Real estate sector: Homebuyers opting rented homes as affordability takes hit

A home is an essential need of every citizen, but buying a home is a long-term decision and often requires one to take bank finance and down payment. The rising real estate costs, especially in urban areas, have made it tough for an average Indian to buy a home. Also, the creation of a new industrial hub leads to a lot of migrant workforces opting to rent a home.

Making a decision on whether to buy or rent is a key as it impacts the financial situation, lifestyle, and personal goals. Depending on your lifestyle and financial position, you can select any one of the options. Both require a regular income and may also require a certain degree of effort to maintain the property.

The pandemic acted as a catalyst for the Indian real estate sector. It changed the very meaning of the most basic needs that of a home. As most were working from home, people felt the need for a spacious home that can accommodate office space, and a working desk too.

This saw a boost in demand for spacious homes. Office space and home rentals witnessed lackluster demand due to remote work. With the pandemic receding, and the workforce returning back to the metro cities the rental has hardened. Add to this the rise in repo rate by the RBI has hit home affordability.

As per Knight Frank’s Affordability Index, the four consecutive repo rate hikes (cumulatively 190 bps) have decreased home purchase affordability by an average of 2% across markets and increased EMI load by 7.4%. As a result, the demand for rental homes is seen rising.

The rate hike cycle is still not over and widely expected that it will continue for another 12-15 months. This phase will boost rental activities as homebuyers wait for rates to cool off. A high percentage of homes are bank financed and a good chunk of home loan borrowers’ salaries gets diverted to pay the EMIs.

The demand for rental accommodation is expected to be robust, especially in the managed accommodation space as companies advise their employees to work from the office for higher productivity. Rental normally sees traction and growth regardless of the property market situation.

The government of India needs to play an important role in providing affordable housing option for its citizens – notably, it has announced ARHC – Affordable Rental Housing Complex for a certain section. The scheme needs to be broadened to benefit people at large. Rental housing needs to become a profitable and hassle-free business for landlords and less cumbersome for tenants. The government needs to work with private players to make enough options for the existing inhabitants as well as the migrant workforce.

The author is the Founder & CEO, NestAway Technologies. Views are personal. 

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