What Fetches You Better Returns, Budget Homes Or Luxury?

If you are an investor looking at better rentals, would you flex your budget for a better return? Are seemingly luxurious homes known to give better returns?

Here's what you need to know:

Low entry points, better yield?

Not always, but budget and mid-range projects entered during early stages of construction give you a price benefit. Also, it has been seen that where projects are reasonably priced, chances of it to move in the market as also garner better and constant returns is higher. Localities like Aya Nagar, Uttam Nagar, Ashok Nagar, Chattarpur in Delhi are known for lower capital values and promise constant rental returns. We are not talking about the unauthorised constructions and illegal colonies in and around these places.

Metro connectivity and proximity to business districts of Gurgaon and Delhi have made the above-mentioned localities popular. Rentals are lower, and, hence, the pool of prospective tenants is steady.

It is not to say that luxury homes cannot guarantee better returns or better rentals. However, the popularity of affordability far supersedes the weight of luxury in a property market, unless of course it is an exception.

Property prices in affordable areas such as Aya Nagar are as low as Rs 14 lakh for a small unit in a multistoried apartment and prices can go up to Rs 75 lakh. Rentals are as good as Rs 3,000-15,000 per month given the size of the house and the amenities.

On an average, the rental yield of a luxury house is only four per cent, says Yash Joshi, managing director, RMZ Homes. Given the quality of luxury constructions, most homebuyers may prefer it for end-use than lease.

The cost of maintenance

Did you know that a luxury house may require as much as Rs 8-50 per sq ft as maintenance cost? This means if you could rent a 3,000-sqft luxury abode, the minimum you would be spending to keep it in its form is Rs 24,000 per month. Joshi says it is always good to be an end-user by that calculation.

On the other hand, affordable homes are low maintenance. The apartment association takes a nominal amount to service you in terms of cleaning staff, lifts and elevators, generators, common parks, car-parking areas, garbage collection, etc. Depending upon the brand of the developer and the amenities, maintenance costs may vary between Rs 500-5,000 a month. In a luxury home, the maintenance costs treble, given that the exterior and interior of the house become equally important and you wouldn't want to take a chance with any.

Psychological barriers

Nobody detests the idea of living in a palatial home. However, given the rent, responsibility of safety and maintenance, prospective tenants may prefer keeping their risks lower.

Shailesh Nandakumar, a tenant who was looking at homes in Bengaluru's Sadashivanagar, says: “Security deposits, too, are a deterrent. In most cases, luxury homes are on rent only if the property owners have gone abroad or are unable to live here because of one reason or the other. More often, they could be finicky about the way their tenants maintain the house. In the past, I have lost a lot on my security deposit. Hence, I have shrugged from such responsibilities.”

Nandakumar lives in a 3.5BHK unit at Kormangala, where the monthly rent comes to Rs 55,000 per month.  

The Risk And Returns Involved In A Real Estate Investment

Developer's take

“It is fairly safe to say that both budget housing and luxury properties are finding buyers in India. It is certainly advisable to run an all-inclusive market analysis locally before embarking on a real estate investment, since the exact dynamics driving ROI (return on investment) on different property typologies differ on a market-to-market basis,” says Anil Pharande, chairman, Pharande Spaces.

“Investment in a luxury integrated township that investment in a small-budget housing project in the Pimpri- Chinchwad Municipal Corporation make a lot more sense. This is because luxury townships offer residents neighbours of comparable status and purchasing power, highly adequate facilities such as green open spaces, in-project schools and shopping malls and superlative project maintenance and smart home features at a unit level,” he adds, while talking about investment in Pune.

Joshi believes that end-use is a better prospect in the case of a luxury home than putting it on rent. Moreover, luxury homes can bank on better capital appreciation than rental rewards.

Also read

10 Features That Define A Luxury Home