High Deposits, Rising Rents and Expensive Home Loans Are Reshaping Urban Housing, While Smaller Apartments Continue to Offer Better Rental Returns

India's rental housing market is undergoing a significant transformation as soaring rents, hefty security deposits and rising home loan costs continue to reshape the financial decisions of millions of urban households. A new study by proptech platform NoBroker estimates that nearly ₹1.26 lakh crore (₹1.26 trillion) is currently locked as refundable security deposits with landlords across India's six largest metropolitan regions, highlighting the growing financial burden on tenants.

The report paints a picture of an evolving urban housing ecosystem where renting is no longer merely a temporary arrangement before homeownership. Instead, affordability challenges are forcing a growing number of individuals and families to remain tenants for extended periods, fundamentally changing the dynamics of India's residential real estate market.

Security Deposits Tie Up Massive Household Savings

Security deposits have traditionally served as a safeguard for landlords against property damage and unpaid rent. However, with rental deposits often ranging from two to ten months' rent depending on the city and locality, they have become one of the largest upfront financial commitments for tenants.

According to the study, tenants across Mumbai Metropolitan Region (MMR), Bengaluru, Delhi-NCR, Chennai, Hyderabad and Pune have collectively parked nearly ₹1.26 lakh crore with property owners as security deposits.

This money remains inaccessible for the duration of the tenancy, limiting households' ability to invest, build emergency funds or meet other financial obligations.

Mumbai and Bengaluru Account for the Largest Share

Among the cities surveyed, Mumbai and Bengaluru account for the highest value of security deposits.

Security Deposits Across Major Cities

The concentration of deposits in these cities reflects both their high rental values and strong demand from professionals migrating for employment opportunities.

For many tenants, these deposits represent years of accumulated savings that remain locked throughout the lease period.

High Deposits Are Restricting Tenant Mobility

One of the report's key findings is that large security deposits are becoming a major obstacle to mobility, particularly in cities with high rental demand.

In Bengaluru, nearly 75% of tenants reported that they had, at some point, decided against renting a preferred property because they could not arrange the required security deposit.

This financial barrier not only affects housing choices but also influences employment decisions, as professionals may postpone relocations despite receiving attractive job offers.

The study suggests that reducing security deposit requirements could significantly improve labour mobility and housing accessibility in India's major employment hubs.

Housing Costs Continue to Stretch Household Budgets

Rent remains the largest monthly expense for a substantial proportion of urban households.

The report estimates that almost half of all tenants spend more than 30% of their monthly income on rent, crossing the affordability threshold commonly used by financial planners.

The burden is especially severe in Mumbai.

Approximately 25% of tenants allocate more than half of their monthly income to rent, while another 15% spend between 41% and 50% of their earnings on housing.

Such high housing costs leave limited room for savings, investments and discretionary spending, increasing financial vulnerability during periods of economic uncertainty.

Buying a Home Is Becoming Increasingly Difficult

While rising rents present challenges, purchasing a home has become even more expensive.

Higher property prices, elevated interest rates and larger down-payment requirements have widened the gap between renting and owning.

The report highlights that the EMI required to purchase an equivalent property now substantially exceeds monthly rent across all major cities.

Rising EMI-to-Rent Ratios

The growing disparity means many aspiring homeowners are delaying property purchases despite rising incomes, choosing to remain in rented accommodation until affordability improves.

The Emergence of India's 'Forced Tenant' Economy

One of the report's most notable observations is the rise of what researchers describe as the "forced tenant."

Traditionally, renting served as a temporary phase before purchasing a home. However, with homeownership becoming increasingly expensive, many families are remaining tenants not by choice but because buying a home no longer makes financial sense.

For these households, monthly home loan EMIs would be significantly higher than rent, making ownership financially impractical despite aspirations to own property.

This trend could permanently increase demand for professionally managed rental housing across India's urban centres.

Deposit Recovery Experiences Differ Across Cities

Although security deposits are refundable, recovering them remains a concern for many tenants.

The study found that in Delhi-NCR:

• 58% of tenants received their security deposits in full after vacating the property.

• Nearly 30% experienced partial deductions.

• Around 12% faced major disputes over refunds.

Common issues include disagreements over maintenance charges, property repairs, repainting expenses and normal wear and tear.

The findings underscore the need for greater transparency in rental agreements and more standardised dispute resolution mechanisms.

Gen Z Is Transforming the Rental Market

Changing tenant demographics are also influencing India's housing market.

The report reveals that Generation Z tenants relocate much more frequently than older age groups, creating shorter rental cycles.

Among tenants aged 18–24 years, nearly 30% move every six to twelve months, compared with only about 10% of tenants aged 35 years and above.

Older tenants typically prioritise stability, with the majority of those above 55 remaining in the same property for more than three years.

This shift is encouraging landlords and property platforms to offer more flexible leasing options and digital tenancy solutions.

Small Apartments Deliver Better Investment Returns

For property investors, the report offers valuable insights into rental yields.

Across all surveyed cities, studio apartments and 1BHK homes generated higher rental yields than larger residential units.

Among the leading markets:

• Bengaluru recorded rental yields of approximately 4.8%.

• Hyderabad followed with yields of around 4.6%.

Rental returns declined steadily for larger apartments, with most 4BHK properties yielding below 3%, indicating that compact homes remain more efficient income-generating assets.

This trend reflects sustained demand from young professionals, students and nuclear families seeking affordable urban accommodation.

What This Means for Homebuyers and Investors

The findings highlight two contrasting realities in India's housing market. While homeownership remains a long-term aspiration for many families, rising acquisition costs are extending the rental phase for a growing section of the population.

For investors, the sustained demand for rental housing—particularly smaller apartments in employment-driven cities—continues to present attractive opportunities for generating steady rental income. Meanwhile, developers may increasingly focus on compact housing formats and professionally managed rental communities to cater to changing urban demographics.

Outlook: Rental Housing Set to Play a Larger Role

India's rental housing market is gradually evolving from an unorganised segment into a critical pillar of the country's urban real estate ecosystem. With high security deposits, rising rental expenses and expensive home loans influencing household decisions, the demand for quality rental housing is expected to remain strong.

As urbanisation accelerates and workforce mobility increases, policymakers, developers and technology-driven real estate platforms will need to address affordability challenges, improve transparency in rental agreements and promote tenant-friendly practices. These structural changes could create a more balanced and efficient rental market while offering new opportunities for investors and housing providers in the years ahead.