June 5, 2020: Mumbai’s real estate landscape, residential rented properties in particular, is witnessing a major change.
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 drop of almost 28 percent and yet, there are no takers.
Real estate experts say that owners are being compelled to decrease rents to keep their houses occupied. Prices drop so sharply in a span of just two months and 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.
Even people who are fully dependent on rental income are agreeing to rent out their property at much lesser rent.
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.
Some house owners are voluntarily considering reducing rent for their tenants on humanitarian grounds. 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.
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.
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 further 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.