Will Oversupply Of Apartments In NCR Lower Rents?

According to Colliers International India, rents have fallen in Noida by three to seven per cent in the past one year. One of the major reasons is oversupply of apartments in Noida. In the past few years, developers have been building more and more apartments in the National Capital Region (NCR) including Noida and Gurgaon. This was inevitable because real estate development was happening faster than the demand, or infrastructure development could keep up with.

As many tenants find rents high, apartment owners are not raising rents. In fact, new apartments are available in the rental market at a lower rent. So, people who have been living in older apartments try to move into new apartments to save money. This is not necessarily a bad thing. High rent imposes huge costs on home buyers, especially for people who have rented apartments in Gurgaon or Noida because they may be paying equated monthly installments (EMIs) for their own house, too. Many landlords have allowed rents to be stagnant because psychological factors prevent them from cutting rent.

When the supply of apartments is higher than necessary, a decline in apartment prices and rent is inevitable. When there are more apartments chasing less people, prices and rents fall and on the other hand, when there are more people chasing less apartments, prices and rent rise.

This is good, because low rent sends out the signal that there are more apartments than needed. This will urge people to invest less in real estate markets, till there is again a rise in demand. But, this is part of the healthy market process only when the decline in demand is not imposed from above. When demand falls because the infrastructure is not good enough, this hurts the economies of cities. This is especially true of Noida and Gurgaon, which are growing faster than people had expected not very long ago.

There are other reasons why people move to newer apartments that charge low rent. The new apartments offer better amenities and so, tenants do not have much of an incentive to live in older apartments, and pay higher rent. Falling rent does not mean that real estate markets are in a crisis. Developers and investors will adjust their behaviour according to falling rent by investing less in real estate markets, allowing the markets to stabilise in the long run.