Why residential properties lie vacant despite high demand in India
Distorted property rights for lack of a sound rental policy, weak rental contract implementation and low rental yields lead to high levels of vacant residential properties.
Distorted property rights (in the absence of a sound rental policy), weak rental contract implementation and low rental yields are some of the major factors that prompt homeowners to leave their houses vacant rather than renting them out, said a report. Another reason for high vacancy levels is that homes which could feed the rental market across the country are largely region-specific, vacancy rates increase as we move further away from the denser urban areas, said a ANAROCK Property Consultants report.
At the city-level, homes in several parts of core areas in Mumbai are lying vacant because the high net-worth individuals (HNIs) who invested in them largely did so to diversify their portfolios and not to earn rental income. HNIs living abroad often tend to leave their investment homes vacant or only use them when they visit India. Also, there are very few takers for homes in most far-flung areas. Even if rentals are very low in these areas, many of these areas are simply not liveable because they lack the necessary infrastructure, said the report.
In Delhi-NCR, many vacant homes are in infrastructure-starved areas, far removed from the economic activity of the main cities. Lack of a proper rental policy that safeguards the interests of landlords is another prime reason for the high number of vacant homes, said Anuj Puri, Chairman - ANAROCK Property Consultants.
Often property owners find it challenging to evict tenants if they fall back on rent or misuse the property, eventually leading to long-drawn and expensive legal disputes even as the property fails to generate adequate (or any) revenue, he said.
"Bengaluru attracts many NRIs who invest in homes and find it difficult to remote-control their properties in terms of finding the right tenants, managing rental agreements and property maintenance if the property is rented out. Also, many NRIs prefer to leave their homes vacant as they aspire to eventually return to India and live in them. If they rent out these homes instead, they may face challenges with getting tenants to vacate them," Puri said.
While there are many common as well region-specific reasons for property owners being averse to renting out their homes, there is definitely a dire need for the government to throw policy-backed weight behind rental contract enforcement and property rights and spatial distribution of housing supply vs demand, Puri added.