Rental yield in Indian metros, and why it is lower than you think
Gross yields of 2% to 3% become net yields under 2% once vacancy, maintenance and tax are counted. What that means for anyone buying property for passive income.
"Passive income from property" is the most common reason people give for buying a second flat, and it is the reason the numbers most often fail to support.
The arithmetic is simple enough to do in a minute, and almost nobody does it before the booking amount is paid.
Gross yield, and how to compute it
Annual rent divided by the property's market value.
A ₹1 crore flat renting at ₹25,000 a month earns ₹3 lakh a year. Gross yield: 3%.
Typical gross yields across Indian residential markets sit between 2% and 3.5%. A handful of dense employment corridors — parts of Bengaluru's tech belt, Gurugram's office districts, Powai and Hiranandani in Mumbai — reach 4% or a little above. Premium and luxury segments are frequently below 2%, because prices there have risen faster than rents for a decade.
Compare that against a fixed deposit at 7%, PPF at 7.1%, or VPF at 8.25%. On the income alone, residential property is not competitive with instruments carrying far less risk and no management burden.
Net yield is the real number
Gross yield ignores everything it costs to be a landlord.
Take that ₹1 crore flat at ₹3 lakh gross:
| Annual | |
|---|---|
| Gross rent | ₹3,00,000 |
| Society maintenance (often landlord-borne) | −₹48,000 |
| Property tax | −₹15,000 |
| Repairs, painting, replacements | −₹25,000 |
| One month vacancy a year | −₹25,000 |
| Brokerage, amortised over a two-year tenancy | −₹12,500 |
| Net | ₹1,74,500 |
Net yield: 1.75%.
And that is before income tax. Rental income is taxed at slab rates after a standard 30% deduction and after deducting municipal taxes paid and home loan interest. For a landlord without a loan in the 30% bracket, the post-tax yield lands somewhere near 1.3%.
A savings account pays more, with no tenant and no maintenance.
What this means
If the income does not cover the cost of holding the asset, the entire investment case rests on capital appreciation. That is not a criticism of property; it is a description of what the asset is. It just needs to be stated, because most buyers believe they are buying an income asset with appreciation on top, and they are buying an appreciation asset with a small income attached.
Which changes the questions. Not "what rent will I get" but "what is the realistic appreciation in this specific micro-market over my holding period, and how does it compare to what the same money does elsewhere".
The leverage complication
Most second properties are bought with a loan, and that changes the picture in both directions.
On a ₹1 crore flat with ₹20 lakh down and an ₹80 lakh loan at 8.5% over twenty years, the EMI is about ₹69,400 a month, or ₹8.3 lakh a year. Net rent is ₹1.74 lakh. The gap of roughly ₹6.6 lakh a year comes from your salary.
That is negative carry: you are paying ₹55,000 a month, every month, to hold the asset. It only works if appreciation exceeds the total cost of the position — 8.5% on the borrowed portion plus the opportunity cost on the equity portion.
There is a real benefit on the other side. Home loan interest on a let property is deductible without the ₹2 lakh cap that applies to a self-occupied one, though the resulting loss from house property can only be set off against other income up to ₹2 lakh a year, with the balance carried forward for eight years.
Where the yields actually are
Commercial. 6% to 9% gross, three-to-nine-year leases with built-in escalations, and tenants who maintain the premises because they trade from them. Higher entry ticket, longer vacancy when it happens, and more dependent on the specific tenant's business.
REITs. Commercial property exposure at 5% to 7% distribution yield, in units you can buy for a few thousand rupees and sell the same day. Professionally managed, and diversified across dozens of assets. For most people wanting property income rather than a property, this is straightforwardly the better instrument.
Co-living and serviced apartments. 5% to 7% gross, considerably more operational work, and much more sensitive to occupancy.
Warehousing and industrial. 7% to 9%, with long leases. Largely institutional territory, but reachable through some REITs and fractional platforms.
Two things worth checking before you buy
The actual rents, not the asking rents. Listing portals show what landlords hope for. Speak to residents, or to the society office, about what units in the building are actually let for and how long they sat empty first.
The rent-to-price ratio for the specific building. Divide the realistic annual rent by the all-in price including stamp duty and registration. Under 2.5%, the case rests entirely on appreciation. Under 2%, it rests entirely on appreciation being unusually strong.
None of this makes property a bad decision. It makes it a decision about capital appreciation, which is a much harder thing to forecast than a rent cheque — and which deserves to be examined as carefully as the rent everyone examines instead.
Open the property valuation calculator
Published by FinClamp. This guide is information, not financial advice — see the disclaimer.