Hi folks, looking to collect

annual rent / property value

ratio for homes/apartments around the country. My belief is that it stays around

0.03

or

3%

in India (should be even lower in tier 2 and tier 3 cities IMO). Happy to be proven otherwise simple smile. I will start. 1. Apartment in Greater Noida, property value - 62L, monthly rent - 15k, therefore

annual rent / property value

=

180000/6200000

=

0.029

. 2. Posh Gurugram apartment. Property value - 1.9cr, monthly rent - 48k, therefore ratio =

0.0303

. 3. Kinda remote apartment in Gurugram. Ratio -

34000 * 12 / 12000000

=

0.034

. But in this case, only young bachelors were living in the apartment, so one can say the owner asked for higher rent to reduce their risk. 4. Illegal (forest land construction) house floor near Saket Metro Station, Delhi - selling value 60L, monthly rent - 19k, ratio =

0.038

.

what's the reason behind this?

Looking to understand if RE is a good investment or bad. I was looking into metro cities. Last 10 yr price appreciation seems to be around 5% on average. Moreover, last 3 yr growth rate was around 2% YoY in NCR region in the regions I checked. So, if rent gives you 3% of property, you can roughly take return on a RE house/apartment investment as 5% YoY for last 3 years, and 8% average YoY for last 10 years. I don’t see it going significantly higher in the next few years. In US, the ratio is much higher AFAIK so RE is a much lucrative investment there. But not so in India.

I see, We collect some rent on our parental property which comes around 11K per month and costing might be around 1.2cr in a tier 2 city (Kanpur) Ratio would be around 0.01 I guess your theory is fine but mind that RE comes with maintanence (which again might be 10K-50K per year depending how's your decor is) along with water tax and property tax which again depends on City municipality plus finding people for is a different PITA. Along with this the rented property degrades a lot due to changing happens in every year or two atleast in India - single people don't care about your property and family persons usually move out in 2-3 years usually Tier 1 might give you better ratios but mind the above points too

@silly-train-46493 Thanks for the share. Yeah, I had thought of maintenance and other costs, and also tax on rent gains. RE as an investment for renting purposes is just not worth it.

Apartment in Jamshedpur, property value - 30l, monthly rent - 6k,  

annual rent / property value

 = 

72000/3000000

 = 

0.024

. Duplex in Jamshedpur, property value - 80l, monthly rent - 12k,  

annual rent / property value

 = 

144000/8000000

 = 

0.018

. PS - Sharing an article around the rent vs owning conundrum. Might be useful 😇

RE attracted a lot of investment until 4-5 years ago inspite of terrible yields because one could write-off all the interest component in ones taxes. IOW, If I paid 10 lakhs as interest on a 1 Cr loan during the year, I could get it deducted from my total income. This allowed people to maximize their leverage by buying 2-3 properties on loan and get a tax write-off for all the interest on the loans. This interest was capped at 2 lakh rupees during the first Modi-sarkar tenure. This effectively acted as a deterrent for most investors who could no longer use the dual benefit of using low-interest loans to fund the their property purchases while reducing their tax outgo. RE investment hasn't been profitable in a long time based only on rental yields. It was this interest component write off that was fueling all those purchases.

Thanks @helpful-gigabyte-47939. Didn’t knew that the entire interest payment was tax free. 🤯 I think there is a contribution of black money as well which led to inflated prices as lots of people had black money laying around in notes of 500rs and 1000rs and they were using it to buy properties at exuberant prices.

Currently Industrial and Commercial RE gives good returns. You might be able to get ~5-6% in rental yield + Appreciation 2-3% or even more sometimes depending on location. Also if the tenant is heavy electricity consumer, you can provide value added service by investing in rooftop solar and earn atleast 20-30% on that investment. So yes, residential RE has very low rental yield mostly due to Inflated prices (because of black money) and Expected Appreciation - people think it is going to appreciate as it did in the 1950-2000 period. But all these returns are still preferable to Fixed Deposits @6% because real returns on FDs is less than 2% given 4% inflation. And real return on RE is atleast 4% assuming 2% rental yield and 2% appreciation (after all expenses).

RE comes with illiquidity, you can't move out of it unless you've buyer and willing to give you good rate (which you're looking forward too) Again, commercial or rental both have an issue of finding a (good) tenant