News Point: When houses are not sold, rental markets firm up. But in Noida it is strange paradox that sales are down, capital values stagnant and rental market crashing.
Pramod Varshney shifted to Noida, Sector 137, a couple of years back in a rented 2BHK flat at Rs. 13,500 per month. The lease agreement of the apartment of Paras Tierea clearly asked for a mandatory 10% rent hike every year. By that commitment the rent now should have been Rs. 16,000 plus. But the rent that Varshney pays today is Rs. 12,500 per month. It has decreased to Rs. 1000 in the last couple of years.
The landlord reluctantly agrees to his demands every time as there are scores of unoccupied flats in the neighbourhood. Varshney is not alone who is today in a commanding position to ask for rental values to decrease. As a matter of fact, there are many tenants across the Noida market who are today either renegotiating for a lesser rent amount or shifting to another neighbourhood flat at a lesser rent. Sector 137 is one of the worst hit micro markets and Paras Tierea is the worst hit project of the market. (Expose on Paras Buildtech to follow)
“Initially I paid more rent as coming from Delhi where I was paying Rs. 22,000 for a 2BHK flat, I felt I am paying reasonably lesser amount here. But later I came to know that the neighbours were paying even lesser. Moreover, with the kind of unoccupied flats in the vicinity and the owners looking for tenants Noida has turned out to be a renters’ paradise,” says Varshney.
Market realities
- Noida offers lowest rental returns among top cities, 1-1.5%
- Over-supply has not only dented the capital appreciation but also rental yields
- Rental returns are constantly decreasing despite of new supply having better amenities
- Emerging locations are worse hit and the tenants are renegotiating for lesser rent
Most of the local analysts in the market agree to this tenant of Noida. They maintain the over-supply in a short span of time has created a unique opportunity for the tenants here. But it is not good news for the investors who are stuck with the projects as there is neither re-sale happening nor are they getting the right ROI in terms of rental yields.
Facts speak for themselves. As per the data available with Track2Realty, in the last five years when the home sales have decreased sharply the rental yields have firmed up across the country. In Bangalore it has shot up from 2.7% to 3.5%, in Mumbai it has picked up from 2.5% to close to 3%, and in Delhi it has shoot up from a modest 1.5% to 2%. But in Noida despite of fresh supply with ultra modern amenities it has decreased from 1.8% to 1.5% and is decreasing constantly.
Earlier a report by Colliers India had also pointed out that rent rates in most areas of Noida have either remained stagnant or slid. It said in some areas like Sector 92 and 93, it has even slid by 6%. The report also showed a 16% fall in rent in Noida’s Sector 44, the maximum in the entire city.
Colliers report had said that the increasing numbers of completions and possessions in the first two quarters of 2016 are the reason for the low demand in rentals in existing properties.
“In the first half of the year, 6,000 apartments were given possession in Sector 45, 74, 75 & 76. While many have shifted to them, many have also given them up on rent. With more rental properties available in new apartments, people from existing rental properties have shifted to these cheaper apartments with better amenities,” said the Colliers report.
The over-supply leading to rental market crash has changed the mindset of the prospective home buyers also. Even when they can afford to buy a flat in the city, they are evaluating the cost & benefit of investing in the housing market. As a result, the property market of Noida has more or less not appreciated in the last three years.
“Why should I even think of buying a house in Noida today when I can live on my own terms in an apartment of Rs. 1 crore by paying just Rs. 16,000 as monthly rent?,” questions Prashant Dahiya. “The probability of capital appreciation rate is nowhere near even the safest bank fixed deposit returns; the rental yields are around 1.5% and constantly decreasing; and the availability of rental housing is way beyond demand.”
The developers have their own reasons to defend this loss of equity. Nikhil Hawelia, Managing Director of Hawelia Group says the potential of Noida market can not be evaluated on the basis of its rental yields alone. According to him, the fact that Noida happens to be affordable market, the rental returns are bound to be on the lower side.
“In my opinion the rental yields in most of the markets have softened. In Noida since the ticket size of the property has always been on the lower side, it gives the impression of a crash which is not the case,” says Hawelia.
However, the fact remains that Noida today contradicts the conventional wisdom of property market that suggests when the transactions are slow the rental markets firm up. People who need a house pay extra for rental accommodation when they can not afford to buy a house. However, in Noida the over supply has led to a peculiar situation where the transactions are few and far between (with no capital appreciation), the rental markets are also sliding.
By: Ravi Sinha
