5 replies on “Desi Rental Yields: We are like this only”
People holding these assets with 2% rental yield are, if I may use a term from economics – rational individuals.. they expect to make the rest from capital appreciation..
but what if capital appreciation stops.. or this black money crackdown leads to lower sales.. will these yields inch up or remain here.. that’s the important question for me.
No surprise there… all the superheated, expensive property markets on the right of the chart…
And wouldn’t be surprised if some of that was contributed by the economies on the left hand side!!
Implement a special tax for any apartment that is neither owner occupied nor rented. Escalate the tax for every year apartment stays unoccupied.
In the short term this will cause yields to drop, but in the long term the yields should rise.
Essentially the cost of carry needs to hit the hoarders perception of potential price appreciation. Even if the money is really his/her black money that’s been invested.
I dare say the thing almost everyone who buys property as an “investment” forgets is to take into account the cost of borrowing. For a loan at 10% to buy property to make sense as an investment, the annual (yield + price appreciation) needs to be higher, meaning prices need to rise at over 8% per year.
“Property prices will keep going up” were famous last words in the US in 2008. Expect to see that challenged back in India at some point too.
This data is for Individuals houses and Flats.
But rental yields are more for the buildings which are constructed and Owned by the owner.
Plot 1200sq.ft * ₹10,000 = ₹1,20,00,000
On 1200. Sq ft he can easily construct G+3 in Bangalore with required permissions.
Cost of Construction including all Misc expenses 1200 * 4 Moulds * ₹1500/Sq.Ft= ₹72,00,000
Total Cost ~ 2Cr
Minimum Rent expected ~75-90k/Month
For 11 Months ₹8,20,000 to ₹9,90,000
1 Month rent taken out for different expenses and Vacancies.
Rental Yield 4% – 5%
Cost of capital 6.8% – 10%
Not considering Tax benefit, depreciation, rental income appreciation etc.
Take some Tier2 city like Vijayawada
Land cost = 1800 Sq ft * ₹ 5,000 = 90,00,000
Construction cost = 4 * 1800 * 1500 = 1,08,00,000
Total Cost = 2Cr
Total 7 * 2bhk * 12,000 = 84,000
Yearly rent for 11 Months ₹9.2L
Yield 4.6%
If am end user who wants to purchase the 2Bhk unit in Vijayawada it easily costs 50-55L ( including reg , parking and furnishing etc etc)
5 replies on “Desi Rental Yields: We are like this only”
People holding these assets with 2% rental yield are, if I may use a term from economics – rational individuals.. they expect to make the rest from capital appreciation..
but what if capital appreciation stops.. or this black money crackdown leads to lower sales.. will these yields inch up or remain here.. that’s the important question for me.
No surprise there… all the superheated, expensive property markets on the right of the chart…
And wouldn’t be surprised if some of that was contributed by the economies on the left hand side!!
Implement a special tax for any apartment that is neither owner occupied nor rented. Escalate the tax for every year apartment stays unoccupied.
In the short term this will cause yields to drop, but in the long term the yields should rise.
Essentially the cost of carry needs to hit the hoarders perception of potential price appreciation. Even if the money is really his/her black money that’s been invested.
I dare say the thing almost everyone who buys property as an “investment” forgets is to take into account the cost of borrowing. For a loan at 10% to buy property to make sense as an investment, the annual (yield + price appreciation) needs to be higher, meaning prices need to rise at over 8% per year.
“Property prices will keep going up” were famous last words in the US in 2008. Expect to see that challenged back in India at some point too.
This data is for Individuals houses and Flats.
But rental yields are more for the buildings which are constructed and Owned by the owner.
Plot 1200sq.ft * ₹10,000 = ₹1,20,00,000
On 1200. Sq ft he can easily construct G+3 in Bangalore with required permissions.
Cost of Construction including all Misc expenses 1200 * 4 Moulds * ₹1500/Sq.Ft= ₹72,00,000
Total Cost ~ 2Cr
Minimum Rent expected ~75-90k/Month
For 11 Months ₹8,20,000 to ₹9,90,000
1 Month rent taken out for different expenses and Vacancies.
Rental Yield 4% – 5%
Cost of capital 6.8% – 10%
Not considering Tax benefit, depreciation, rental income appreciation etc.
Take some Tier2 city like Vijayawada
Land cost = 1800 Sq ft * ₹ 5,000 = 90,00,000
Construction cost = 4 * 1800 * 1500 = 1,08,00,000
Total Cost = 2Cr
Total 7 * 2bhk * 12,000 = 84,000
Yearly rent for 11 Months ₹9.2L
Yield 4.6%
If am end user who wants to purchase the 2Bhk unit in Vijayawada it easily costs 50-55L ( including reg , parking and furnishing etc etc)
11 Months Rent ₹1.32L, Yield dropped to <3%