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Jun 29, 2017

India's residential property yields still low


Last Updated: June 29, 2017
BANGALORE - Apartments COST (US$) YIELD (p.a.) PRICE/SQ.M. (US$)
TO BUY MONTHLY RENT TO BUY MONTHLY RENT
Brigade Road n.a. 310 n.a. 10,072 n.a.
Cox Town n.a. 542 n.a. 1,696 n.a.
JP Nagar n.a. 341 n.a. 958 n.a.
Old Madras n.a. n.a. n.a. 794 n.a.
Palace Road n.a. n.a. n.a. 2,670 n.a.
Richmond Road n.a. n.a. n.a. 3,752 n.a.
Richmond Town n.a. 623 n.a. 4,230 n.a.
Ulsoor n.a. 186 n.a. 2,668 n.a.
Whitefield n.a. 217 n.a. 735 n.a.
NEW DELHI - Apartments
Anand Niketan n.a. 883 n.a. 4,547 n.a.
Defence Colony n.a. 864 n.a. 6,021 n.a.
Greater Kailash 1 n.a. 768 n.a. 2,674 n.a.
Greater Kailash 2 n.a. 542 n.a. 2,655 n.a.
Hauz Khas n.a. 1,007 n.a. 4,951 n.a.
Saket n.a. 620 n.a. 2,499 n.a.
SOUTH MUMBAI - Apartments
Altamount Road n.a. 2,686 n.a. 18,532 n.a.
Breach Candy n.a. 2,281 n.a. 15,121 n.a.
Churchgate n.a. 2,504 n.a. 11,462 n.a.
Cuffe Parade n.a. 2,622 n.a. 16,892 n.a.
Malabar Hill n.a. 1,859 n.a. 13,093 n.a.
Napeansea Road n.a. n.a. n.a. 17,352 n.a.
Nariman Point n.a. n.a. n.a. 19,105 n.a.
Peddar Road n.a. 1,936 n.a. 11,166 n.a.
Walkeshwar n.a. 2,045 n.a. 14,546 n.a.
All yields are gross - i.e., before taxes, repair costs, ground rents, estate agents fees, and any other costs. Net yields (what youŽll really earn) are typically around 1.5% to 2% lower.
Source: Makaan Definitions: Data FAQ See also: Update Schedule

Residential property prices have risen strongly in India in recent years. Rents have not kept pace, so it is hardly surprising that the gross rental yield - i.e., the percentage return on your purchase of property - is low in IndiaŽs major cities.

South Mumbai has very low rental yields, with property investors earning around 2.40% gross. Apartments remain expensive. In US$ terms they are less expensive this year than last, reaching about US$9,800 per square metre (sq.m.) for 120 sq.m. apartments.

In New Delhi, prices per sq. m. are of course much lower, despite the continuous price rises in that city. In 2016, the price per sq. m. of a 120-sq.m. apartment in New Delhi was around US$3,350. Gross rental yields in Delhi remain poor, at between 2.88% to 3.20%.

In Bangalore, prices are around US$1,000 to US$1,200 per sq. m. Rental yields are higher in Bangalore, ranging from 3.33% to 4.04%. Again, this is a long way below the nice yields of 7.16% to 9.92% which could be obtained way back in the year 2007.

Conclusion: Indian gross rental yields are very low. This suggests that Indian residential property is somewhat overvalued. While low rental yields do not always indicate over-valuation, especially in periods when interest rates are low, they are only justified if rapid economic growth is expected, and also, if there are sufficient restrictions on new building to prevent the market being flooded with new properties as prices rise. The buyer must ask himself whether these two conditions are met in India.

Round trip transaction costs are moderate to high in India. See our Property transaction costs analysis for India and Property transaction costs in India, compared to the rest of Asia






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