homes’ latest offering Destination 150 is located at the best block of sector 150 Noida. This
sector has easier accessibility from almost every important point of interest from Noida and Greater Noida.

Civitech has two main projects in Noida which are Civitech Sampriti, Civitech Florencia. Both of these are delivered projects. Their ongoing projects are Civitech Stadia which is a residential project & one commercial project Civitech Santoni. Bhutani Infra group is one of most admired real estate builders based out of Noida. Their project Grandthum is located in the prominent area of Greater Noida. Their another project Cyberthum is spread over an area of 26.8 acres. It is Nortn India’s tallest commercial tower, helipad & ample parking facilities. Alphathum is
another commercial property by Bhutani Infra. Lotus Greens has a residential project Lotus Arena within the 180 acre Sports City. The visionary project is a dream location for all sports enthusiasts. Their another project Lotus Isle is an extraordinary mixed-use development that unifies commercial and residential spaces within its fold. Lotus Arena is located in sector 79- Noida, within the 180 acres Sports City, the project offers the best of living spaces.

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Launch of residential projects in the top 8 cities jump over 68% in H1

In the first six months of the year 2018, there were various launches made in India for residential projects. Immense confidence was shown by investors everywhere. When it comes to the launching of new properties in 8 urban areas in India, a bounce of over 68% was depicted in the real estate industry. A tremendous growth of 106% was also witnessed in the same period. Now investors are searching for progressive ventures for investment. The property buying portals can be of great help in this case. There has been a decline in inventory level despite the growth in industry. On a positive note, the reactions of people wanting to invest in residential is great. When we look at the statistics of the year 2017, it shows that approximately 11% growth was spectated in the top 8 cities in India. To elevate the condition pf real estate industry, various schemes have been launched by the
Government since the year 2016. Like Prime Minister Awas Yojana , GST and RERA guidelines. These steps have led to more clearness in the industry, although initially these steps were not taken well. There are great opportunities available for investors who prefer residential properties. A study done by experts revealed that the sales figure has been expanding reliably in the last four quarters. This resulted in developers launching properties in the urban cities.

Among the urban areas, the most elevated number of launches has been done in Mumbai Metropolitan Region(27798 units) and then in Bengaluru(18193 units) . An intriguing statistic revealed that sales have risen by 70% in present when compared to the previous years. With the help of housing schemes, even the low income groups have invested in properties, which in itself is a positive sign. The investors are
instilled with confidence because of the rising sales figure. Commercial property does not lag behind
either, because a high demand has been seen in this sector too. Domestic and international companies both have been showing interest in this. Looking at the statistics of first half of 2018, sale of 60% has been seen in below 50 lakh segment, only talking about the sales of residential property. If someone is keen on purchasing property in India, the real estate websites gives a good brief on upcoming projects. Chances are that property rates will ascend all over the country in the coming months, so this is the ideal time for investors to make a good and ideal investment.

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TECHNOLOGY PLAYING A SUBSTANTIAL ROLE IN REAL ESTATE

Technological advancement is happening in every industry, real estate is no far behind. Various innovative technologies have been introduced in this industry to ease the way it works. This technology includes 360 degree videos, pricing models, agreements made online which will have a great impact in 2019. The e-signed documents, mobile apps have smoothed the process of selling and buying properties.

The Automated Valuation Models has enabled users to gauge the expense of buying property. The block chain enabled transactions could be a relevant thing in the upcoming years. Many builders of residential and commercial properties have embraced the technological changes in various stages of the construction process.

3-D virtual tour of the site is also done to attract customers. This gives the customers a real time experience of living. The RERA(Real Estate Regulation and Development Act) has come up, which makes it mandatory for the projects to be registered with them and all information of the project to be uploaded on website. The buyers can have access to any information pertaining to the property online from various sources.

The concept of intelligent homes has come up with internet of things amenities, home automation, control lighting, automation, bio-metric security locks, security system integrated with mobiles. With the progression in technology at each phase of buying property, there is an ease and a smooth flow of process and it’s a pattern that is set to fortify in the years to come.

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A SHIFT IN REAL ESTATE EXPECTED IN 2019 – TOPROPMART

The developers are likely to use the existing inventory rather than launch new projects as they tussle with RERA Act and GST. Due to the NBFC crisis, there will be a liquidity problem to continue. But there are some new trend to be expected in this year. The affordable housing segment is expected to grow both from supply and demand side due to Government incentives for both developers and buyers. The Government has expanded the benefits of a subsidy scheme on home loans under the Pradhan Mantri Awas Yojana till March 2020. A subsidy of upto Rs 2.67 lakhs can be availed on home loans by buyers. This year will turn out be another push towards the development of housing segment.

Co-living is the concept which has been emerging due to people preferring to stay with someone, especially students and professionals. Co-living area includes private rooms with a shared kitchen and a living area. But this option is majorly available in metro cities like Mumbai, Bengaluru, Pune, Delhi. This concept has however expanded to tier II cities like Jaipur and Lucknow. There are many startups operating in this space like Oyo living, Ziffy homes, StayAbode, SimplyGuest, RentMyStay, Zolo and many more. According to some experts, Real Estate Investment Trust will be launched in this year. The Government removed many hurdles after it was first launched in 2008. Government is thinking to bring some modifications for the ease of investors in the REIT policy.

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TAX ADVANTAGE OF COMMERCIAL PROPERTY LOANS

Income from house property is an income from residential and commercial property both. Annual Value is the rent received from the property, but there are certain deductions here. There are two deductions allowed according to the Income Tax Act- standard deductions and deduction of interest. Standard deduction is allowed at the rate of 30% of annual value for any repairs, insurance, water supply etc. Deduction of interest is for purchase, construction, renovation of commercial or residential property available on interest paid on loan. There is no standard limit on deduction of interest for a commercial property loan.

To calculate taxable income from house property, the Gross annual value is deducted from municipal taxes. Then standard deduction and deduction of interest is made. The assessee gross annual income is added to the taxable income from house property and is taxed according to the income tax slab. If the taxable income from house property is negative then the loss is set off against other income. If this cannot be done and the loss is more than Rs 2 Lakh then the left over loss is moved forward to the following years, also it is then set off against other income for the following 8 years.

But there are various conditions to be kept in mind. The money borrowed from relatives or friends is considered for deduction of interest. There is no restriction on the amount of interest on loan for the commercial property which is either let out or used for business. Loan taken for repairs, construction is allowed no deduction for interest before its completed.

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EFFECT OF GST ON REAL ESTATE BUYERS AND INVESTORS

The main implication of GST is that it has brought a simplified tax structure. Previously, the buyers had to pay VAT, Service tax, stamp duty and registration charges when purchasing a property under construction. However, for purchase of completed properties, only stamp duty and registration charges were payable. The registration charges, stamp duty and VAT varied from state to state. Earlier due to various types of taxes, the businesses and purchasers had to pay tax on tax which was very complex. To tackle this problem, Government introduced GST. This has introduced positivity among the buyers and investors because of a less complex tax structure.
Under GST, all properties which are under construction will be charged at 12% of property worth. Stamp duty and registration charges are not included in this. For the properties which are complete, the previous provisions will prevail. No indirect tax will be paid by the buyers on sale of ready to move in properties. Thus the implementation of GST has brought in more transparency in taxation and has boosted the sentiments of buyers and investors.

  • Simplified taxation
  • Transparency and clarity
  • Reduced tax burden
  • Increased profit margin

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