Rental Yields in Gujarat – An Overview of 3 Major Cities

Rental yield is a good determinant of a residential unit’s potential to earn rental revenue in a particular locality. It depends on various factors such as the area’s connectivity, accessibility, capital values, social amenities, civic infrastructure and affordability among several other factors.

The Gujarat real estate market is a growing market with a huge potential. The real estate sector is witnessing huge investments from buyers who prefer to buy units from the point of resale or rentals. Some of the fastest growing cities in Gujarat are Ahmedabad, Surat and Vadodara. Here is an overview of the rental yields in these three major cities.

Calculating rental yield

Rental yield in a particular locality or city is calculated by taking the capital value of the residential unit, the average monthly rental and the costs involved. The rental yield is simply the average annual rental income divided by the capital value of the property. This gives the rate of return earned (% of return) by renting out the property.

Therefore,

Rental yield = (Annual rental income – Costs)/Cost of property

The average annual rental income is obtained by subtracting the costs involved by the total rental revenue earned in an year.

Rental yield in the major cities

In order to calculate the rental yield in Ahmedabad, Surat and Vadodara, we shall consider the average capital value of properties in some of the most sought-after localities in these cities and the average rental income. As the most popular residential units in demand are 2 and 3BHK properties, we shall also consider these two configurations.

According to CommonFloor Listings data, the average capital value of a 2BHK in Ahmedabad is in the range of Rs 30-45 lakh while that of a 3BHK apartment is between Rs 40-75 lakh. The average monthly rental for a 2BHK apartment from Rs 6,000-15,000 and that of a 3BHK apartment is between Rs 10,000-25,000. Hence, applying the formula, the rental yield in Ahmedabad would be in the range of 2.5-4 per cent for a 2BHK apartment and about 3-4 per cent.

CommonFloor Listings data indicates the capital value of a 2BHK apartment in Surat to be approximately Rs 25-45 lakh while that of a 3BHK apartment to be about Rs 50-60 lakh. The average monthly rental of a 2BHK apartment in Surat varies from Rs 5,500-10,000 while that of a 3BHK varies from Rs 12,000-15,000. Hence, the rental yield for a 2BHK apartment would be about 2.5-2.7 per cent and that of a 3BHK apartment would be about 2.8-3 per cent.

Based on the same data, the approximate capital value of a 2BHK apartment in Vadodara would be about Rs 15-30 lakh while that of 3BHK apartment is about Rs 35-50 lakh. The average monthly rental for a 2BHK apartment is between Rs 6,000-10,000 while the average monthly rental for a 3BHK apartment is in the range of Rs 10,000-20,000. Hence, the rental yield of a 2BHK apartment is about 4-5 per cent while that of a 3BHK apartment is about 3.5-5 per cent.

The following table summarizes the rental yields of the three major cities in Gujarat.

 Table: Rental yields of three major cities in Gujarat Source: CommonFloor.com Listings Data

By the table above, an inference may be drawn that Vadodara currently provides the highest rental yield for a 2 and 3BHK apartment out of the three cities. Hence, if you prefer to invest in a rental property in Gujarat, Vadodara may be the best city to invest, followed by Ahmedabad and Surat respectively.