News & Views on Indian Real Estate

Monday, July 07, 2008

Increasing rental rates will not pay in the long run

After the "20:20" kind of price escalations in the real estate market in the first home sales or second sales, it seems that owners of apartments want to do the same with leasing as they are trying to increase rental values now; each new listing in a new building is coming at a different price. While there is no set indicator or a barometer for rental values, it seems that the Mumbai real estate market is set for another battle, and this time around it is on the field, with the licensor and licensee. Many companies who have operations in the financial capital of India give their employees a set amount, popularly known as HRA (Housing Rent Allowance ). Budgets are set keeping several factors in mind and companies do revise this annually. The maximum increase each year is not beyond 5 to 10%.However, with the real estate market jumping up in capital values, owners are now expecting a much higher return whenever they jump a tenant. This is creating a big problem with MNCs as they have to raise the HRA to suit market conditions. The large increase in rentals is also creating a dilemma for Indian executives as the rental rates are squeezing them big-time and they are often inclined to buy instead of lease for a long term. This will have a negative impact in corporate sector housing, which is in the range of rental values of more than Rs.50,000 per month.