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Rents in Mumbai are sinking further with no recovery in sight

A combination of Work From Home, No Work as well as a subdued economic environment thereafter has crushed demand for rentals in the commercial capital of India.

There has been much attention to the challenges facing real-estate developers on account of COVID-19. In contrast there has been little focus on the challenges facing another critical segment of the housing industry – landlords. The Maharashtra government provided a helping hand to developers by slashing stamp duty on August 26th, 2020. For apartment owners in Mumbai, however, things have only moved from bad to worse as rentals continue to slump further.

As the COVID-19 induced lockdown started easing in June there were indications that rents had been trimmed by 15% - 20%. Flexible and smart landlords agreed to re-negotiate rents downwards for a limited period with their existing tenants. The ones who remained stubborn and let go of their tenants have paid dearly with the consequences.

A combination of Work From Home, No Work as well as a subdued economic environment thereafter has crushed demand for rentals in the commercial capital of India. The volume of registrations in Jan-Oct 2020 is down 34% in comparison to last year.

The value of registrations is tougher to assess for two reasons. 1) No re-registration is done at all if the owner and tenant continue their deal with a mere verbal renegotiation. In that case no authorized third party is aware of the new rental level 2) It is not mandatory to input the size of the apartment being rented out in a registration document. Hence in many agreements the size (sqft) is unknown making it impossible to form a definitive conclusion on the extent of rent decline. Is the rent of INR 50,000 for a 700 square feet apartment or an 850 square feet apartment?

In the absence of data, a detailed check with brokers is the next best alternative. And after several interactions over the last few weeks the picture is revealing. By the 1st week of November – rentals quoted by landlords were down 25% from pre-COVID levels at a median level in Mumbai. In the case of premium properties, quotations have dropped deeper anywhere between 30 – 40%.


Example - Data from real-estate aggregator Zapkey shows that Lodha’s The Park project has seen the prices of executed rental transactions drop from levels of over INR 220,000 in December 2019 to levels of INR 140,000 in October & November 2020. The rates are for apartments with the same index area of 1,526 square feet.

Of course not every location has been impacted equally. Some locations are more impacted than the others – but in my view no other micro-market has been as badly mauled as the eastern suburb of Powai & Chandivali. In locations like the suburb of Bandra that had often seen landlords take tenants for granted – this is an overdue correction. In fairness – the landlord treatment to tenants is not only a Bandra specific problem but is a Mumbai problem.

A NoBroker survey last year revealed that more tenants in Mumbai vacated their apartment due to an ‘uncooperative landlord’ than tenants in other metro cities. 13% of tenants in Mumbai shifted out due to this factor in comparison to 4% in Hyderabad, 7% in Bangalore, 8% in Pune and 11% in Chennai.

Now the environment at a pan-Mumbai level has resulted in a general change in attitude of landlords and brokers with regards to tenants. Today landlords are going the extra mile to close deals by throwing additional features like new washing machine, TV, sofas etc. Several brokers are even offering brokerage-free deals thereby making the transaction cost-effective for the tenant.

It is hard to predict how much lower it can go from here but it is reasonable to expect that until March 2021 it will in all likelihood only get worse. Most large companies have announced Work from Home atleast until that period. With every successive month of vacancy, the anxiety is only poised to increase.

The problem is acute for owners of apartments in glitzy gated communities that offer a bouquet of amenities and thus have high maintenance charges. While rental yields in the city have always been notoriously low, it did offer a stable cash flow element to it. Now as properties lie vacant for months and maintenance bills remain at high levels, owners are pushed into a situation of steep cash outflow every month. Mumbai's battered and bruised landlords are seeing red with no light at the end of the tunnel. 

Perhaps COVID-19 will provide a lesson that the market has been teaching over the last 5 years. Real-estate in Mumbai stopped being an investment opportunity a long time ago. The only reason to purchase a home is for the reason it was initially meant to be: end-use. By the end of this brutal carnage, if the lesson has been imbibed by recent apartment owners and prospective buyers - it will be an education that would have been worth it.

(When not busy with his newstoon platform Snapnews, Vishal Bhargava is a real estate enthusiast who views and reviews new projects. The views are personal.)
Vishal Bhargava When not busy with his newstoon platform Snapnews, is a real estate enthusiast who views and reviews new projects. The views are personal.
first published: Nov 21, 2020 12:40 pm
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