Exodus leads to rise in vacancies in these high-end apartments in Delhi, Mumbai and Bengaluru; profile of tenants also likely to see a change in the short-term
A Japanese tenant, who had leased a house in South Delhi for two years, returned to Tokyo last month. Last week, he gave the landlord two months’ notice, informing him that he would be vacating the premises on account of the pandemic.
In Mumbai, the G Block in the Bandra Kurla Complex, which has around 150 marquee residences, rarely had any vacancies before the Covid outbreak. Today, in the wake of expats packing their bags and heading home, it is witnessing a vacancy level of about 30 percent -- nearly one in three homes is empty.
Down south in Bengaluru, brokers told Moneycontrol a penthouse leased to a consulate for Rs 3.2 lakh was recently given on rent for Rs 2.5 lakh, a reduction of over 20 per cent, after the expat family using it decided to return home due to the pandemic.
Across South and Central Delhi, tony locales such as Sundar Nagar, Golf Links, Jor Bagh, Vasant Vihar and Malcha Marg, among others, are witnessing a rise in vacancies in the wake of the coronavirus outbreak. In Mumbai, rents for residences in the BKC area have plummeted by 10 to 20 percent. “If there are no takers in the next two months, one may witness a further reduction in rents in the area,” said Ritesh Mehta, senior director and head, West India, Residential, Jones Lang Lasalle India.
Dollar income takes a hit
Simply put, these ‘dollar’ homes have lost their sheen. In pre-pandemic times, these plush environs housed expatriates who shelled out anywhere between Rs 3 lakh to over Rs 30 lakh as rent for bungalows and apartments, which ranged in size from 3,000 sq ft to over 11,000 sq ft. For landlords, these homes spelt guaranteed dollar income.
Covid-19 has clearly altered that equation, with most expats heading home to be with their families, and no indication on when they will be back or whether they will be back. Tariq, the founder of the website housetrue.com, points out that a spurt in the number of household goods auctions clearly indicates that expats are going back to their home countries and may not return in the next six months to a year.
As Jones Lang Lasalle’s Mehta explains: “The rental market in Mumbai was robust until Covid-19 happened. The who’s who of the country, such as industrialists, film stars, diamond merchants and top stockbrokers would pick up prime apartments in the BKC area as they were assured of immediate space take-up by expats. Today, with expats having returned home, leasing has taken a hit temporarily.”
Consequently, the rents in these locales have taken a knock. Some apartments in BKC’s G block, ranging in size from 2,900 sq ft to 3,200 sq ft, commanded a rent of Rs 5 lakh to Rs 6 lakh. These are now available at Rs 4 lakh to Rs 5 lakh. Bigger houses in the complex are spread across 11,000 sq ft and command a rent of Rs 12 lakh to Rs 14 lakh. These, too, have seen a reduction of about 10-20 percent at Rs 8 lakh to Rs 9 lakh and Rs 12 lakh, respectively.
Expats in Bengaluru take up properties in Whitefield, the Outer Ring Road or near the airport. These normally command a rent of Rs 3 lakh to Rs 7 lakh a month. But brokers say that with some expats going home, leasing activity in the city has come down drastically. “We would close around two to three rental deals a month before Covid-19. In the last six months, we have done only four and those, too, involve local businessmen, and heads of manufacturing and retail companies,” said a broker, who did not want to be named.
Chennai seems to be the exception to the trend as local brokers say rentals have not been drastically impacted. “Most expats here have decided to stay put,” explained one broker. This is despite the city seeing a large number of Covid-19 cases. The majority of expats in Chennai take up units along the East Coast Road, Adyar, Alwarpet, MRC Nagar and Velachery. The rents vary from Rs 1 lakh to Rs 3 lakh a month, depending on the location and the size of the apartment.
Better deals for those who stay back
For expats who have decided to stay put, there are not only options to choose from but also discounts in the range of 10 to 20 per cent. A broker in Delhi recently closed a rental deal in the Chanakyapuri area for Rs 2.5 lakh a month. The same house was available for Rs 3.5 lakh a month before the lockdown.
“This will lead to benchmarking in rental prices and once that happens there will be more properties available at discounted rates,” said a local broker.
The landlords of expats who have stayed on have readily agreed to reduce rents. Other expatriates have been able to move to bigger apartments at reduced prices. A consulate recently leased five apartments in South Delhi for Rs 70,000 per month each.
“These were earlier available for Rs 85,000 per month. The renegotiation took place a few weeks ago. Besides, the renewal was to take place after four months,” said a broker.
The rent for a property in the Anand Niketan area in Delhi was recently renegotiated at Rs 3.75 lakh a month from Rs 4.5 lakh earlier, said Nilesh, head, leasing, Southdelhiprime.com.
More properties on the block
In Delhi’s Lutyens Zone and adjoining areas, there are close to 20 properties on sale. “The owners of these houses are facing huge cash-flow issues and wish to liquidate their investment to reduce debt and raise working capital. It is also possible that their property, which has always commanded high rents from expats, was vacated recently,” said Amit Goyal, chief executive, India, Sotheby’s International Realty.
In Mumbai, if a 12-crore property commands a rent of Rs 3 lakh a month and Rs 36 lakh annually, the return on investment for the landlord works out to around 3 per cent. Most properties in Delhi’s South and Lutyens zone command a rent of Rs 3 lakh to Rs 30 lakh a month and the return on rentals is just about 2 per cent.
Also, while most expats have left the country, they continue to pay rent despite not using the property. “Chances are that they may vacate in the next few months and may not return before next year and this reduction in the number of expats may put pressure on rental values. Interestingly, most landlords in these areas only wish to rent out properties to expats and not local businessmen,” Goyal said.
Tenant profiles may change
“The expat rental business is almost dead,” said a broker active in Delhi’s tony Vasant Vihar area. While it’s not clear when the segment will see a revival, real estate experts opine that the profiles of tenants in these homes could see a change. Top bankers and corporate executives, especially of IT/ITeS firms, may now require kingsize residences in Mumbai owing to the shift to working from home. Lawyers or local businessmen will also be among the contenders in Delhi.
In Mumbai, top corporate executives who currently pay more than Rs 4 lakh as rent may decide to shift to the BKC area as rents fall. “Rentals are becoming affordable in BKC now. But this correction is only temporary. Rents may again go up next year once expats return,” said Mehta of Jones Lang Lasalle India.
“The tenant mix may vary from businessmen who may take up temporary residence on account of their farmhouse property getting built or top lawyers looking for a marquee address and proximity to the courts and the clubs,” said Goyal of Sotheby’s International Realty.Be that as it may, the fact is, the pandemic has hit the rental earnings of homeowners hard. They are just one more set in a long list of people waiting for Covid-19 to end, an economic recovery to begin, and for the expats to come back.