USD 20 Billion India Residential Rental Real Estate Sector

Housing needs of urban India are more increasingly being addressed by rental real estate. This can be attributed to rapid urbanization, consumption pattern on Gen Z and digital adoption. Close to 500 million people or 35% of the Indian population lives in India. Additionally, around 52% of the Indian population comprises of Gen Z and Millennials. The innate behavioral traits, real estate requirement patterns, lifestyles and purchasing power are often intrinsic to their nature of real estate consumption patterns.

Size of India Residential Rental Real Estate

India’s residential rental market is sized to be worth more than USD 20 billion. Urbanization and affordability, two major factors contributing to this sector attribute almost 68% of the market size or USD 13.5 billion to urban areas. However, this size can be larger owing to the largely unorganized and informal nature of the rental housing market which is difficult to size. National Sample Survey Office (NSSO) as per their 2012 survey estimated that 71% of the households living in rented accommodation in India don’t have a formal contract to establish tenancy.

Statewise distribution of Rented Households

According to the last census in 2011, there are a total 27.37 million rented households across India of which almost 80% are in urban areas. Across India, 8 states and union territories comprise a 77% of the total urban rented households with Tamil Nadu sharing the highest percentage at 16.5%.

Tamil Nadu	3,590,179	16.5%
Andhra Pradesh	3,004,702	13.8%
Maharashtra	2,940,731	13.5%
Karnataka	2,447,718	11.3%
Gujarat	1,315,157	6.1%
West Bengal	1,292,263	5.9%
Uttar Pradesh	1,114,832	5.1%
NCT of Delhi	929,112	4.3%

Ref: Census India, 2011

In cities and urban areas, almost 20% of the citizens stay in rented accommodation. In 9 states that are housing countries top 8 cities, Karnataka, Andhra Pradesh and Tamil Nadu stand out with respect to the highest share of households staying in rented against owned apartments. The share of rented apartments in Karnataka, Andhra Pradesh and Tamil Nadu stands at 46%, 44% and 40% respectively.

State	Owned	Rented	Any Other
Karnataka	51%	46%	3%
Andhra Pradesh	54%	44%	2%
Tamil Nadu	58%	40%	2%
NCT of Delhi	68%	28%	4%
Maharashtra	70%	27%	3%
Gujarat	73%	24%	3%
Haryana	75%	22%	3%
West Bengal	76%	20%	4%
Uttar Pradesh	82%	15%	3%

Ref: Census India, 2011

Global comparison

Rental housing is a well-established and evolved asset class category in developed countries. It has a mix of private institutional, public and individual rental housing categories. Amongst the developed countries. Switzerland has the highest percentage rental housing stock at 65% of the total housing followed by Germany at 57%. The Netherlands, Austria and Republic of Korea also have a high share of rental housing stock upwards of 40%.

Rental percentage of total housing stock in developed countries
United Kingdom	30%
Ireland	18%
Australia	27%
Canada	34%
Austria	40%
The Netherlands	47%
Denmark	37%
Germany	57%
Switzerland	65%
Singapore	10%
Republic of Korea	44%
Hong Kong	31%

Ref: National Urban Rental Housing Policy, 2015

Types of rented households

Definition of household as per Census India states that a 'household' is usually a group of persons who normally live together and take their meals from a common kitchen unless the exigencies of work prevent any of them from doing so. Persons in a household may be related or unrelated or a mix of both. However, if a group of unrelated persons live in a census house but do not take their meals from the common kitchen, then they are not constituent of a common household. Each such person should be treated as a separate household. The important link in finding out whether it is a household or not is a common kitchen. There may be one member household, two member households or multi-member households.

The gentry of rented apartments can be segmented into households with single and double occupancy, nuclear family households with 3 to 4 members constituting a married couple with one or more children, large family households with 5 or more individuals. About 50% of nuclear families in India stay in rented apartments. Students, singles, and young couples constitute 18% of the total urban rental demand.

Rental Yields across India

Rental yields used to express the profitability of a real estate asset investment is the rental income against is total value denoted in percentage. Residential rental yields across India demonstrate a lower value compared to other developed countries. However, taking into the property price escalations, exit values and real estate perceived as a relatively preferred mode if investment for Indian’s one sees continued interest in residential real estate as an investment category for retail investors.

A quick look at average rental values across Tier I and Tier II cities across the country present the following data:

City	Category	Average Rental Yield
Bangalore	Tier I	3.64%
Kolkata	Tier I	3.35%
Pune	Tier I	3.12%
Ahmedabad	Tier I	3.10%
Chennai	Tier I	2.35%
NCR	Tier I	2.67%
MMR	Tier I	2.51%
Hyderabad	Tier I	2.54%
Indore	Tier II	3.63%
Rajkot	Tier II	3.82%
Vadodara	Tier II	4.03%
Mangalore	Tier II	3.25%
Raipur	Tier II	3.30%
Guwahati	Tier II	2.85%
Nagpur	Tier II	3.01%
Chandigarh	Tier II	3.13%
Goa	Tier II	3.34%
Kolhapur	Tier II	2.78%
Cochin	Tier II	2.99%
Jaipur	Tier II	2.95%
Dehradun	Tier II	2.89%
Nasik	Tier II	2.95%
Lucknow	Tier II	2.93%
Bhopal	Tier II	2.91%
Thiruvananthapuram	Tier II	2.43%
Coimbatore	Tier II	2.41%
Surat	Tier II	2.62%
Ranchi	Tier II	2.30%
Tiruchirappalli	Tier II	2.30%
Patna	Tier II	2.17%
Bhubaneshwar	Tier II	2.11%
Vizag	Tier II	1.98%

Ref: Liases Foras Research, Money Control (https://images.moneycontrol.com/static-mcnews/2022/06/Moneycontrol-Liases-Foras-House-Purchase-Affordability-Index.pdf)

Regulatory Framework of Rental housing

For All, the central government has come out with various policy initiatives and draft guidelines impacting rental housing. These include,

- JNNURM (with constituents BSUP, UIDSSMT, IHSDP) & AMRUT, 2005 to 2015
- National Urban Rental Housing Policy, 2015
- Model Tenancy Law
- Affordable Rental Housing Complexes, Operational Guidelines July 2020
- Model Tenancy Act, 2019

The draft Housing rental Policy and Model Tenancy Act, were key initiatives to promote, regulate and institutionalize the rental market in India. The objective was to ensure interest protection of all stakeholders in the housing rental sector.

As, we progress with India growth story and urbanization, rental housing will be the corner stone for fulfilling the housing needs for all citizens. There are crucial challenges for property owners and occupants that still need to be addressed to support this sector. For supply, or property owners challenges of tenant discovery, reliability, unorganized broker market, professional maintenance, upkeep and tenant management, Society management issues, Illegal occupancy and eviction form the key areas of concerns to be solved. For tenants, fear of untimely eviction, renting biases, security deposit return, property maintenance disputes, society restrictions and management, high transaction cost, property discovery.

This is where platforms like Nestaway come in with rental solutions that come forth with tech enabled solutions to create transparency and trust amongst property owners and tenants. Superior rental solutions that employ technology and design to handle much more than maintenance issues are transforming the whole home rental network. No wonder it is India’s fastest-growing network that provides crucial information - available properties with addresses and honest customer ratings through its website and mobile application. This helps customers browse through available options, filter their preferences, and securely rent suitable properties in their network. Through its extensive network of properties, both business-owned and owned by individuals, Nestaway provides superior rental solutions with the help of technology and design.