Soaring rents in Bengaluru foster comparisons with Mumbai

In eastern Bengaluru, the asking rent for a 1BHK apartment of about 1,400 sq ft in the Nikoo Homes project has crossed Rs 1.2 lakh per month. And in the north, close to Embassy One, the rate for a 2,000 sq ft 1BHK is about Rs 3 lakh.

"We used to see such rentals in posh apartments but then, those were at least 4,000-6,000 sq ft apartments. Most of the premium apartment rentals in Bengaluru have touched more than Rs 100 per sq ft, similar to Mumbai," Singh said.

Rentals in certain pockets in Bengaluru today are almost on a par with the most prime locations in Mumbai like Worli, Bandra, Juhu and Versova with an average rent of Rs 90,000-2 lakh. Malabar Hill commands the highest rate of Rs 3.5 lakh, according to Ravi Kewalramani of RK Realtors in Mumbai.

However, unlike an established real estate market such as Mumbai, one of the most expensive housing markets in India, Bengaluru's real estate is still in its nascent stage following the IT boom in the early 2000s.

Bengaluru going the Mumbai way?

Experts, however, say the Bengaluru and Mumbai real estate markets have their differences.

Shantanu Mazumdar, executive director of property consultancy Knight Frank, Bengaluru, believes that the pandemic has had a key role to play in the current spike in rents. "After the first wave of Covid-19, occupancy levels in apartments dropped significantly," he said. "Until 2021, the rentals in Bengaluru dropped by 25 percent. We only saw it rise post-2022 by about 10-15 percent, and now the maximum rise in 2023," he added.

Post-pandemic, the supply of housing in the mid-upper segment (Rs 1 crore and above) has shot up while the affordable segment has shrunk considerably, he said.

Pankaj Kapoor, managing director at real estate data analytics firm Liases Foras, said that Mumbai is a landlocked city, hence the capital values (apartment costs) are in multiples of those in Bengaluru, a city that continues to expand horizontally.

"More than 50 percent of the floating population in Bengaluru makes the city a rental-driven market, while Mumbai remains to be a capital-driven one," Kapoor said. "To add to it, with offices resuming and employees coming back, the mismatch in supply and demand of available inventories (in Bengaluru) have added to the woes," he said.

Kapoor also believes that the average home loan interest rate rising from 4 percent in May 2022 to 6.5 percent as of date may also have had a cascading effect on rentals where the landlords are looking forward to recouping the additional EMIs or equated monthly instalments as part of their loan repayments.

Today, in prime locations in Bengaluru, the rental yield has crossed 3 percent and touched 4 percent in areas like Indiranagar, HSR Layout and areas close to the central business district over the last two years. However, rental yield in Mumbai has remained stagnant at 2-2.5 percent, while the capital values have more than doubled in the same time frame.

"If the capital appreciation is lower while rents are increasing, it means the rental market has moved up disproportionately, thus making the market unaffordable, just as we see in parts of Bengaluru today," Kapoor said.

While local brokers say the high rentals will continue till the next financial year, Mazumdar believes that it will take some more time for the rental graph to taper off in Bengaluru.