Buying & Investment
What is Rental Yield?
The number that tells you whether a flat pays for itself. In Indian cities, it mostly doesn't — and a property site ought to say so.
The short answer
Rental yield is your annual rent as a percentage of what the property is worth.
In Indian metros, gross yields typically run about 2% to 3.5%. Net of maintenance, tax and vacancy, often under 2%.
That is less than a fixed deposit. Which means Indian residential property is not a yield investment. It is an appreciation bet — and you should know which one you are making.
How to calculate it
Gross yield
Gross yield = (Annual rent ÷ Property value) × 100
- Property value
- ₹1,00,00,000
- Monthly rent
- ₹25,000
- Annual rent
- ₹3,00,000
- Gross yield
- 3.0%
The real numbers — and they are not flattering
| Segment | Typical gross yield |
|---|---|
| Premium metro residential (Mumbai, Bengaluru, Delhi NCR) | 2% – 3% |
| Mid-segment metro residential | 2.5% – 3.5% |
| Tier 2 city residential | 3% – 4.5% |
| Commercial / office | 6% – 9% |
| For comparison — a bank fixed deposit | Comfortably higher than residential yield |
These are indicative and vary by micro-market, but the SHAPE is consistent and well-documented: Indian residential rental yields are among the lowest in the world. Commercial property yields two to three times more. That is not an accident, and it is not something a property site usually volunteers.
What that actually means
A ₹1 crore flat yielding 3% gross gives you ₹3 lakh a year — before maintenance, before property tax, before income tax on the rent, before vacancy, before repairs.
Net, you may see under ₹2 lakh. On ₹1 crore. That is under 2%.
Meanwhile the same ₹1 crore in a fixed deposit — an entirely risk-free, entirely liquid instrument requiring no maintenance, no tenants and no repairs — would return more.
So the rent is not the reason to buy. The reason to buy is that you expect the flat to be worth substantially more later. That is an appreciation bet, and it is fine to make it — but you should know that you are making it.
We are a property portal. We make money when people buy flats. So you are entitled to ask why we would tell you that Indian rental yields are poor, or that renting may be the better decision.
The answer is straightforward: a buyer who understands the numbers and buys anyway is a good customer. A buyer who was sold a fantasy is a complaint waiting to happen.
We would rather have the first kind. So the numbers below are the real ones, including the ones that do not flatter us.
Gross vs net — and the gap is larger than people expect
What a 3% gross yield actually pays you
₹1 crore flat. ₹25,000/month rent.
- Annual rent
- ₹3,00,000
- Less: maintenance charges (₹4,500/mo)
- − ₹54,000
- Less: property tax
- − ₹10,000
- Less: repairs & upkeep (allow 5%)
- − ₹15,000
- Less: vacancy (allow 1 month a year)
- − ₹25,000
- Less: brokerage on re-letting
- − ₹12,500
- Subtotal
- ₹1,83,500
- Less: income tax on rent (30% slab, after 30% standard deduction)
- − ₹38,500
- Net in your pocket
- ≈ ₹1,45,000 — 1.45%
The headline said 3%. You received 1.45%.
And if you have a home loan, the EMI on ₹1 crore is far more than ₹25,000 a month — so the rent does not cover the loan, and you are funding the shortfall out of your salary, every month, for twenty years.
Where yields are actually better
- Commercial property — 6–9%. Two to three times residential. Higher entry cost, longer vacancies, harder to exit, and a very different skill.
- Tier 2 and Tier 3 cities — better yields, but thinner appreciation and much lower liquidity.
- Smaller units — a 1 BHK usually yields better than a 3 BHK. Rent does not scale linearly with size; a flat twice as big does not fetch twice the rent.
- Near employment — proximity to an IT park or a business district supports rent far better than a good address does.
- Ready to move — a flat under construction yields zero for three years while you pay pre-EMI. That is a real and rarely-counted cost.
Buying a home to live in is not an investment decision. It is a life decision, and the numbers are secondary. Security, stability, a place your children grow up in — these are worth real money and no spreadsheet captures them.
Buying a flat as an investment IS a numbers decision. And on the numbers, Indian residential yields are poor, the costs are high, the asset is illiquid, and the whole case rests on appreciation.
Both can be good decisions. They are just not the same decision, and the mistake is making the second while telling yourself you are making the first.
Frequently asked questions
What is a good rental yield in India?
Honestly, Indian residential yields are low by any standard — typically 2% to 3.5% gross in metros, and often under 2% net of maintenance, tax and vacancy. That is less than a fixed deposit. Commercial property yields two to three times more. A 'good' residential yield in an Indian metro is 3.5-4%, and it is rare.
How do I calculate rental yield?
Gross yield is annual rent divided by property value, times 100. A Rs 1 crore flat renting for Rs 25,000 a month yields 3% gross. But net yield — after maintenance, property tax, repairs, vacancy, brokerage and income tax on the rent — is often half that.
Is residential property a good investment in India?
Not as a yield investment — the rent alone will not beat a fixed deposit, and if you have a loan, the rent will not cover the EMI. It is an APPRECIATION bet: you are buying because you expect the flat to be worth substantially more later. That can be a perfectly good decision. But you should know which decision you are making.
Why are rental yields so low in India?
Because property prices have risen faster than rents, over a long period. Prices are supported by expectations of future appreciation, by the difficulty of building in Indian cities, and by property's role as a store of wealth. Rents are constrained by what people can actually pay from income. The gap between the two is the low yield.
Does rental income get taxed?
Yes. Rental income is taxed under 'income from house property'. You get a 30% standard deduction, and you may deduct the municipal taxes you actually paid and the interest on a home loan. What remains is taxed at your slab rate — which for a higher earner takes a further significant bite out of an already thin yield.