This is what plummeting rentals in posh Delhi, Mumbai mean for you

India Inc’s cost-cutting measures are having a trickle down effect on India’s prime property locations too.

As companies cut relocation budgets, residential rentals in posh areas of Mumbai, Delhi and Bangalore have dropped by around 25 percent. Demand for rented homes in Mumbai’s popular localities like Malabar Hill, Cuffe Parade fall, Delhi’s most sought after Vasant Vihar, Chanakyapuri and Shanti Niketan are also down by half in the last one year, according to a report in the Economic Times.

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“Rentals constitute nearly 15-20% of cost to company (CTC). But not just companies, those being hired too are looking for cheaper accommodations, even when they are entitled to company-rented homes, as rising inflation cuts deep into their pockets,” the report said, adding that corporates are now preferring to hire locals rather than relocating high-level executives.

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What slowdown in rentals means for luxury housing

Pankaj Kapoor, MD at real estate research firm Liasas Foras told Firstpost that the slowdown in rentals reflects two realities - affordability and visibility of moderation in capital appreciation of luxury projects.

“Rentals reflect affordability. If rental yields are falling, it implies companies are cutting employee costs in the form of lower bonuses and other employee-friendly policies,but at the same time it also means that luxury housing is under distress,” said Kapoor.

For instance, when rental yields do not appreciate in proportion to the capital value, it means the property is overvalued. Kapoor cites the example of Napean Sea Road, one of South Mumbai’s posh localities, where properties are being sold at Rs 50,000 a square foot in the secondary market from its peak of Rs 80,000 last year!

Another reason for lower rentals is the sudden influx of new supply in the luxury market. “Seeing dollars in luxury housing, several builders adopted the “me too” approach, but only a handful are flourishing, while others are struggling to survive,” adds Kapoor. Little wonder that investors who bought these projects are now willing to offer discounts on rentals, as there are no buyers for these projects anymore.

But will this rental dip in the luxury market reflect in the affordable market too?

" Any correction in rentals in the affordable housing is unlikely any time soon since rentals here have remained more or less stagnant over the last year because unlike luxury housing, rental yields do not appreciate much in this space," says Kapoor.

In other words, the middle-income class is not willing to overpay for rentals or for property purchases.