Prashant Thakur, Director & Head – Research, ANAROCK Property Consultants
- A challenging market for residential landlords, though mid-segment housing is less impacted than luxury properties
- Supply-demand equation has changed for rental housing; ample rental stock available
- WFH facilities like work desks, Wi-Fi connectivity and AC now key differentiators to justify higher rentals
- Rental difference b/w semi-furnished & fully-furnished house can be anywhere between 10-20%
- Collaborating with coliving partners an option for independent property owners
As an aftermath of the COVID-19 pandemic, tenants are negotiating on their rentals and many landlords face the prospect of reduced rental income. While the incidence of renegotiation is lower in mid-segment properties and higher in luxury homes, the supply of rental homes has increased, and many property owners may face the prospect of lower rental income.
In a market where tenants have the leeway to bargain, property owners need to go the extra mile to attract tenants at good rentals. This helps them to let out their property faster while also justifying higher rental asks.
Topping Up Property to Attract Tenants
The onus is now less on location and more on how much tenants can do with their rented homes. To attract new tenants faster and command higher rentals than others, a landlord will need to make a one-time investment and go that critical extra mile to earn good rentals. This has always been true, but especially so in these times.
Make the Property WFH-ready – Short-list 4-5 critical must-haves in a post-pandemic rented home, focusing not only on cheery interiors but also home office equipment and other critical WFH features. The appeal should be both practical and psychological – for instance, air conditioning is not merely comfort but a feature associated with a work-enabling office atmosphere. A fast Internet connection and WiFi router, and a work decent desk and executive office chair, strike the right psychological chord for the same reason.
If a tenant perceives that the property ticks all the critical boxes of a work-from-home environment, more than half the battle for more attractive rentals is already won. Apart from cosmetic enhancements, features which make work and recreation a matter of ease and convenience are in demand. Tenants should not need to invest in such features themselves.
This will attract both families and working singles who have hit town with little more than their personal belongings. Choosing this property over others should be a veritable no-brainer.
Furnished or Semi-furnished? – While some tenants, especially working singles, prefer fully-furnished rental homes, families may have their own furniture and be on the lookout for semi-furnished units. The rental difference between semi-furnished and fully-furnished properties can be anywhere between 10-20%.
To evaluate, the landlord must factor in aspects such as the kind of tenants that patronize the area, the functions of the location, project type, etc. A seasoned broker will be able to advise on whether the highest demand in this area is for furnished or semi-furnished apartments.
The Coliving Format – An Option?
Coliving has been increasing in popularity in Indian cities largely due to the millennial workforce. While the COVID-19 pandemic has impacted this segment too, coliving may pick up pace faster than the normal rental format. This is because an increasing number of people currently living in paying guest arrangements will prefer to shift to coliving now.
This business model operates on the fundamental where a company/start-up – such as OYO Life, Colive, etc. – acts as a go-between for property owners and tenants. Different start-ups have different business models. To be noted – coliving players will only consider independent houses for such ‘adoption’ – it is not an option for single owned flats, as housing societies will not allow it.
If an independent house ticks the right boxes and a coliving firm is operational in the area, letting it out as a coliving unit may be an option. If it is, the landlord needs to factor in the different business models such companies follow. For instance, a landlord who earns a fixed monthly income from a coliving partner may have less to worry than when the arrangement is on a revenue-sharing model. This needs to be considered before partnering with any co-living start-up
Hold on to High Rent or Speed Up the Process with Lower Rent?
In the current scenario, it may take more than top-up facilities to attract tenants. Various factors such as demand and supply of rental housing in the location may be at play. The landlord may need to decide between waiting for the desired rent or letting the property out quicker on lower rent. Here is a simple calculation to determine the loss/gain factor:
Assuming that the normal yearly rental income at a monthly rental of INR 20,000 amounts to INR 2.40 lakh per year.
- If the landlord decided to reduce the rent by 10% to enable faster letting out, the annual income will now be INR 2.16 lakh.
- If the landlord decides to wait for the desired rent – even for just two months – rather than reduce the rent, the property remains unused for these two months and the yearly rental income (minus two vacant months) would be INR 2 lakh. This amounts to almost INR 16,000 less.
In the latter case, it is better to give a discount rather remain rigid. Moreover, when the market situation improves and rentals rise again, the landlord can hike the rent once the lease agreement comes up for renewal. For now, the immediate need for landlords is to maintain rental cash flows. The good news is that the market will improve eventually – perhaps sooner than later.