The real estate in India is growing at a rapid pace and property value is enjoying appreciation in most of the cities. During the last one decade from 2000-2001 to 2010-11, property prices have witnessed an average annual rise of 14%. Keeping pace with the price rise, rental segment has witnessed increased interest on the part of investors to a significant extent.
If you have a property in any of the metros or tier II cities in India, there is a good chance that you can earn a decent amount as rent depending on the location and size of the property. A lot of potential home buyers who cannot afford to buy a home in the ever escalating property market, choose the option of houses for rent. In the present scenario, a sizable number of home buyers are renting out their homes to earn a good income.
Changed scenario
The rental market in India has grown in the past few years as there has been increased awareness regarding laws to protect the interest of owners. The homeowners were previously apprehensive to rent out flats due to few factors – apprehension of mishandling of property by the tenant, subletting of the property without the knowledge of owner, tenant refusing to leave the flat when asked by the owner, etc.
However, as India entered the era of realty boom, the opportunity to earn through rent has been cashed upon by investors. Laws have come into force to protect the rights of owners as well as tenants. Verifications were made mandatory for signing of rent agreement for home and both tenants and landlords became aware of the fact that a well prepared rental agreement serves interests of both parties. The demand for rental home was increasingly created from corporates, multinationals and student community.
Benefits of rent
If you are a landlord, you can avail two benefits from renting out the property:
(1) You can earn a healthy income through rentals.
(2) The tenant will take care of your property along with paying the rent.
(3) If you are an NRI, then it would not be possible to keep an eye on the property in India. In that case you can rent out to a reliable party like some MNC s who can maintain your property while you are away, added to fetching high rentals.
(4) You need to pay tax on the rent that you earn. However, 30% tax deduction on the rental income is availed as a standard deduction for repairs, maintenance etc. It means that you get a standard deduction of 30% for repairs, irrespective of the actual amount spent during the financial year.
Rental values in major cities
In Delhi, the rental values in plush areas like Alakananda and Dwarka have gone up by 8% to 17% on a quarter to quarter basis. A 2000 sq ft property in Bengali Market fetches a rent of around Rs 90,000 while in Greater Kailash it fetches a rent of Rs 50,000.
In Mumbai, rental values have gone up as high as 19% on a quarter to quarter basis in areas like Bhandup Eastand Chandivali. The average rent per sq ft ranges from Rs 106 to Rs 150 in plush localities like Colaba, Altamount Road, Church Gate and Cuffe Parade. A 1100 to 1250 sq ft property in Juhu and Worli fetches Rs 75,000 – Rs 80,000 as rent.
In Bangalore, the average rent per sq ft ranges from Rs 15 to Rs 20 in areas like Airport Road, Bannerghatta Road, BTM Layout and Banashankari. A 1200 sq ft property in Airport Road fetches rent of around Rs 32000 while a 1300 sq ft property in Koramangala fetches rental income of around Rs 12,000.
The average rent per sq ft in Chennai’s Alwarpet, Besant Nagar and Chembarambakkam ranges from Rs 30 to Rs 40. The quarter to quarter rent appreciation is around 8%-10% in areas like Alwarpet and Kilpauk in the South Indian city. A 1000 sq ft property in Mylapore fetches a rent of Rs 20000 while a 750 sq ft property in Kodambakkamfetches rent of around Rs 15,000.
If you have two properties, which one would you rent out?
If you have two flats, and have no priorities assigned to them, then it is important to decide correctly which flat to live in and which one to let out.
While deciding which one to let out between two flats, you should compare the monthly rent against the maintenance outflows. Factors like location, age, neighbourhood, common amenities, size, facilities,connectivity and proximity to amenities will come into play. Choose to live in the property where all these factors are better and let out the other.
How to calculate rent?
Rent is usually calculated at 2.5-3% of the capital value of the property. For example, if a property (let us say a 2 BHK apartment) values around Rs 3 crore, then 3% of the market value would be Rs 9,00,000 which would be the annual rent, which means that monthly rent payable would be around Rs 75,000 on the property.
Rent depends on availability of other facilities as well. Good proximity, garden, parking space, compound, lift, security, painted walls and interiors, decent furniture and fixtures, good ventilation and sanitation, etc will push the rent up.
Documents needed while entering a rental transaction
Three documents are pivotal to rental transaction – rental agreement, lease deed and leave and license agreement. Of the three, any one is executed when a property is rented out.
When a flat is given on a period of 11 months or less, then the transaction is governed under lease deed and license agreement.
If the tenure is more than 11 months then registration is compulsory. While registering, the cost of registration, stamp duty and other legal expenses are equally divided between the licensor and licensee.
Registration of the tenant details with the local police is also mandatory. Further, if the owner stays in a cooperative society, then he should seek permission from the society before entering a rental agreement.
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RAJESH CHOUDHARY
CAclubindia
