Gone are the days when renting property in India would mean many sleepless nights worrying about whether the tenant would vacate the premises on time. Thanks to recent changes in the rent act, leasing property is not only a hassle-free affair but the sharp rise in tariffs in the past few years has made it a good option for supplementary income over and above the appreciation in value.
“While the earlier rent control act was loaded heavily in favour of tenants, the current leave-and-licence system protects the interests of the landlord and gives quick remedies in case of a dispute,” says advocate Vinod Sampat, who specialises in real estate.
Tax returns
He adds that renting out a space is particularly relevant for non-resident Indians (NRIs) who are bound to hold a property for three years to avoid capital gains tax. “Section 54 of the Income tax Act stipulates that if a NRI sells a residential property after three years from the date of purchase and reinvests the proceeds into another residential property within two years from the date of sale, the profit generated is exempt to the extent of the cost of new property,” he says. He adds that it is a good idea to generate income by way of rent during this time instead of keeping the premises vacant.
The rentable quotient of an apartment depends on various factors, key among them being the presence of new economy businesses in the city and proximity to office districts. Bengaluru-based realty consultant Arvind Karkera says, “Be it metros such as Mumbai, the National Capital Region and Bengaluru, or tier 2 cities such as Pune, Ahmedabad and Hyderabad, the boom in the IT/ITES sectors has sharply increased the rents of apartments located near office districts.”
Rent potential
He adds that investing in a home with good rentable potential can take care of half the equated monthly instalment (EMI). Citing the example of Marathahalli in Bengaluru, Karkera says that at a cost of Rs4,000 (about Dh239) per square foot, a 600-square-foot one-bedroom apartment costs about Rs2.4 million. “Thanks to the IT corridor nearby, these homes fetch rents of Rs12,000 per month, which is nearly 60 per cent of the EMI on a loan of Rs2 million,” says Karkera, adding that the key is to identify a home in an area with good potential for renting. “The EMI remains the same, but the rent keeps increasing and so does the value of the apartment,” he adds.
Best of both worlds
Some developers are offering rent-linked fractional ownership packages to woo buyers. Unlike the vagaries associated with time share, fractional ownership not only gives tangible documentation and a share certificate, but there’s an elaborate system in place to deal with emerging situations such as maintenance, disputes, financial implications, etc. For instance, Mumbai-based Sterling Construction System (SCS) offers luxury chalets at its Warai Woods project in Neral on a fractional ownership basis.
“We have 130 chalets at Warai Woods and we have reserved some of the inventory to be marketed by way of fractional ownership,” says a spokesperson of SCS, adding that the chalet is divided into six fractions and each owner gets the chalet for eight weeks in a year. For the fraction of the price, one will not only get a weekend home, but also the benefits of appreciation and lucrative returns by way of rent back. “The owner’s share will be exclusive and one will have the flexibility to use his ownership in any manner, subject to the estate’s code of conduct,” says the spokesperson.