Home rental market on the recovery path

The Indian residential real estate has been witnessing steady growth over the past two quarters on account of declining inventory and rising rentals with hybrid and remote work becoming commonplace. This coupled with the increased interest from retail customers looking to acquire income-generating assets post the pandemic led-uncertainty and decadal low home-loan interest rates have been driving up the sales.

Industry data suggests that the rental housing demand grew by around 7% year-on-year in the first quarter of the calendar year 2022 due to higher demand in cities such as Gurugram, Delhi, Noida, Bengaluru, and Ahmedabad.

According to global property consultant JLL, sales in Q1 2022 scaled a new peak for the second straight quarter (since Q2 2013) with the residential apartment market in India recording sales of close to 52,000 units in the quarter, an increase of 11% on a sequential basis. Sales for the quarter also surpassed the average quarterly sales for the pre-Covid 2018-19 period by a significant 148%.

The residential market is driven by the salaried population and a large percentage of tenants in cities like Bengaluru, Hyderabad, Pune and Mumbai belong to sectors such as banking, financial services and insurance, software and pharmaceuticals. Today, an increasing number of employees are looking at investing in residential properties with rentals shooting up and the market witnessing some stability for now. Searches for rental accommodation across the country have gone up across the country from a year earlier. This recovery in demand has been led by cities such as Bengaluru, Mumbai and Delhi NCR which accounted for nearly 63% of sales in the first quarter of CY2022 while Pune represented 16% of overall sales. This recovery is also unfolding interesting consumer trends in the residential sector including growing demand for wider apartments (2BHK, 3BHK) in multi-storeyed buildings as customers spend increased time at home, necessitating the need for home offices.

There has also been an increased demand for rental housing near employment hubs and educational institutions as customers look to reduce travel time to work or even otherwise. This trend is expected to continue for the next few quarters as offices move towards higher occupancies and operations, leading to an improved rental housing market as well.

The scenario, however, was quite different in the past two years when the Covid-19 pandemic had dented the demand for the rented housing market with residential property rentals in major cities such as Bengaluru, Chennai, Delhi-NCR and Mumbai dropping by 10-20% immediately after the beginning of the pandemic. But a milder than expected third wave of Covid-19 infections followed by a mass vaccination drive helped the sector crawl back to normalcy.

Rising from the ashes, Indian residential real estate today has emerged as one of the most resilient markets across the globe, having faced the global financial crisis of 2008, the demonetisation and the Covid-19 pandemic and emerging stronger every single time. From innovating on construction techniques to better management of construction costs leading to improved financials for real estate developers, the market is now only led by serious and experienced players, resulting in more stability for better quality offerings for customers.

These factors will also play a crucial role in attracting investors toward the residential sector after the share of the asset class in total foreign investments dropped to 11% in 2017-2021, from 37% in the preceding five-year period.

This is an opportune time for new investors to capitalise on and contribute to building a world-class residential real estate market in India.

(The writer is the founder and chief executive officer of Property First)