Bengaluru, Mumbai, Gurgaon- Best Bet For Residential Rental Gains

With a steep rise in rental housing demand in the top cities, residential real estate has emerged as an attractive investment option, with average rental values soaring and rental yields – the annual ROI investors earn from capital invested in a property heading north.

Bengaluru, Mumbai and Gurugram are the most attractive markets to earn higher rental yield for a residential property. The latest Anarock data indicates that as before, IT-dominated Bengaluru tops the list with a rental yield of 4.45 percent in Q1 2024.Backed by strong post-pandemic rental demand, rental values in the city’s key areas have been rising inexorably after IT companies’ return to office call. Compared to city’s pre-Covid 2019 rental yield of 3.6 percent, the rental yield marks a growth of 24 percent in this period.

Mumbai comes next among the top cities with a rental yield of 4.15 percent in Q1 2024 as against 3.5 percent back in 2019 – a 19 percent growth. Gurugram is close behind with a rental yield of 4.1 percent in the last quarter against 3.5 percent in 2019.

“Residential rental yields in India had chronically stagnated before the Covid-19 pandemic, with the national average at just 3 percent for many years. However, with post-pandemic rental demand soaring after work from offices resumed, rental yields are heading north too. IT-dominated cities including Bengaluru, Gurugram, Pune and Noida, and MMR, have seen considerable upticks in their rental values, and therefore yields. Residential rental values in India’s top cities have resurged tremendously after the pandemic, with 2023 seeing them soar by over 30 percent y-o-y. In the last quarter of 2023, rental values stabilized in most cities as renting activity usually abates in the last quarter of the year. However, the rental real estate market picked up momentum again in the first quarter of 2024″, says Santhosh Kumar, Vice Chairman, Anarock Group. 

In the prominent localities of the top 7 cities, there has been average 4-9 percent jump in residential rents between in Q1 2024. Considering that the typical annual increase is 5-10 percent, this is very significant and while it certainly bodes well for landlords, it signifies a worrisome element of cost-of-living inflation for tenants.

India’s Silicon Valley Bengaluru leads this trend. As per Anarock data, the average rental values in Sarjapur Road and Whitefield rose by 8 percent each in Q1 2024 against the previous quarter. In Sarjapur Road, the average monthly rent in Q4 2023 stood at approx. INR 31,600 for a standard 2 BHK flat of 1,000 sq. ft. – in Q1 2024, it went up to approx. INR 34,000/month. Similarly, Whitefield saw average monthly rents go up from INR 30,200 in Q4 2023 to INR 32,500 in Q1 2024 – an 8 percent jump. A comparison of rental values between 2022-end and Q1 2024 shows that top localities in Bengaluru saw a staggering hike of 40 percent and above.

The trend is not limited to Bengaluru; other key cities have also witnessed rental values inflation, though not to the magnitude seen in Bengaluru. In NCR, Noida’s Sector 150 saw average rents rise by 9 percent, and by Delhi’s Dwarka by 6 percent. In Mumbai, Chembur and Mulund saw 4 percent growth each in rental rates. In Chembur, the avg. rental rates in Q1 2024 stood at approx. INR 62,500/month as against INR 60,000/month back in Q4 2023.

Kolkata’s Rajarhat saw the lowest increase (3 percent) in the period – from approx. INR 18,500/month in Q4 2023 to approx. INR 19,000/month in Q1 2024. In both Chennai and Mumbai, rents rose by a more sedate 4 percent while in Hyderabad, prominent localities like HITECH City and Gachibowli saw rents rise by 5 percent each in the quarter.

Source: Anarock Research

Real estate experts Going believe that going by the current momentum, there are no immediate prospects of the rental inflation trend slowing down. According to Santhosh Kumar, rental appreciation is expected to pick up in the next few quarters.