Property investors show disappointment from rental yields.

Investors, who purchased luxury apartments, expecting an increase in property prices, and receiving lucrative rentals, are now faced with a harsh reality. Not only do prices stagnate or decline, but rental income from such flats are low.

A surplus of high-end apartments has left tenants with a wide choice of properties to choose from, mostly in central Mumbai. As a result, large apartment rents have plummeted by 20%, and up to 30% and more in some cases.

Large outgoings and maintenance fees, in new buildings, combined with a tax on rental income, have left owners with little in hand. A developer gave the example of Rs 5-crore apartment that is currently eliciting a monthly rent of Rs 1 lakh. “But the owner gets a measly Rs 56,000 in hand after deducting the outgoings and 22 per cent rental income tax. The yield on such expensive property is barely more than 1 per cent per annum,” he said.

“It’s real. Homeowners who rented large apartments are left with little in hand,” Pranay Vakil, Praron Consultancy’s chairman said.

To create demand for rental housing, leading developers have formed independent cells within their companies to satisfy their investors’ demand for leave-and-license apartments.

We have even drawn up standard agreements which can be executed easily by someone who wants to move in immediately, saving on lawyers’ expenses.

A central Mumbai property broker said a lot of supply has come to the market in this region, which has also affected the older gated communities. In his opinion, property prices in the area have dropped by 20%.

Owners, disheartened from the sale, prefer to give apartment on rent. “Today commands a little over a lakh a month for a Rs 4-crore apartment in central Mumbai that earlier would get Rs 1.5 lakh a month a 33 per cent decline,” he added.

The rental return rate does not change significantly with the type of area or building. The broker said in a new project in Worli a 5BHK flat worth Rs 20 crore gives the owner a monthly rental of Rs 4.5 lakh. “But he’s barely getting Rs 2 lakh in hand a month after deducting taxes and outgoings,” he said.

Although owners rue investing in what turned out to be a poor rental market for them, the situation for tenants couldn’t be better. In this game of zero-sum, the loss of the rentier is a win for the renter.