Track2Realty Exclusive: If consistent rental market is a tool to analyse the true growth potential of the given property market, then Pune is probably the most resilient market. Rental index is often used to assess the demand and supply indicators as and when there is an affordability issue borne out of macro-economic indicators.
Pune has weathered the slowdown challenges and the resultant slow sales; yet high activity and higher demand in the rental market suggests that the demand in the market was mostly coming from the end users even when the appreciation rally made Pune property quite lucrative.
In contrast, most of the speculative markets which were hot properties during the property rally collapsed in the wake of slowdown as those markets were speculative. The rental trends never supported the growth story of those markets once the transaction volume declined.
In the wake of overall slowdown in the Indian economy and resultant slow sales across the country, including Pune, the city has witnessed a consistent real estate market in the last few years and continues to be one of the prime cities for housing demand of rental properties.
A high migrant influx offers a robust market for rental property. The primary catalyst that has changed the face of the city is the IT sector, fostering growth especially in the western region of the city; and the phenomenal rental growth in this part actually led to the growth of healthy rental demand in the eastern region as well.
Areas like Camp, Senapati Bapat Road, Aundh and Koregaon Park have seen substantial increases in rental values in recent times. Kalyani Nagar, Koregaon Park Swargate and Mukund Nagar are the areas that are much in demand for rental properties. The rental values of 1BHK in many of the micro markets of Pune have thus shoot up from Rs. 10,000 to Rs. 14,000. The other regions that upped its positioning on the rental market are F.C Road and Law College Road. The region in general has seen healthy growth of 20 per cent in its rental values in the last 12-18 months.
Not so long ago the rental values of Pune housing market was range bound between 3 to 5 per cent returns, while the capital values were showing a healthy appreciation of 12-15 per cent. Today, while the rental yields have gone up by 7 to 9 per cent, the capital appreciation is struggling for even a double digit growth. The momentum may be temporary but definitely shows the way forward as far as Pune’s prospects as a rental housing market are concerned.
Swargate and the surrounding regions have seen up to 10 per cent appreciation in rent rates as compared to last couple of years. The increasing economic activity and facilities including malls that are coming up have led the expats to prefer this area to stay. Its proximity to Market Yard, a major commercial hub, and Camp makes it a very attractive destination for the young professionals in the city. Areas like Undri, NIBM, Wakad, Kharadi which have surplus unsold stocks are the areas that also look promising for the rental options though the demand is relatively less in these areas as of now.
Rishav Vij, Associate Director – Office Services with Colliers International admits that there is tremendous potential in the rental market on the back of growth in the IT as well as the manufacturing sectors in various corridors of the city. Given the fact that majority of the talent pool is in the 20-30 year age group, demand for 1 and 2 BHK units will be high.
“In the cities where transactions are low, rental is going up. The similar trend can be observed in Pune as well. However, in the long term it might not be sustainable. Worldwide, rental housing is a popular housing solution. Countries adopted different models to address this issue. Pune with large working and student population who have moved from other cities have a potential to become a model market for rental housing,” says Vij.
Abhay Kumar, CMD of Griha Pravesh Buildteck agrees that Pune rental market has been better than most of the cities. He, however, feels that the rental market has lost its sheen due to wide range of available projects. IT professionals and other expats had started investing more rather than staying on rent. The rental market is still there but the return on investment in residential is not that high. It can improve only when the property overhang in reduced.
“Yes, the transactions in realty are less compared to what was the scenario three years back. People are putting their investment decision on hold which is creating a demand for rental housing. This phenomenon helps the rental return but only if the property prices do not increase. Still, I don’t think Pune can emerge as a model market for rental properties. When a city like Pune grows it attracts investment from all corners and in such case real estate too becomes beneficiary with enough buyers in the market,” says Abhay.
Shantanu Mazumder – Director – Pune Branch Knight Frank India is also not sure whether Pune can develop as a model market for rental housing in the long run. He nevertheless feels that commercial rental market has improved over the last 4-5 quarters with steady absorption in the market.
“Further, with vacancy rate dropping and lack of new stock coming into the market, the rentals shall go up by 8-10 per cent in future. In Pune we are experiencing a different trend which is decent demand but lack of quality supply. Therefore, the rentals are going up,” says Mazumder.
Analysts do not seem to reach to a consensus on the emergence of Pune as the rental housing market. They find different reasons to explain why the rental values are going up. However, Pune is fast growing city and the demography too is fast changing. It is no doubt showing some spurt in rental segment but seeing the availability of stocks a section of analysts believe once the economy shows signs of improvement the end users would prefer to buy houses more than staying in rental premises.
As far as the rental yields appreciating much higher than the capital values in the last 12 to 18 months is concerned, the analysts maintain that if the supply is high which is the case in Pune the realty prices cannot rise much. They feel this demand and supply cycle would eventually help end users to buy rather than opt for rental accommodation.
Since the economic cycle in the last over couple of years has been discouraging for the home buyers, there has been property overhang in the city market; reason what caused the rise in rental values and the perception gained ground that Pune can emerge as the ideal rental market for investors.
