Get a lower rental rate with higher deposit, longer-term lease agreement

Avoid paying more than 15-20 per cent of post-tax salary as house rent

If you live in one of the country’s top seven cities, your house rent is likely to have risen between 20 and 25 per cent since the pre-pandemic times. In popular societies within some micro markets, the increase has been more than 30 per cent, according to data from real estate consultancy ANAROCK.

Demand-supply mismatch

Residential rentals had dipped after the onset of Covid-19 in March 2020. “In 2022, rental demand rose again as companies called their employees back to the office, or began to follow at least a hybrid model,” says Prashant Thakur, senior director and head–research, ANAROCK Group.

New supply was not created during the Covid years. “Construction and development work ground to a halt during the lockdowns,” says Amit Kumar Agarwal, chief executive officer and co-founder, Nobroker.

On the other hand, the massive influx of people back into cities from their native places and second homes in distant locations led to demand rising manifold. “The demand-supply mismatch has been more pronounced in good-quality projects within the top cities,” says Shalin Raina, managing director, residential services, Cushman & Wakefield.

With India’s economic performance remaining resilient compared to that of the developed economies, many expats have come to India. “This has driven demand up in high-end condominiums and led to increased rentals,” adds Raina.

Rental rates tend to be linked to capital values. “Rental rates are generally about 2-3 per cent of capital values. Capital values have appreciated 20-30 per cent over the past one-and-a-half years. Rental rates have followed suit,” says Raina.

If you have opted for a new project, those tend to have better quality and amenities, and hence command higher rents.

What should you do?

To begin with, do not worry excessively. 2022 was a unique year when demand rose sharply, so there was a one-time, steep upward revision in rental rates. “Rentals are unlikely to rise as steeply in 2023,” says Agarwal.

One way to deal with rising rental rates is to enter into a longer-term lease with the landlord. “If you agree to an annual increase of 5-7 per cent, the landlord should be happy since this gives him a longer-term lock-in on cash flows,” says Raina.

Another way to get landlords to offer some concession on rent is to enter into a company lease. “Landlords are willing to negotiate since leasing their house to a company gives them greater security and comfort,” adds Raina. Another trick, he suggests, is to offer a higher upfront deposit. In that case, too, landlords generally agree to a lower rent.  

During negotiation, pointing out any shortcoming in the property may also help you beat down the rent.

If you plan to live for a long time in the city you are based in currently, consider buying a house. “This is advisable if the gap between rent and EMI has shrunk considerably,” says Agarwal.

Tenants may also consider more affordable housing options such as a smaller flat or a less expensive area. “Those who are single should look for roommates or consider co-living, a more cost-effective alternative,” says Thakur.

Avoid spending excessively on rent as doing so will affect your savings. “For a middle-aged couple, rental expense as a proportion of post-tax salary should be around 15 per cent in a city like Bengaluru or Gurgaon, and 20 per cent in the exceptional case, that is, if you work in a central locality in Mumbai or Delhi,” says Avinash Luthria, a Sebi-registered investment advisor and founder, Fiduciaries. He adds that while some may find that the rental expense he has suggested is low, this stems from his view that one should save around 50 per cent of post-tax salary in a city like Bengaluru and at least 40 per cent in a city like Mumbai.