May 5th, 2008 
krishna There’s no substitute to owning a home. Your comfort level is incomparable when you don’t have a landlord reminding you that your lease is running out. On reaching the age of 40 or 50, many people often make a mistake of buying another home with the aim of renting it out. As a pure investment, this is unwise because residential rentals don’t give a return of more than 3-4%. In contrast, on fixed deposits and equity mutual fund gives 15%, if one isn’t too risk-averse.
By and large, landlords receive a low rent from apartments because rentals don’t rise like property prices do. Home prices in Delhi have doubled in the last two years but the rentals have risen only by 30-40%. Not only do landlords lose out on low rentals, they suffer a recurring blow. They lose one and even two months’ rent every two years when one tenant vacates and before another comes in. To make matters worse, they have to pay half a month’s rent to the broker for a new tenant. Another expense is on repainting a house before the new tenant arrives. In short, the economics of renting drills a permanent hole in the landlord’s pocket.
Sadly for landlords their income is driven by their need for safety. Their biggest nightmare is their property being taken by a tenant who doesn’t vacate. To avoid that nightmare, landlords seek safe multinational and other big companies as tenants. The trouble is that too many landlords chase too few big companies. The result is under- cutting among the landlords to get MNC tenants. The under cutting allows the MNCs to beat the landlords down on rent. There is a supreme irony here. Rich establishments companies getting bargain renting deals because of the trust their names inspire. The companies gain but the landlords lose money.
The prices of all goods and services have dropped in India. From computers, TV sets or cell phones, to services like flying or telecom. There is no reason why future home prices won’t drop too.
Posted in 
