With the increasing population and urbanization, the demand for rental housing is rapidly growing in India. In the last few years, the rental housing market has been witnessing a major shift with the rise of online rental platforms, changing demographics, and growing demand from the younger generation.
According to Magicbricks, an online marketplace for buying and selling real estate, the number of people looking for rental properties increased by 29.0% in Q3 of 2022.
For the third quarter, the Magicbricks Rental Index reported a quarterly decline in demand of 3.9%, with the largest rise occurring in Greater Noida (37.0%), Noida (12.7%), and Gurugram (8.5%).
While demand for rental homes fell 2.6% in Delhi, 4.5% in Pune, and 5.1% in Mumbai from quarter to quarter, the market in Thane remained constant.
Sudhir Pai, CEO of MagicBricks, says, “The Indian rental housing market steadily recovered during the first quarter of 2022, and expansion in the second quarter was supported by the gradual reopening of offices and educational institutions and workers returning to these cities.”
The number of available rental units in India fell by 9.8 percent QoQ and 12.6 percent YoY. Although availability fell in every city we monitored, it fell by the smallest percentages in Chennai (1.9%), Hyderabad (4.8%), and Delhi (5.2%) from quarter to quarter.
The report cited “increased leasing activity in the prior two quarters, along with a limited supply of ready-to-move-in units and delays in delivery of under-construction projects” as the reasons for the decline in rental units.
We may expect this regular cycle to persist henceforth,” Pai said, adding that the effects of the pandemic were fading.
Increases in Both Home and Rental Prices in India Provide a New Inflation Risk
Although consumer price increases have likely peaked, analysts warn that rising housing prices and rental costs in large Indian cities might present a fresh challenge to the country’s central bank in its fight against inflation.
A new concern for India’s central bank, which had to deal with rising food prices for most of last year, is the weighted average of housing rentals and ancillary charges, which account for 10.07% of consumer price inflation in the country.
According to a senior official familiar with the mindset of the Reserve Bank of India (RBI), housing has become sticky and is being actively monitored for evidence of second-order effects.
According to statistics compiled by the Ministry of Statistics and Programme Implementation, annual urban housing inflation reached 4.47 per cent in December 2022, up from 3.61% in the same month the previous year and 3.21% in December 2020.
The indicator has decreased from October’s 4.58% to November’s and December’s 4.53%, although it is still near its peak since 2019.
An economist from the Bank of Baroda, Aditi Gupta, noted that “core inflation has continued to stay sticky,” therefore an increase in housing inflation represents a “major danger” to the overall inflation outlook.
She pointed out that the strain of inflation in recent years has been borne largely by the non-food basket.
Rents in the seven most populous cities increased by an average of 20%-25% in 2022 compared to their pre-pandemic levels, with some of the most popular housing societies seeing more than 30% increases.
CareEdge Group’s chief economist Ranjani Sinha predicts that some trends, such as hybrid work culture and the desire for bigger houses, are likely to endure despite the declining impact of the pandemic and may spill over into core inflation.
Conclusion
India’s rising demand for rental housing is a promising sign for the nation’s economy. It is evident that the increasing urbanisation and the rise in the number of millennials entering the workforce are two of the main drivers behind this trend.
Yes, there are challenges to this, such as the unstoppable inflation and economic fluctuations, but such occurrences may never halt the progress and demand for rental housing overall.
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