33.29 Why have the rents gone up massively over the last 1-2 years?

In Greater Noida, an emerging home to several techies and corporate employees, rents soared 32.1% while Gurugram and Bengaluru saw an increase
of 24.5% and 23.7%, respectively. Sequentially, rents increased by 2.8% during the Jan-March period, following an increase of 1.6% between Oct and Dec 2023,
Magicbricks said in a statement.

Why has this happened?

1. If you check the US's/India's M1 money supply, It has gone up by 50% plus in the last 3 years.
   • In simple words, it means: 
     That if there were 100 units of currency floating in the economy in 2020. Now, 150 units of currency float in the economy.
2. Most of this (at least 95%) money was grabbed by the rich.
   • They end up buying the real estate (plus other investments)
   • Add to this the fact: that the interest rates were extremely low in 2020-2021. So financing Real Estate on debt was extremely easy.
   • During this period, the rich bought a lot of Real Estate. And, took a lot of houses 'out' of the rental market.
   • Additionally, a rich person doesn't necessarily own a house to rent. So the units in the market available for rent also go down.
3. The new development (new projects) usually take 2-3 years for development.
   • Developers don't actively start building the project unless they pre-book at least 20% of units.
   • They use this money to build out the project.
4. Now, the thing is most normal buyers of real estate can't afford the existing housing EMIs right now.
   • Mainly because the interest rates have gone up quite a bit since 2021.
   • So many of the housing projects have gotten delayed.
   • And therefore In the last 3 years, fewer new housing units have been added.
   • It ultimately became a simple demand-supply equation.
5. The demand for Real Estate has been the same/more.
   • More people have flocked to 'job centers' in cities like Bengaluru.
   • Work from the Home period is over at most places.
   • And, people are getting back to cities.
   • So if your landlord owns a property in the main job hub in the city, they are going to jack up the rents. There is too much demand.
6. The Real Estate cycle is fairly long.
   • The last 10 years have been bad for the Real Estate industry and, now it is bouncing back.
   • One of the prime moves for this has been the 2023 Budget. It was announced that the capital gain deduction cap of 10Cr would be fixed.
   • This meant that previously if you bought a Real Estate in 2010 for 10Cr and sold it at 30Cr, bought another property, then capital gains could be adjusted. But, now that is not the case. Since the rule came into effect from April 1st, 2023, there was a mad rush to buy luxury Real Estate post the budget.
   • Since luxury Real estate has skyrocketed, it is slowly seeping into other segments as well.

Conclusion

In simple words:

• Rich got cheaper loans.
• They used those loans to take properties out of the housing market.
• The new units are getting built at a much slower pace.

Going forward, the situation is unlikely to change. The building of supply will take 2-3 years.
And, by that time the new inflated rent will become the normal reality.

Add to this trends like People flocking back to cities (end of work from home).
All these gave house/flat owners opportunities to renegotiate at higher prices.

Ultimately, The best way to benefit from this is to own Real Hard Assets that can help you offset such increased expenses.
You need to be smart and educate yourself.

Source

• Akshat Shrivastava 30 days Newsletter.