Rental yield in Indian cities: what is a good return
Residential yields of 2–4% look poor beside a 7% FD, yet people still buy to let. Gross vs net yield, typical yields by city and segment, forgotten costs, and how to judge total return.
4 min read · Published 2026-10-31 · Last reviewed 2026-10-31
Ask any landlord in Mumbai or Bengaluru what their flat earns and the answer, once you divide rent by price, is usually under 3%. A fixed deposit pays more than twice that with no tenants, no repairs and no vacancy. So why does buy-to-let survive? Because rental yield is only one half of the return. This guide explains how to measure yield properly, what is typical across cities and segments, and how to put it together with appreciation to decide whether a property is worth owning.
Gross versus net yield
Gross rental yield is annual rent divided by property value. It is the number brokers quote and the one most listings imply.
Net rental yield subtracts everything it costs to own and let the property: society maintenance, property tax, insurance, repairs, brokerage on re-letting, and the rent lost to vacancy between tenants. It is the number that matters.
Example: a ₹1 crore flat renting at ₹30,000 a month. Gross yield is ₹3.6 lakh ÷ ₹1 crore = 3.6%. Assume one vacant month a year, ₹36,000 maintenance and ₹10,000 property tax. Rent collected is ₹3.3 lakh, expenses ₹46,000, net income ₹2.84 lakh, net yield 2.84%. Add a repainting every three years and a month's brokerage on each new tenant, and a realistic net yield is 2.5%.
Typical yields
Residential yields in India cluster in a narrow band; commercial yields are higher because tenants bear more costs and leases are longer.
| Segment | Typical gross yield |
|---|---|
| Premium flats, Mumbai, Delhi NCR | 2–3% |
| Mid-market flats, Bengaluru, Pune, Hyderabad, Chennai | 3–4% |
| Affordable flats, tier-2 cities | 3.5–5% |
| Independent houses in metros | 1.5–2.5% |
| Office space, grade A | 7–9% |
| Shops in established markets | 5–7% |
| Warehouses | 7–9% |
Within a city, yields are higher near IT parks and universities (steady demand, high churn) and lower in prestige neighbourhoods (prices run ahead of rents). New flats yield less than older ones because the price reflects newness that tenants do not pay much extra for.
The costs owners forget
- Vacancy: one month in twelve is normal; two in a soft market.
- Brokerage: one month's rent to the broker at every new tenant.
- Maintenance: ₹3–5 per sq ft per month in a mid-range society, more with amenities.
- Repairs and repainting: budget 0.5% of property value a year.
- Property tax: varies by city, typically ₹5,000–30,000 a year for a flat.
- Income tax: rent is taxable after a 30% standard deduction and municipal taxes; a 30% taxpayer keeps about 79% of net rent. Interest on a loan for a let-out property is fully deductible against rent, with the overall loss capped at ₹2 lakh a year against other income.
- Your own time: inspections, tenant calls, society meetings.
Total return is yield plus appreciation
Property return = net yield + annual price appreciation − transaction costs amortised over the holding period.
At 2.5% net yield and 6% appreciation, a flat returns about 8.5% a year before tax, comparable to a conservative equity-debt portfolio. At 2.5% yield and 2% appreciation it returns 4.5%, worse than a fixed deposit, with far more effort and far less liquidity. The entire case for buy-to-let rests on the appreciation assumption, so examine it. The NHB RESIDEX and RBI house price index show that many Indian cities appreciated at or below inflation for most of 2013–2020 before the 2021–2024 upturn.
Round-trip transaction costs (stamp duty, registration, brokerage twice, capital gains tax) are 10–15% of value. Over a five-year hold that alone costs 2–3% a year.
When buying to let makes sense
- You expect to hold for ten years or more, so transaction costs amortise.
- You are buying in a location with real demand drivers: jobs, transport, institutions.
- The net yield is at least 3%, or you have a credible reason to expect above-inflation appreciation.
- You are not using a loan at 8.5% to earn 2.5% in rent, unless the appreciation case is strong.
- You want the asset for other reasons too: future own use, family, diversification out of financial assets.
When renting beats buying
If the net yield on the flat you would buy is below the post-tax return on alternatives minus expected appreciation, renting and investing the difference wins. In Mumbai's premium segments, where yields are 2% and prices are stretched, that is often the case. In tier-2 cities with 4.5% yields and growing demand, buying frequently wins.
Measure a specific property with the rental yield calculator, estimate the all-in purchase price with the property purchase cost calculator, and check what past appreciation really was with the CAGR calculator.
Sources
This guide is general information, not financial, tax or legal advice. Rules change; the review date above tells you when it was last checked. See our editorial policy.