Rental yield in Mumbai: what the number means and why gross flatters it

The two numbers, and why only one of them is honest

Gross yield is the easy one. Take the monthly rent, multiply by twelve, divide by the price, multiply by a hundred. A flat bought at two crore letting at fifty thousand a month is producing six lakh a year, which is a gross yield of three percent.

That calculation contains three assumptions, and all three are wrong.

It assumes the flat is never empty. It assumes owning it costs nothing. And it assumes the price was the only money you put in. Correct all three and the number moves, usually by more than people expect.

Net yield is the same sum with the assumptions removed. Take the rent you will actually collect, allowing for the weeks between tenants. Subtract what a year of owning the flat costs. Divide that by everything you put in, not just the price.

We publish no figure for what yields run at in Borivali, Kandivali or Malad. A suburb wide average would be a number without a building attached to it, and the range between two buildings on the same road is wide enough to make the average useless. Work out the figure for the specific flat.

What comes off the rent

Society maintenance. Charged monthly, and on an older building with lifts and a watchman it is not a rounding error. It is also the cost most often left out, because it feels like a household bill rather than an investment cost. It is an investment cost. The tenant is rarely paying it.

Property tax. The BMC charges on capital value, and a residential flat of up to 500 square feet carpet has paid nothing since January 2022. Above that, it is an annual cost against the rent.

Repairs and replacement. Paint between tenants, a geyser, a leaking tap, the fit out that stops the flat looking tired next to the one upstairs. Budget it as an annual figure rather than pretending it happens only occasionally.

Vacancy. A flat between tenants earns nothing while still costing maintenance and tax. Four weeks a year is a percentage point of your rent gone, and in a building that lets slowly it is more.

Income tax. Rent is taxable as income from house property. Section 24(a) of the Income Tax Act allows a standard deduction of thirty percent of the net annual value, which covers repairs whether or not you spent it, and interest on a home loan is separately deductible under section 24(b). The calculator on this site works in pre tax figures, because the rate depends on your own income.

What goes into the capital

This is the half people forget, and it moves the answer more than the running costs do.

Stamp duty and registration. In Mumbai stamp duty is six percent of the chargeable value for a male buyer and five percent for a woman in sole name, both including the metro cess, plus registration at one percent capped at thirty thousand rupees. That is several percent of the price, paid in cash on top of it, and it is committed to this investment and earning nowhere else.

Brokerage. Real money, paid once.

Fit out. A flat that will not let as it stands has to be made lettable. Whatever that costs is capital.

Add those to the price and you have the figure the return should be measured against. Measuring against the price alone is the single most common way a yield gets overstated.

Is rental yield calculated on carpet or built up area?

Neither. Yield is calculated on money, not on area. The confusion comes from the fact that both rent and price are usually quoted per square foot, and the two are often quoted on different area bases, so a yield built out of per square foot figures can be comparing a rent on carpet against a price on super built up.

Work in absolute rupees. The monthly rent as a number, the price as a number. Area matters for comparing two flats against each other, not for this.

Yield is only half of the return

A property returns two things: the rent while you hold it, and whatever the resale market gives you when you sell. Yield measures the first and says nothing about the second.

That matters because the two do not move together. A flat in an older building may let well and sell slowly. A newer one may command a lower yield and be far easier to exit. A high yield with no resale liquidity is a trap, and a modest yield in a building people queue for may be the better asset.

So do not select on yield alone. Use it to check that the income side of the investment is sound, then judge the building and the pocket separately.

Work out yours

The rental yield calculator on this site shows gross and net side by side and puts the gap between them on screen, because that gap is the whole point. It also runs the question backwards: tell it the return you need and it says what monthly rent would have to be true to get there. That is the version worth taking to a viewing.

The rental yield calculator shows gross and net side by side, and runs the question backwards: tell it the return you want and it tells you the rent that delivers it. If you are weighing a specific flat in Borivali, Kandivali or Malad, our property investment advisory will look at the building as well as the arithmetic, with no obligation.