An analysis of rental yields in India

Let’s start with the basics.

Annual rental yield = Yearly rent / Current market price of the property

So, if the monthly rent of a ₹1 Cr property is ₹30,000, the annual rental yield is 3.6% (₹30,000 x 12 / ₹1 Cr). Let’s take an example. Our infographic says it takes 449 months of rent to buy a house in NCR.

So what’s the annual rental yield?

449 months = 37.42 years

Rental yield = 100 / 37.42 years = 2.67%

So a typical NCR property earns 2.67% rental return every year.

How correct are these numbers?

Real estate prices and rents have a big range in all cities. The best way to measure rental yield is to collect price and rent data for hundreds of properties across all price points and then take an average.

While individual properties can have higher or lower yields, a sample of hundreds of properties gives us a pretty accurate estimate of average rental yield.

On the basis of an anecdotal evidence, the data seems fine to me. The monthly rent of a ₹1 Cr builder floor in a good neighborhood in Patna is ₹15,000–16,000. This comes out to be 1.8% annual yield or 600–650 months rent multiple, not far from the infographic number of 553.

My question is are yields related to the population or city size?

I would have imagined low rental yields in tier 2,3 towns because of the huge amount of black money that goes into buying properties. Property values are higher because buyers park their black money into real estate while renters can’t afford to pay a big rent because of low income levels.

But that’s not true for all tier 2 cities. While some tier 2 cities like Patna, Ranchi, Bhuvneswar, and Vizag have low yields, others like Indore and Vadodara have higher yields. I think it’s a function of housing supply and average income level. Yields are higher in high income cities.

In big cities where salaried people buy a lot of houses, less black money is involved. The renters ability to pay a bigger rent is also high in these cities. In smaller towns, no one pays ₹1 lakh rent for a ₹5 Cr villa. The rich people usually own houses in smaller towns while the not so well off rent. On the other hand, many rich people with fat salaries stay on rent in Mumbai and NCR. This increases the yield in the best neighbourhoods.

And finally there’s demand and supply. Cities with poor public transport like Bangalore have higher rental yields. You can’t live in the outskirts and work in the city centre.

But the distant suburbs of NCR and Mumbai are well connected. So even though rental yields could be higher in South Bombay or Central Gurgaon, the average rental yields are lower than Bangalore because many people live in the outskirts that has a lot of supply. More supply usually means lower yields.

What brands do the richest Indian wear, and where do they invest their money?

Hurun India analyzes and publishes reports on how the richest around the world spend and invest their money. A recent report surveyed 350 Indian millionaires (personal wealth of over Rs 7 crores) and 42 HNIs (personal wealth over Rs 100 crores) to find the following insights.

👉🏼 There are over 4.5 lakh households with wealth of over Rs 7 crores. Mumbai tops the list (20k) followed by Delhi (17k) and Kolkata (10k).

👉🏼 As for investments, most prefer real estate as the largest chunk of their investment, followed by stocks

👉🏼 Mercedes Benz is the most preferred car, followed by Range Rover and aspiration for Rolls Royce and Lamborghini.

👉🏼 Taj is the most preferred hotel, followed by the Oberoi and Leela.

👉🏼 Rolex is the most preferred watch brand followed by Cartier and Audemars Piguet. ~60% have over 4 luxury watches.

👉🏼 Louis Vuitton is the most preferred luxury brand followed by Gucci and Burberry.

👉🏼 Tanishq is the most trusted jeweller

Most of this sounds pretty obvious, right? Here’s the kicker though.

👉🏼 Old Monk is the most preferred liquor.

You can check out the survey results in Hurun India Wealth Report 2021 and Hurun Indian Luxury Consumer Survey 2021.

Personally speaking, having those brands is one thing. Bearing all of them together would probably make you look like a peacock or right out of the cast of Bling Empire.

👉🏼 There are some super understated, mostly unheard of HNI luxury brands for old wealth. Because the super rich don’t buy brands, they buy bespoke. Here’s listing a few. Look them up.

Zilli, Kiton, Stefano Ricci, Brioni, Cesare Attolini, Loro Piana, Berluti, Charvet, Yves Salomon, Patek Philippe, Vacheron Constantin, Graff, Giambattista Valli.

Why do you need to know the understated ones? Understand your target customer persona, and learn their preferences and vocabulary like no one else does.

It probably varies with demographics such as age, generation, geography… and degree of self-worth.

How much water do you add to flour to make the perfect dough?

While I’m not gifted at cooking, I can get by when left to fend for myself in the kitchen, which includes having to make dough sometimes.

It’s a game of trial and error for me, but my mum can do it with much lesser thought and effort. Now you’re probably good at making dough that’ll last your family a day, but what if you had to estimate quantities for making dough for 500 people?

I recently read that the ideal ratio for bread dough is 5 parts flour to 3 parts water. And this has been a gamechanger. Most people who can very intuitively make sense of how to knead dough, would probably not know of this exact thumb rule.

And this is exactly what happens in business. You’re probably okay at running a bootstrapped business profitably, and managing a 20 member team. But what happens when the teams have to be increased to 200, and revenues to be increased by 100 times?

If intuition and common sense makes small businesses profitable, it’s frameworks that help them scale. And I thought I’ll take this opportunity to list a few of my favorite books if you want to learn about frameworks for scaling up your business.

👉🏼 “Working Backwards” for processes and frameworks used by Amazon
👉🏼 “Confessions of the Pricing Man” for pricing strategies and models
👉🏼 “The Cold Start Problem” for Platforms and Network Effects
👉🏼 “Good to Great” for vision and culture
👉🏼 “Never Split the Difference” for negotiations
👉🏼 “Untangling Conflict” for family businesses
👉🏼 “The CEO Factory” for marketing and building for Bharat
👉🏼 “Venture Deals” for negotiating with external investors
👉🏼 “Influence: The Psychology of Persuasion” and “Contagious” for consumer behavior and virality
👉🏼 “Valuation” by McKinsey
👉🏼 “Extreme Revenue Growth” by Victor Cheng
👉🏼 “Daily Coffee & Startup Fundraising” for building a startup

You could say I’m biased to have put my book on the list, but let’s just say, I saved the best for the last. Haha. How V-shaped are you and your people? And how will you let them grow as V-shaped employees?