Should you rent or buy residential property in Bengaluru?

Bhatt was paying a rent of Rs 21,000 for the 2BHK he had been staying in since 2016. He moved in 2022 and is currently residing in Kengeri satellite town.

“My landlord had also taken up a rented accommodation behind the apartment he had rented out to me. In 2022, the landlord bought the house he was renting and also bought another property in Whitefield. The apartment I used to live in now commands a rent of Rs 42,000 per month,” he said.

Rents in the Information Technology (IT) capital of India have shot up by as much as 40 percent in some areas of Bengaluru (since the last six to eight months), putting sizeable apartments in tony neighbourhoods out of the reach of most white-collar wokers.

As the city’s economy and private sector stirred back to life in the aftermath of the pandemic, landlords raised rents steeply to recoup the money they lost during the pandemic when tenants had returned to their hometowns.

The increase happened in the backdrop of a rental correction (rentals corrected down by 10~15 percent) and vacancies (up almost 40 percent) when Covid-19, which descended on India in early 2020, was raging.

As normality resumed post the third wave of the pandemic and office occupancy returned almost back to normal, an upward correction in rentals had been bound to happen, experts say.

The steep hike in rents, especially in the vicinity of IT corridors in the east and south, was partly a result of employees wanting to move closer to their places of work and rental accommodation not catching up with growth in demand.

Together with Indian employees who had returned to their hometowns, expats posted in Bengaluru returned too.

Global economic headwinds and layoffs have battered the IT and startup sectors across the city in the past year. Mass layoffs by tech companies have made landlords in Bengaluru jittery about taking on tenants from these sectors. Landlords are even studying potential tenants’ LinkedIn profiles; cracking a landlord’s interview has become tougher than cracking a job interview at Google, as IT professionals say.

Bengaluru is currently leading the real estate market in terms of quarterly housing sales, with a 21 percent share, closely followed by Mumbai with a 20.9 percent share. It has also witnessed heightened activity in terms of new property launches, a recent analysis by JLL said. As many as 62,000 units were sold in the top cities in India in the first quarter.

Real estate experts point out that properties that were earlier available for Rs 25000 a month are now available Rs 45,000.

“There has been an increase of more than 40 percent in markets that are located close to office hubs and near the Metro corridor. Property values have also shot up,” one expert said.

A tenant today may have to pay a rent of Rs 35,000 per month, a security deposit equivalent to 10 months’ rent and society maintenance fees at the rate of Rs 4 per sq ft for a 2,000 sq ft in a Grade A project. For this he may incur an outgo of around Rs 50,000 per month.

Compare this with a new 2BHK unit located 10 to 12 km away from the Centre in Whitfield. An apartment there may cost around Rs 70 to 80 lakh which means that even if the buyer were to pay 20 percent upfront and his loan requirement is Rs 60 lakh, the EMI per month would be around Rs 40,000 to Rs 50,000.

This is also perhaps why both housing sales and rents have gone up in the city.

The return of expats has increased demand for high-end rentals as well. These include luxury properties in the region of Rs 1.5 lakh per month to Rs 2 lakh per month. This segment too has seen an increase in rentals by 15 to 20 percent, experts say.

Rupesh Jaiswal, a landlord in eastern Bengaluru, said the capital value of his apartment had doubled in four years and the rent in two years.

Even so, several people employed in the IT sector still prefer renting an apartment than investing in a property on account of job security concerns, global headwinds and high interest rates. Most would have to pay an EMI of Rs 50,000 to Rs 85,000 depending on the loan amount.

Dhananjaya Pamanabhachar, who took a loan of more than Rs 1 crore, is currently paying Rs 85,000 as an EMI due to increase in interest rates.

"In prime places like Jayanagar, rentals have touched Rs 40,000 to Rs 50,000. Property prices have also crossed Rs 1 crore," he added.

Property brokers say that a fully functional metro line in parts of Bengaluru has also led to capital values appreciating by at least 10-15 percent.

In suburban areas like Hoodi, close to Mahadevpura and Kundalahalli metro stations, the purchase price of a premium 1-BHK has already touched Rs 1 crore and will see appreciate further.

Rentals in areas like HSR Layout, Indiranagar and parts of Whitefield have touched Rs 45,000 to Rs 50,000 per month. In prime areas of Whitefield, rentals for a 3BHK are around Rs 75,000 per month.

Rentals for a 2BHK in Indiranagar have crossed Rs 1 lakh a month. Property prices in Indiranagar, HSR Layout and Whitefield have also shot up by 15 percent over the past few months, said Kiran Kumar, a realtor at Hanu Reddy Realty.

In Indiranagar, a full -furnished 2BHK unit that was priced at Rs 80 lakh before is now going for more than Rs. 1 crore. In upcoming suburbs such as Hennur too, a 2 BHK is priced at Rs 60 lakh to Rs 70 lakh.

For an A Grade property, prices start at Rs 75 lakh and can cross Rs 1 crore. In the luxury segment, a villa in Whitefield that could earlier put you back by Rs 4 crore is now priced at Rs 5.5 crore.

To be sure, in north Bengaluru, several restrictions are in place post the September floods, causing capital values to stagnate.

Among the potential areas for investment, brokers say the stretch between KR Pura and Mahadevpura offers promise.

"The new Chennai-Bengaluru expressway is close to Narasapura, which is close to KR Pura. Additionally, Hoskote, which is witnessing major plotted development, is also close to this area," Govind Raj, a realtor at Coldwell Banker, said.

Among areas where inventory is still available, Kumar counted said Sarjapura, Electronic City and Doddaballapur Road in northern Bengaluru.

If a buyer bought a 2BHK unit for Rs 1 crore in 2018 and rented it for Rs 25,000 per month, his return on investment was 2.5 percent. Considering that the same property is worth Rs 1.5 crore and the rent is Rs 37,500 per month, the return on investment for the buyer is around 3 percent. On a historical value of Rs 1 crore, the overall return would be around 4 percent, experts say.

Today, even with the increase in rentals, the ROI on rental property is still around 3 percent or less in most markets in Bengaluru. On a short-term basis, renting is still cheaper than buying but over the long term, as rents become expensive, buying property would be a better option, said Shantanu Mazumder, Executive Director for Bengaluru at Knight Frank India.

Ultimately, it’s about whether the property checks all the boxes for a homebuyer.

Ankita Sood, Head of Research at PropTiger.com, Housing.com and Makaan.com, said, “Demand for property purchase continues to remain robust in Bengaluru. If the property checks all boxes for homebuyers, they are going ahead with the purchase both in the primary as well as in the secondary market. The overall sentiment has gravitated towards homeownership after Covid.”