News Point: Due to the absence of sound economy in the region, Noida property commands lowest rental yields among the major property markets of India.
Some harsh realities of Noida property market that would scare any investor. It may nevertheless tempt the tenants due to affordability:
Noida commands the lowest rental value among the top 10 cities
In some of the locations the rental yields are even less than 1 per cent
The tenants are renegotiating with landlords to reduce the rent or include maintenance in the rent
Investors in Noida are struggling as the tenants are commanding the rent which has taken 5-15% hit in recent times
Rakesh Sharma, a retired doctor spent his lifetime saving to buy an apartment on the Noida-Greater Noida Expressway. With already having a house in Delhi he had it in mind that the rental income of the property would be enough for him to lead a comfortable life post his retirement.
Today, he repents his decision after having spent INR 1 crore for the said property. With only INR 13,500 as the rental return, including the INR 3,500 as maintenance outgo, he feels he has made the biggest investment blunder of his life. This income, after paying the EMI and inflation adjustment, is making this investment more of a liability than asset.
Welcome to Noida reality! Contrary to the dynamics of property market where lesser transactions lead to skyrocketing of rental values, in Noida this conventional wisdom of market does not hold true. Noida, as a matter of fact, is a classic case in contrast where the supply is huge, transactions are less and the rental values are the lowest. Reason: imbalance of demand & supply in the same catchment area.
Why low rental yields?
Absence of economic infrastructure & job market
No takers for Grade A office space due to absence of international airport
Perceived to be cheapest market of Delhi-NCR
Over-supply in select pockets without proper development of catchment area
Demand-supply mismatch leading to tenants controlling price point
What actually makes Noida one of the worst markets for the rental yields? There are many contributing factors but the single biggest stumbling block is the absence of economic activity in the district that makes it a last choice of those tenants who can not afford in any other part of Delhi-NCR.
Ashok Sinha, a local property consultant believes the low rental yield of Noida is a reality and will continue to be so in the foreseeable future. He feels unless there are quality Grade A offices and quality occupiers in the market that could add to jobs, the residential segment will not be witness to the high priced rental transactions.
“I recently negotiated for an office space with much difficulty. On an extended lease of nine years the occupier accepted to pay only the maintenance part for the first three years, followed by 50 per cent rent in the next three years and full rental only for the last three years. My point is that unless the quality employers will not come to this market the affordability and its offshoot with low rental yield will continue to be a reality,” says Sinha.
Developers, on their part, are mostly in denial about their own miscalculation to add to the demand & supply gap. After all, premium housing and bigger housing units in a market that is the last choice of the buyers defies the conventional wisdom of economics.
Nikhil Hawelia, Managing Director of Hawelia Group candidly points out that the developers themselves have to introspect why the rental values have gone down over the years. According to him, the more one goes up the value chain, either with luxury elements or with size, the least are the chances of commanding decent rental yields.
“I do not think affordable houses are not commanding the rental yields of around 2 per cent, like other parts of the country. The problem is with the premium housing and projects with bigger units where the supply far exceeds the demand. The owners have no option but to compromise with even 1 per cent rental yields or lesser because there are hardly any takers,” says Hawelia.
Analysts believe in the absence of an international airport the multinational companies are reluctant to set-up base in this part of the Delhi-NCR and hence Noida continues to be affordable and low-cost market. This is reflected in both the property sales velocity as well as in its rental yields. All that the property owners are left with in Noida is a wish that one day the property rally will compensate them for their stuck up investment.
By: Ravi Sinha
