Amid low yields and tenancy laws favouring renters, landlords find little incentive to let units
Around 20 lakh (two million) houses in 12 Indian cities, including five lakh in Mumbai alone, are lying empty, according to a joint report by Knight Frank India and RICS.
Many landlords have been unwilling to rent out units due to a combination of factors, primarily low rents and high transaction costs such as brokerage and stamp duty, Knight Frank explained. Some are disincentivised from letting their properties due to lacklustre residential yields, which can dip as low as nearly 1.5 percent.
Others cite the risk of property litigations as well as the rise of more tenant-friendly laws. Policies like the Rent Control Act, which protects tenants from being unlawfully evicted, deter owners of investment properties from bringing their assets into the rental market.
Rental housing suffers from “market failure”, researchers wrote in the report. “Home developers do not build houses across the price spectrum, but focus mainly on upper price brackets. This leads to oversupply in the upper bracket and under-supply in lower end of the spectrum. Only a part of the oversupplied premium houses find their way in the rental housing market, where as under-supply in low income housing translates into a larger shortfall in the rental housing space.”
Over 27.5 percent of urban households in India (21 million) rent their homes, according to 2011 census figures. The rental housing market is projected to grow at a faster rate than the rate of urbanisation over the next 20 years, researchers noted.
Among 12 cities tracked by Knight Frank and RICS, Mumbai had the most vacant houses in India, with 500,000 units, followed by Delhi with 300,000.
Ghazibad had the least empty homes (55,000), followed by Lucknow at 65,000.
Market observers with Knight Frank and RICS believe the deficit in rental accommodations for low-income segments has provided fodder for informal settlements. “There is not a spec of doubt that rental housing is very crucial in supporting urban housing needs of a very large portion of urban India,” they stated.
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