look news india
A fundamental change is being seen in the strategy of investors regarding rental income in the real estate market of India. For the last two decades, the IT corridors of cities like Bengaluru, Hyderabad and Pune were considered the hotspots offering the highest rental yields on residential properties. However, due to slow pace of hiring, cost cutting and hybrid/work-from-home culture among tech companies, rental rates in IT belts are witnessing stagnation. In contrast, the banking, financial services and insurance (BFSI) sector is expanding tremendously. Due to this, rental demand and rental rates are creating new records in the financial districts of Mumbai, GIFT City (Gujarat), Gurugram and Noida.
The lifestyle of employees working in the technology sector and the policies of companies have changed the rental dynamics of IT belts. Most tech firms are still working on flexible and hybrid working models, with employees preferring to work from peripheral areas or their hometowns rather than renting expensive apartments near the office. Additionally, due to slow pace of fresh hiring in the IT sector in recent times and lack of big increments, the annual rental growth rate in areas like Bengaluru’s Whitefield/ORR and Hyderabad’s Hitech City has remained limited to 4 to 6 percent.
Unlike the IT sector, 100% office attendance is mandatory in the banking and corporate finance sector. Investment bankers, private equity professionals, fund managers, risk analysts and wealth advisors have very high earnings and disposable income. These professionals are willing to pay higher rents to live in premium and gated communities, 15-20 minutes away from the office. For this reason, the occupancy rate of 2 and 3 BHK flats located within a radius of 5 to 10 kilometers of financial centers remains above 95 percent and an annual increase of 10 to 15 percent is being seen in the rents.
The list of major micro-markets where rental income is growing fastest due to the expansion of the financial sector is as follows:
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Mumbai (BKC, Lower Parel and Andheri East): Rental yields of residential properties located near BKC and Lower Parel in the country’s financial capital have reached 4.5 to 5.5 percent, which historically used to be 2.5-3 percent.
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GIFT City (Gandhinagar-Ahmedabad, Gujarat): With the opening of offices of global banks, fintech firms and brokers in India’s first International Financial Services Center (IFSC), unprecedented rental yields of 6 to 8 percent are being offered on 1 and 2 BHK apartments.
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Gurugram (Golf Course Extension and Cyber City Periphery): Being a back-office hub of multinational investment banks and consulting firms, there is an acute shortage of premium rental housing, resulting in hefty rents for landlords.
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Navi Mumbai and Thane (Back-Office Banking Corridor): Due to the rapid establishment of Fintech and Shared Services centres, high rental yields are being recorded here in the medium budget.
The biggest advantage of investing in financial corridors is that the risk of default is negligible here. Long-term lease agreements of 2 to 3 years instead of 11 months are easily negotiated with corporate leasing and professionals. Along with this, due to metro connectivity, international schools, high-street retail and grade-A commercial development in these areas, the capital value (original price of the property) is also continuously increasing by 8 to 12 percent annually, thereby giving dual benefit (rent + capital gain) to the investors.
If you are planning to buy a property solely for the purpose of earning regular passive income from rentals, there are a few things to keep in mind:
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Unit Size Selection: 1 BHK, compact 2 BHK and fully furnished studio apartments remain in highest rental demand in financial hubs as young professionals prefer ready-to-move-in homes.
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Amenities and Connectivity: Societies with gyms, swimming pools, co-working lounges and direct connectivity to expressways/metro command 20-25 per cent higher rents.
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Smart Financial Planning: Choose ready-to-move or near-possession properties rather than under-construction projects near commercial hubs so that rental cashflow starts from the first month as EMIs start.