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Investors get a boost - Oct 6, 2007. Times Property (Times of India)

As demand for quality accommodation goes up, rental values are finally on the rise

Mumbai, has always been the trendsetter in the indicative property price within India. It has, in recent years, witnessed a record rise in property prices at par with some of the highest real estate prices in the world. Demand for rental apartments have increased substantially, giving real estate investors in various markets additional boost.

Like all other factors in real estate, rentals are based on supply and demand, after years of stable rent, rental values have finally increased. Following are the factors that have resulted in increasing rental values for property in Mumbai. Increased immigration and job growth.

With relaxation of FDI norms across most sectors, various interna tional companies are forming Joint Ventures with large Indian corporations or are coming in through 100% holding route. Mumbai has witnessed maximum Foreign investment and subsequently demand for quality accommodation has increased further with the traffic of expatriates on the rise within the city. Availability of properties is constrained in certain sought-after buildings.

Capital values have doubled in two years.

Apartment buildings are offering amenities of international standard.

Rentals have increased by almost 15 to 25% in the last one year in premium areas of South Mumbai, Bandra, Khar, Santacruz, Juhu and Versova/Lokhandwala complex. Rentals in the Central area of Worli, Prabhadevi, Lower Parel, Parel as well as in suburbs such as Goregaon, Powai and Malad have risen at a higher rate of between 20 to 35% over the last six months.

Rental trends and analysis:

The subject, being vast, has to be dissected location wise and property type with details into view, condition and age of the property and what comes or does not come with apartment. But for the purpose of giving an overview the outlook for almost the next two years is: inventory/supply will dry and will keep the market steady and rental value will see growth keeping pace with inflation contrary to the current rental quotes in certain locations and for certain properties are unrealistic and are being quoted based on 'Capital Values'. If one goes by current 'Capital Values' one would have to look at 2 to 3% return only pre tax.

The rental values are usually dominated by the "affordability factor." There are budget constraints for companies and their representatives seeking rental accommodation. A two-bedroom rental budget for south Mumbai region allotted by the company could be Rs.70,000 to 80,000/- whereas one might not get anything decent for less than 1,00,000 to 1,50,000/-. Similarly, an expat or corporate looking for a premium quality four-bedroom apartment in Juhu to Bandra region has a budget set of three to four lakhs, but at times the superior quality four-bedroom apartments or row house type bungalows are priced upwards of five lakhs a month usually because of their larger layout and size.

To sum this up, owners/ landlords/lessors should take a realistic view on pricing. If their objective is not to liquidate the asset but enjoy a rental return then avoid getting excited by the 'Capital value' increase. Consult professional and qualified brokers to get the right valuation and market facts to determine the right price.

For occupants/tenants/Lessees:
Please remember "Good and cheap don't go together".
The value of money goes down usually when it comes to 'Real Estate' in a city like Mumbai. It will be "Survival of the fittest" in this city, the next three to five years being the testing period. Those who are unable to sustain will move to two-tier cities like Pune, Nagpur etc. thus completing the puzzle of; who will live in all that construction boom happening in two and three tier cities.

Quick BYTES

Like all other factors in real estate, rentals are based on supply and demand After years of remaining stable, rental values have finally increased The number of expatriates has grown, giving rise to a demand for quality accommodation