COVID-19 impact: Mumbai rental prices fall by up to 25%
A 3 BHK apartment at a prime location in Mumbai’s Bandra West that was never rented below Rs 90,000 per month is now available for Rs 65,000 to Rs 70,000.A broker says he has never seen prices drop so sharply in a span of just two months in 15 years of his career.
Mumbai’s real estate landscape, residential rented properties in particular, is witnessing a major reshuffle.
Here’s how: a 3 BHK apartment at a prime location in Mumbai’s Bandra West that was never rented below Rs 90,000 per month is now available for Rs 65,000 to Rs 70,000. That’s a drop of almost 28 percent. Yet, there are no takers.
“This particular house has never been vacant for more than 2 weeks. It’s a well-furnished, spacious flat and would always fetch the amount quoted by the owner,” says Pawan Makhija who runs a broking business covering Mumbai suburbs.
Pawan says owners are being compelled to decrease rents to keep their houses occupied. He has never seen prices drop so sharply in a span of just two months in at least 15 years of his broking career. Many owners have started to re-negotiate rent with tenants who are unwilling to continue with their lease. Several tenants are looking to relocate to smaller and cheaper houses.
“25 percent of my clients have vacated houses in the last 2 months and this is likely to worsen after the lockdown is lifted,” adds Pawan.
So what has suddenly changed for Mumbai’s rented property market?
60-year-old Anita Thomas is fully dependent on rental income since 2011. She owns two houses in Mumbai, one in Borivali and the other in Bandra. The 2BHK apartment in Bandra that fetched her at least Rs 75,000 per month was lying vacant for two months since the lockdown started. As finding a suitable tenant became harder, Thomas agreed to give the flat to a family who could afford to pay only Rs 62,000 per month. That’s a loss of Rs 13,000 every month.
Job cuts, salary cuts and shutting down of firms due to the lockdown has left many migrant middle-income earners in the lurch. Those without a job are either looking for smaller accommodations or are temporarily heading back to their hometowns. Job uncertainty is another factor that is pulling many people back from moving into a new house even if it is available at cheaper rates.
“The earlier occupant was a foreigner. She vacated the house and flew back to her home country soon after the government indicated there will be travel restrictions,” says Anita Thomas.
Thomas’ rental income in April & May remained nil. Even the occupant in her Borivali house hasn’t paid the rent for two months.
“The girl is not getting her salary. What can I say now? Everyone is facing problems,” adds Thomas.
Some house owners are voluntarily considering reducing rent for their tenants on humanitarian grounds.
Farrukh Waris, a retired principal of a college, has rented out her 2,500 square feet apartment in Bandra to a digital media company. After the lockdown was extended, Waris offered to reduce 25 percent in rent for three months. The occupant, however, refused the offer.
“I called him up and said that since you haven’t been able to run your business due to the lockdown, I am waving off 25 percent of rent. But he thanked me and said he can afford to pay the actual rent instead,” says Waris.
A large part of rental property in Mumbai’s prime locations is occupied by expats, entertainment freelancers and senior executives of big companies.
Entertainment freelancers are hardest hit as production activity has been completely halted and there is no certainty if shooting will restart immediately after the lockdown is lifted.
Siddharth Bhayani is a 25-year old freelancer working as an Assistant Director in Mumbai for past 2 yeaRs He left for his hometown in Gujarat soon after production houses received notices in March to halt their projects.
“There were rumours that shoots won’t restart before October so I saw no point in staying alone, without work. Also, our landlord wasn’t willing to cut rent & I didn’t want to waste money simply doing nothing,” says Siddharth.
The crunch in the market is also evident in fewer site visits and deal closures.
“A tenant living in a 2BHK at Mahim has renegotiated his rent with the owner from Rs 65,000 per month to Rs 50,000. The owner was compelled to reduce the price as finding a new tenant in the current scenario is nearly impossible,” says another broker Faiz Abbasi.
Expats and executives working in MNCs generally receive rental amount from their companies which is easily above Rs 1 lakh per month.
“Since companies are facing capital crunch to even pay salaries, spending on rentals for employees has become tougher and this is also leading to many tenants vacating their house,” says Faiz Abbasi.
People are fleeing to their native places and won’t return to Mumbai for at least a year. This will leave over 50 percent of inventories in the rental market unoccupied, he adds.
But popular real estate search portal NoBroker believes this is a short-term phenomenon and the market will normalise by July if the government is able to contain the spread of COVID-19.
According to the traffic trend on NoBroker.com, the number of people looking for property in Mumbai stood at 21,000 in April as compared to 1,41,000 in February. Interestingly, this number increased to 62,000 people looking for properties in May.
“Mumbai has always seen more demand than supply for housing. Once companies start opening up, they will need employees and business activity will continue as usual and demand for housing will also return,” says Saurabh Garg, Co-founder & CBO, NoBroker.com.
There is little scope for a further decline in prices of both, outright sale as well as rented properties, adds Saurabh. He further adds that Mumbai’s rental yield is the lowest in India as a house worth Rs 1 crore doesn’t fetch more than 2 percent of the cost in monthly rent. The housing market in Mumbai has been undergoing stress for quite some time. While buyers find prices sky-high, developers who have been sitting on huge unsold inventories say they don’t have the margins for any reduction. As the COVID-19 pandemic brings more gloom into the market, it will be interesting to watch if developers change their mind to tempt buyers.