Monthly Archives: July 2019

Rental, affordable housing get a boost in Budget 2019

  • The move is likely to help streamline, boost the highly unorganised Indian rental market which is estimated to be around $20 billion as per IMF


  • Sitharaman has also proposed that several land parcels held by Central govt, PSUs would be used to build large public infrastructure, affordable housing


The government will introduce a new model tenancy law to boost the fragmented rental housing market and has proposed further tax incentives in line with its continued effort to achieve the ‘Housing for All’ target by 2022, finance minister Nirmala Sitharaman said in her maiden Union Budget speech.


“Current rental laws are archaic and do not address the relationship between the lessor and the lessee realistically and fairly,” Sitharaman said, adding that the new tenancy model would be finalised and circulated soon. However, she has not provided details on the proposed reforms and the new tenancy law.


Despite the growing demand for rental houses from working millenials and entry by few new-age start-ups in building student housing or co-living spaces, there has been lack of clarity on rules and regulations related to rental housing.


The move by the government is likely to help streamline and boost India’s rental market, which is estimated to be around $20 billion as per IMF. While urban areas account $13.5 billion, around $0.8 billion comes from rural areas.


“The new model tenancy, which is likely to be re-introduced, is expected to balance the rights and responsibilities of both landlords and tenants that will make the rental market more efficient and streamlined across the country,” said Megha Maan, senior associate director, research, at Colliers International India.


Budget 2019 updates


Under the ‘House for All by 2022’ mission, the government aims to build 1.95 crore houses under the Pradhan Mantri Awaas Yojana (Gramin) scheme. “A total of 1.54 crore rural homes have been completed in the last five years.,” Sitharaman said.


The FM also proposed building large public infrastructure on several land parcels held by central government and public sector enterprises.


“Large public infrastructure can be built on land parcels held by central ministries and central public sector enterprises. Through an innovative instrument such as joint development and concession, public infrastructure and affordable housing would be taken up,” she said.



As unsold inventory builds up, developers add rental housing to residential portfolio

  • While some realty firms plan to build student housing projects, others are testing waters by investing in co-living startups
  • Developers have stayed away from rental housing due to low yields and lack of regulations

Large real estate firms are warming up to the idea of building rental housing as an extension of their existing residential business, as shared accommodation and co-living platforms led by startups such as Nestaway and Oyo Living rapidly capture market share.


Firms such as Shapoorji Pallonji Real Estate and Brigade Group are planning to build student and rental housing projects respectively, while others like Mahindra Lifespaces, Godrej Properties, and Lodha Group are testing waters by investing in co-living startups.


“Many developers are evaluating and studying the rental housing market and some of them are already investing in these co-living startups passively to figure out the market and then finally take the plunge. The idea is to enter the co-living market place without actively getting involved in it,” said Tejas Patil, co-head, (real estate), Sanctum Wealth Advisors.


SD Corp., a joint venture between Shapoorji Pallonji and Dilip Thacker group, plans to build a dedicated residential tower for student housing as part of a 55 acre integrated township called Sarova in Mumbai’s suburb of Kandivali East.


“We are finalizing the details. We are talking to multiple operators and doing the primary research work on its demand,” said Rajeeb Dash, vice-president, sales and marketing, SD Corp.


Bengaluru-based real estate developer Brigade Group is also evaluating opportunities to set up a rental housing portfolio, said Pavitra Shankar, executive director, Brigade Enterprises Ltd.


“We are looking at it (rental housing) and how to make it feasible. Potentially, higher rental amounts are possible if we offer some value-added services for the tenants. However, most importantly, it has to make economic sense to us,” Shankar said.


Rental housing, a highly fragmented segment, has been dominated by tier II builders and personal home owners who rent out their spaces.


Promoting rental housing could help end the logjam in India’s housing market where there is an acute supply shortage even as the number of vacant residential units continue to rise mainly because of diminishing affordability, according to real estate experts.


Vacant homes stood at 11.1 million units, according to the 2011 census, a 71% increase from 2001. There is a huge demand for homes on rent in cities such as Mumbai and Bengaluru, as well as in the National Capital Region.


However, traditional developers have stayed away from rental housing given the low rental yields and lack of clarity on rules and regulations.


At present, investors and home owners earn rental yield of around 2-3.5%, a figure that many developers find not feasible for stepping into the rental housing market.


However, in case of modern co-living or shared accommodation setups, yields can double or even increase to 2.5-3 times, according to a report by JLL India, a property advisory firm.