Increasing Rental Rates will not Pay in the Long Run

July 7, 2008	(Be the first to rate this story!)  Loading ...
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After the “20:20″ kind of price escalations in the real estate market in the first home sales or second sales, it seems that owners of apartments want to do the same with leasing as they are trying to increase rental values now; each new listing in a new building is coming at a different price.

While there is no set indicator or a barometer for rental values, it seems that the Mumbai real estate market is set for another battle, and this time around it is on the field, with the licensor and licensee.

Many companies who have operations in the financial capital of India give their employees a set amount, popularly known as HRA (Housing Rent Allowance ).

This is usually based on the market rates gathered by various reports, and real estate professionals give indicators to companies . Budgets are set keeping several factors in mind and companies do revise this annually. The maximum increase each year is not beyond 5 to 10%.

However, with the real estate market jumping up in capital values, owners are now expecting a much higher return whenever they jump a tenant. This is creating a big problem with MNCs as they have to raise the HRA to suit market conditions.

With the present-day market, if you tell any MNC to increase rents they only want to exit or decrease. The present outlook , with stocks tumbling and the oil turmoil, companies are taking a cautious view. In the wake of this, if rents also start hurting them, the companies, who are the biggest licensees in Mumbai, will start bailing out of the leases they take liberally in the market.

Several foreign companies and multinational banks have stopped giving company leases. They are giving executives the option of getting an individual lease as the process for leasing a large number of flats for one company is becoming cumbersome. With it becoming increasingly difficult to agree on the terms with property owners , they are letting executives take the decision on their own. Also, with the laws for owners becoming secured for leasing a property it is easier to get an apartment on lease.

The large increase in rentals is also creating a dilemma for Indian executives as the rental rates are squeezing them big-time and they are often inclined to buy instead of lease for a long term. This will have a negative impact in corporate sector housing, which is in the range of rental values of more than Rs.50,000 per month.

News Published Under:   Real Estate India |

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