The landlord strikes in India's Silicon Valley | Mint

He attached two screen shots along with the tweet— details of WhatsApp conversations between a broker, Brijesh, and his cousin brother, Yogesh, who was looking for a rented apartment in India’s silicon valley.

“Kindly share your LinkedIn/Twitter profile, a copy of your joining certificate (from the company where Yogesh works), 10th-12th mark sheet and docs like Aadhaar and PAN card," the broker WhatsApp-ed. “Also, can you please share a 150–200-word write-up about yourself? Owner is asking," he further messaged.

After Yogesh mailed all the documents, and checked if he can move-in by the end of April, he heard back.

“Hey Yogesh, I sent your docs and write-up to the owner. Sorry but he rejected your profile, because you have got 75% in class 12th and the owner is expecting at least 90%," Brijesh, the broker, messaged.

Mint was unable to verify the authenticity of the conversation and @kadaipaneeeer was unwilling to share any further details. But his tweet had garnered 1.6 million views by 21 May, over 16,000 likes, 2,230 retweets, and numerous memes.

If true, such demands, and the rejection from a landlord based on marks obtained in high school examinations, could count as an exception. But it does underline the lopsided rental real estate market of Bengaluru, where the supply of apartments hasn’t kept pace with the sudden surge of demand as offices opened up post the pandemic. The problem is acute in hot neighbourhoods (called micro markets in real estate lingo), particularly those dotting the tech corridors—Outer Ring Road/Bellandur, Whitefield, Koramangala, Electronic City, Jayanagar, and Rajajinagar.

Overall, home rents in the city have risen anywhere between 15% and 40% in the past year. Bengaluru, today, has the highest average rental yield in the country at 3.64%, according to a 2022 report by Liases Foras Real Estate Rating & Research. In comparison, the National Capital Region (NCR) has a rental yield of 2.67% while the Mumbai Metropolitan Region has 2.51%.

Rental yield is the annual rental value received from an income-generating asset, year-on-year, as a percentage of the property’s value.

This is quite a change from the pandemic months when Bengaluru witnessed a huge exodus of tech employees. Rents, subsequently, collapsed.

Siddharth Mishra, a tech worker, used to pay ₹25,000 for a two-bedroom (BHK) apartment at HSR Layout in 2020, including maintenance charges. He moved to Singapore in early 2020, just before the pandemic hit, and is now back in Bengaluru. This time, he took over three weeks to find an apartment close to his office at Embassy Golf Links, an office park. There were fewer apartments available in gated societies and the ones he liked were way too expensive.

“I am now paying ₹55,000 for a three-BHK place in Koramangala, besides ₹5,000 in maintenance payment. It’s a small complex and doesn’t even have a pool. But there’s no choice. I have to be in the office thrice a week and you can’t stay far away because of the traffic," Mishra, 34, said.

Bengaluru, in short, is now a landlord’s market.

“The landlords are asking for higher rents and they know that they can because there are multiple people eyeing one home. Transactions are happening fast in good locations. An apartment gets rented out within one-two days of listing. We haven’t seen this kind of demand earlier," said Saurabh Garg, co-founder and chief business officer at proptech platform NoBroker Technologies Solution.

To understand Bengaluru’s rental scenario, one has to go back to where it all started—the city’s rise as the country’s tech and startup capital. Overtime, Bengaluru emerged as India’s largest commercial office market.

The scenario is unlikely to change, considering the fact that the state continues to attract investments. Karnataka is eyeing $150 billion in IT exports in five years, from $65 billion at present. And there is little IT in Karnataka beyond Bengaluru. Besides Indian IT exporters such as Infosys and Wipro being headquartered here, the city serves as a major back-office and research and development base. Multinationals such as Microsoft, Dell Technologies, Intel, Cisco, Wells Fargo, JP Morgan and Morgan Stanley have a significant presence here.

Cities with an economic thread in IT and financial services typically witness higher escalation in rent on the back of demand. But this time, the drivers of demand have more nuances. Back-to-office has gained steam and employees want to be ‘seen’ in their workplaces. This comes in the backdrop of large-scale layoffs announced by tech companies and startups.

“There has been a shake-up in the rental market. From an annual 5-7% rental increase, we are seeing double digit hikes now. Since December, tech and IT companies have been laying off people, and employees want to be visible. So, they want to be close to their offices, which explains why the demand is so high near office parks," said Siddhart Goel, head of research and editorial at Magicbricks Realty Services, a property site.

Parnika Joshi is a data scientist at a multinational technology firm. Over the last two years, she shuffled between her rented apartment in Bengaluru and her family home in Pune’s Viman Nagar as work-from-anywhere continued. Then, in early May, her company made work-from-office mandatory thrice a week.

Parnika drove down from Pune with her dog, Caesar, to her rented place at Prestige Shantiniketan in Whitefield, a neighbourhood brimming with many IT parks. Surprise awaited her.

When Parnika moved into Prestige Shantiniketan in January 2020, she paid ₹25,000 as rent, plus ₹4,000 in maintenance fees. She split the rent with a flat mate. The apartment owner, who lives in Hyderabad, then revised the rent upwards twice since January 2022. Till last month, they paid ₹45,000. The landlord recently called to inform that he is revising the rent yet again—to ₹55,000 a month.

“We haven’t said no yet but it’s unaffordable, and both of us are looking out. The problem is that it’s the same rate for all good housing complexes. It’s like a rental rate card for the IT belt, with a flat rate for two and three-BHKs, and no scope for negotiating," Joshi said.

Also, many techies want to refrain from buying an apartment right now given the uncertainty in the tech sector as well as the impact of increasing mortgage rates and loan tenures—more tailwinds for the rental market.

Just the tale of one micro market in Bengaluru tells the story of the demand-supply mismatch rather vividly. This is a market the rest of India is familiar with. Bengaluru received record rainfall in September last year and images of flooded villas and tractors rescuing people from high-end housing enclaves in this area flooded the social media.

Life (and prices) in the Bellandur-Outer Ring Road area sprung back from the setback rather quickly.

The 17-km stretch that forms the Bellandur-Outer Ring Road is Bengaluru’s longest technology corridor. About 350 companies here generate $22 billion in annual revenue, roughly a third of Karnataka’s tech revenue, the Outer Ring Road Companies Association estimates. Apart from multinationals, the stretch is home to startups and large consumer internet companies such as Flipkart, Myntra and Swiggy. The big and the famous inevitably drive up rentals.

When Shankar S., who was moving from Hyderabad to Bengaluru earlier this year, spoke over a Zoom call with the owner of a two-BHK apartment at Rohan Jharokha, a gated community in Yemalur, in the Bellandur neighbourhood, he sensed an intense competition—half a dozen property brokers and a dozen renters were eyeing the same apartment.

He lost out, but found another apartment at the property, though at a higher security deposit. For a two-BHK, he pays ₹56,000 in rent and another ₹5,000 in maintenance fees. The security deposit is ₹2.5 lakh. Shankar, who works as a consultant at an American tech company, says it’s a “fight to get a decent apartment even if you are willing to pay."

At Adarsh Palm Retreat, a high-end housing conclave in Bellandur-Outer Ring Road, rents rose from ₹55,000-60,000 to ₹85,000-90,000 for an apartment in a short time. As capacity in the housing enclaves of this road ran full, areas around the stretch joined the party. Projects like Prestige Lakeside Habitat ( ₹65,000-70,000 upwards for a three-BHK) in Varthur and Sobha Dream Acres ( ₹40,000-50,000 for a two-BHK) in Panathur, both near the Outer Ring Road, have seen high demand and rental inflation.

NoBroker’s Garg said premium societies are seeing higher increases in rent because there’s limited rental inventory left. “Rental homes in gated communities have seen a roughly 25-45% jump depending on the closeness to IT parks and how premium the project is. Non-gated communities would have seen a 15-20% rise in most areas," Garg added.

Many families and individuals have been forced to move to smaller, more affordable apartments after the sudden rent hikes at short notice.

Landlords, on the other hand, say they are making up for losses they suffered during the pandemic months.

V.K Reddy is the owner of a two-BHK and a one-BHK apartment at Mahaveer Apartments housing society in Hoodi, east Bengaluru. He has doubled rent to ₹32,000 for the two-BHK while increasing the rent for the one-BHK from ₹11,000 a year back to ₹19,000 now.

For five months in 2020, both his apartments were empty; the tenants had moved back to their native towns. When new tenants came in 2021, rents were still depressed because the pandemic was raging. He felt like he was giving discounts.

“I suffered big losses. The market is good now, and there is huge demand for two-BHKs. I have increased the rent but I have decreased the security deposit from 10 months to six months. There is no scarcity of tenants today," Reddy said.

There is also a reason why house owners are demanding more documents from prospective tenants. It has to do with the season of tech layoffs. Many landlords would have experienced hurried and unplanned exits of tenants who were laid off.

“In areas like Indiranagar and Koramangala, many young bachelors had taken up flats at expensive rents. Last year, when the layoffs started, people had to move out. So, owners are more comfortable seeing job contracts and supporting documents as an assurance," said Aruna J., an independent property agent.

That said, this sort of demand frenzy is possibly the highest in the last decade, and has had a spiralling impact on rental values, which are back to not just pre-covid levels, but even higher. The business of shared living facilities, which also took a hit during the pandemic months, has benefited.

Suresh Rangarajan, founder and CEO of Colive, a shared living startup, said genuine demand has triggered the skyrocketing of prices, and supply can’t keep up. Pre-covid, roughly 1.2 million people in Bengaluru lived in hostels and in paying guest facilities. When they returned after the pandemic, many wanted independent or family accommodation.

“We never anticipated this demand and we are thinking of how to bring in more supply. There is a waitlist even after we faced a backlash from some tenants. We increased rent by 25-30% after a year and tenants said it’s too much. But, it’s the market rate now," Rangarajan said.

Colive is adding around 1,000 new beds a month. It has also signed up for 15,000 beds that are ‘built-to-suit’. In this model, apartments are built keeping shared living facilities in mind.

Even a year ago, we were talking of the ‘Great Resignation’. Tech employees had enough job offers and they voluntarily quit companies they weren’t happy working at. Tech companies also had enough business. But that euphoria—big deals, heady salaries, promotions, and recruitment frenzy—is now a thing of the past. Most Indian IT services exporters generate business from the US and Europe. According to a report by JP Morgan, the fourth quarter results of TCS, Infosys and HCL Tech highlight weakness in banking and financial services, telecom, hitech, manufacturing and retail verticals. This is because customers are ramping down and deferring projects amid forecasts of a recession. Hiring, thereby, will slowdown.

There’s no one answer. If prospective homebuyers continue to defer their purchase plans, the rental market will remain vibrant. On the other hand, large-scale job losses, particularly at mid-to-senior levels, could hit the rental market.

As of now, rents are holding up and landlords are in no mood to negotiate.

The headwind for home owners may come in the form of increased supply. When more inventory is available for renting, rents will stabilize. Prashant Thakur, senior director and head of research at Anarock Group, a property consultancy, said that around 80,000 units are expected in Bengaluru this year, a 64% jump from units that were completed in 2022. “These homes will find either buyers or tenants. Some of it will come into the rental market as new supply," said Thakur.

As new supply of homes hit the market, NoBroker’s Garg expects a moderate rental hike this year. However, accommodation near prominent commercial office hubs would continue to cost more.

Goel from MagicBricks believes that rental supply can’t be increased suddenly—because most houses sold today are for end use (for the buyer to stay) instead of investment. “But the rental market will stabilize gradually. Bengaluru is a cosmopolitan city assuring a certain ease of living, and that ecosystem can’t be spooked or spoiled. People can always move to Hyderabad then," he said.

Meanwhile, some real estate analysts believe that Bengaluru remains a rational real estate market despite the spiking expectations around rent.

“Bengaluru has always been rational, which is why capital value appreciation has been in line with rental appreciation, unlike in Delhi-NCR and Mumbai where it cashes in on future appreciation. Though rents have increased in Bengaluru, it still remains the most affordable market to rent or own a property," said Pankaj Kapoor, founder and managing director of Liases Foras Real Estate Rating & Research.

One measure of rationality that Bengaluru passes is ‘rent to own’ or the number of months of rent one would require to buy a home, the same home she or he is currently renting.

India’s silicon valley beats many other cities here, research from Liases Foras found. While Mumbai has 478 months of rent to own and NCR 449, those living in Bengaluru can theoretically own the apartment they are renting if they were to pay 330 months of rent.

Well, such ratios are small consolation for people struggling to find affordable rental apartments close to their workplaces.