Rentals go through the roof in Mumbai; befuddles everyone

MUMBAI: Mumbai’s skyrocketing rentals have befuddled Italian Consul General Giuseppe Zaccagnino. The diplomat pays Rs7,00,000 a month for his residence at Malabar Hill.

“Now when the lease has come up for renewal, the house-owner wants a 50 per cent hike,” says the diplomat’s realty consultant. “Zaccagnino likes the place a lot and is reluctant to move out, but he might be left with no option.”

One might think that South Mumbai is an exception. But Bandra is no different. Hear out property dealer Bosco Baretto: “I recently executed a company lease for a four-bedroom flat on Bandstand for Rs6,50,000 a month. I also helped a company locate a penthouse with a sea view on Carter Road for Rs8,00,000 a month.”

But the upward trend in rental prices is not confined to Bandra. Further west, in Khar, Santa Cruz, Juhu and even Andheri, the rents have increased across the board by at least 50 per cent in the last one year. “Two-bedroom flats that used to rent for Rs50,000 are now going for Rs75,000. This is just the lower end of the market. Premium flats-like those along Mount Mary’s have seen a 100 per cent increase,” says Baretto.

The jump in rates is astounding considering that realty consultancy Cushman and Wakefield estimated a 15 per cent year-on-year increase in rentals for 2005.

“Premium three and four BHKs in Juhu-Versova and Andheri are fetching anywhere between Rs2.5 to 3.5 lakh per month, with deposits between Rs10-40 lakh,” adds Baretto.

Powai is getting hotter by the day too. Says property consultant Bhavesh Khetia: “At Lake Homes, one of my clients wanted to lease out his 2-BHK and 3-BHK flats. I finalised a deal for both flats with ICICI Bank in September, but the deal fell through. Now I have secured the same flats for another client at more than double the price.”

This is the new Mumbai where rental rates make no discrimination between uptown and downtown. “There is a building in Union Park in Khar that has the reputation of being the best in India, where an apartment reportedly goes for a monthly rent of Rs12 lakh,” says Baretto.

Realty’s reality bites

Thirty-three-year old marketing professional Virendra Singh often remembers the Hindi films of the 1960s, which had the mandatory landlord ruthlessly demanding his pound of flesh.

“People who feel the pinch the hardest are the salaried employees. My landlord told me he was being offered Rs30,000 for the house. But as a special favour, he was ready to lower it in my case to Rs25,000,” says Singh, who moved from Delhi two years ago. Singh was paying Rs15,000 as rent for his 2-BHK flat in Oshiwara, Andheri.

The experience shocked Singh into resolving never to be a tenant again. “There is no logic to this hike. Where is the gold rush or sudden influx of people that is causing it?” he wonders. “Even if I did agree to pay this inflated rent, there is no guarantee that there won’t be an even more outrageous rise next year.” For now, he is planning to move into the company guesthouse as a stopgap arrangement while he looks for a place of his own.

Upward trend in the next 12 months

Senior manager of online real estate consultancy 99acres.com Prashant Dixit estimates that rates in the western suburbs of Bandra, Khar, Santa Cruz, Juhu and Andheri have increased between 30 and 40 per cent. “The most preferred areas for rentals now are Andheri, Goregaon and Kandivali. Areas like Vasai and Virar too are hotspots for budget rentals,” he says.

President of the India Institute of Real Estate Chetan D Narain, who also runs property consultancy Narains Corp, says the upward trend in rentals is a reflection of the property market. He says capital value is like a barometer for the rental market. With an increase of 30-50 per cent in capital value of properties across Mumbai, rentals got a corresponding boost.

“Overall, South Mumbai saw a rise of 25 per cent in rental prices while the suburbs (from Bandra to Versova) saw an astounding rise of up to 50 per cent,” Narain says.

“The ‘invest in property’ mindset has created a supply of flats which are not for immediate occupation and hence attract rental clientele. People have invested in property for tax savings and are now leasing them out for rentals,” Dixit says.

As a result of increasing rental rates in traditional hotspots like Bandra, Khar and Andheri, people are forced to move to new areas like Goregaon and beyond, which has pushed up the rental rates in these areas.

When 39-year-old insurance professional Abraham Koshy moved to Mumbai three years back, his company put him up just off Pali Hill in Bandra. “It was a two-bedroom flat in the LIC building at Ambedkar Road. The company paid the house-owner Rs40,000 plus a deposit of Rs500,000. When the lease got over last year, the owner asked for Rs75,000 plus a deposit of Rs800,000,” he says. “Obviously, my company would not pay up.”

Koshy, whose office is located in Bandra Kurla complex, did not want to shift elsewhere. “Now, I pay Rs50,000 for a 1-BHK flat in a nearby building,” he says. “It has led to lifestyle changes, but I can’t help it.”

But will the bubble last?

Joint managing director of Cushman and Wakefield Sanjay Verma seems to think it will. “If you look at South A (Colaba, Cuffe Parade, Nariman Point and Churchgate) properties, the rental rates have increased by 31 per cent in the last one year. The average rental for a 1,400-2,000 sq ft flat in South A area is Rs 210,000,” he says.

Cushman and Wakefield’s September 2006 residential snapshot is revealing. Average South B (Altamount Road, Carmichael Road, Malabar Hill, Napeansea Road, Breach Candy and Peddar Road) rental rates shot up by more than 20 per cent between September 2005 to September 2006 to Rs250,000 a month. The highest increase of 40 per cent has been in Suburb 2 (Andheri (West), Malad, Goregaon and Powai) properties.

Point to note is that these rates are just the average increase. “The city’s rental market varies from locality to locality and from building to building,” says chairman of realty consultancy Frank and Knight, Pranay Vakil. “Our research suggests that at specific property locations the increase in rental rates have been more than 100 per cent in the last one year.”

Managing director of Trammell Crow Meghraj Anuj Puri puts it in a nutshell. “Mumbai is a market where there is a demand-supply mismatch both in the property and the rental market. I don’t see it vanishing at least in the next decade,” he says.