There has been much attention to the challenges facing real-estate developers on account of COVID-19. In contrast there has been little focus on the challenges facing another critical segment of the housing industry – landlords. The Maharashtra government provided a helping hand to developers by slashing stamp duty on August 26th, 2020. For apartment owners in Mumbai, however, things have only moved from bad to worse as rentals continue to slump further.
As the COVID-19 induced lockdown started easing in June there were indications that rents had been trimmed by 15% – 20%. Flexible and smart landlords agreed to re-negotiate rents downwards for a limited period with their existing tenants. The ones who remained stubborn and let go of their tenants have paid dearly with the consequences.
As a force of habit, I keep a check on most micro-markets of Mumbai by talking to various stakeholders at regular intervals. Due to that there is limited scope to get misled as there is always easy verification that can be done. Hence, I have been aware that the rental market in Mumbai has seen a meaningful correction post-COVID. Yet, there is nothing better than actually visiting properties. So, when my friend Uday Tharar asked me if I would be open to accompanying him on his search for properties in Bandra – I was more than happy.
Uday is an economist working with a Large Fund in Mumbai. He is also a Bandra loyalist having stayed in the area for the last 6 years. Now his search was for apartments in areas like Bandstand and Mount Mary Road. Both the locations are premium areas but most of the buildings in that area are very mediocre. Even my former boss at ET NOW and the now influential Bloomberg columnist – Andy Mukherjee, could get a spacious apartment and a fine sea view but the building in itself was remarkably modest.
The lazy argument is that because the buildings are old – one has to be sympathetic in a judgement. That contention cuts no ice according to me – when landlords attract charge such steep rentals from tenants it should be their responsibility to do a better job in upkeep and maintenance. The only reason most landlords don’t do it – is because it doesn’t matter. Tenants keep coming. The charm of Bandra overpowers all inefficiency.
After visiting the properties with Uday, nothing much has changed on the quality of buildings in recent years. One good addition I noticed is the Raheja Bay at Mount Mary. The rental market is however under pressure in Bandra. Below are some of the findings
- Rentals are down by 15-20%: The fall is greater in the high-ticket size but at a median level the rentals have dropped 15%. Landlords who have been smug and let previous tenants go by not renegotiating downwards are paying a heavy price. Forecast of a rental market is complex– but in all likelihood things will worsen until at least December.
- Landlords waking up to reality: Normally it takes an apartment being empty for a month and no visibility of a new tenant – for landlords to start getting anxious. There is high anxiety building up among landlords. Owners are beefing the quality of offerings (new AC’s, TV etc) within the apartment to attract tenants.
- Brokers: Things have been so weak that even brokers have thrown in the towel. No big talk. Acceptance of the fact that the situation is damp with a bleak outlook. There is scope for a tenant to even get away with a brokerage-free deal.
COVID-19 has had many negative consequences for India. One silver lining probably it may have done is – get landlords in Bandra to value their tenants appropriately. It has been overdue.