Indian Landlords don’t Value-add

Pity the poor city landlord! Renting out an apartment gets him less than returns from a bank fixed deposit. I see gleaming three-bedroom apartments in South Delhi worth Rs 50 lakh which rent for just Rs 20,000 a month. That works out to Rs 2,40,000 a year but it comes down to just Rs two lakh because roughly two months’ rent goes in house tax. So the landlord ends up getting a return of just 4 %.

This pathetic return flows from one mistake 90 % of landlords make. They don’t offer immaculately furnished apartments. If they did, they could double or even treble their rental income because cities like Delhi and Mumbai get a stream of MNC managers who look for well-furnished apartments but cannot find them. Which is why service apartments are catching on in Delhi, Mumbai, and even Cochin. They provide the facilities of a hotel with the comfort of a home. 

It’s this niche market that individual landlords can tap.
What, after all, is a service apartment? It’s just a furnished flat complete with phones, ACs, crockery, cutlery, and linen. Well, furnishing and equipping a three-bedroom flat wouldn‘t cost more than Rs 4 lakh at the most. So it’s worthwhile for a landlord to spend this extra amount. It results in a dramatic leap in his rental income. I know the owner of an elegantly furnished three-bedroom apartment in South Delhi’s Greater Kailash II who was offered a monthly rent of Rs 1 lakh by a multi-national company. He said he wouldn’t have got more than Rs 35,000 if his home had been unfurnished.

Unfortunately, that is exactly what most landlords offer to prospective tenants- bare walls and stark floors. But what a busy expatriate seeks is a running establishment. He can’t run around getting furniture, a phone, or domestic help. He seeks instant convenience. And he’s willing to pay for it. Canny landlords understand this. So they furnish their property according to the category of the tenants they seek. The smarter landlords even offer the tenant an efficient, trusted servant who can summon a plumber or electrician whenever he’s needed. Real money lies in services, as everybody knows. And a landlord provides an invaluable service when he organises a hassle-free stay for a tenant.

He positions himself just right. Look at the service apartments business in India which falls in the organised sector. The apartments charge between Rs 1500 and Rs 5,000 a day for apartments with one to three bedrooms. These rates are cheap compared to hotels but they are high when new three-bedroom apartments rent for Rs 20,000 a month. And what’s the difference between the two sets of lodgings? One is furnished and the other is not. That is all. So an individual apartment furnished right becomes a service apartment.

Yet furnished homes in Indian cities remain scarce because a chaotic real estate market fails to match the needs of landlords and renters. Take the tens of thousands of NRIs who visit India in winter. They don’t like to stay with their relatives where homes may be cramped. And they find living in a hotel both uncomfortable and expensive. What they would like is furnished apartments which are so freely available in cities from London to Sydney. But they can’t get them in India only because Indian landlords will spend a fortune on buying a home or flat. But they won’t spend a penny on making it habitable.