Cannot Afford to Buy then Rent a Property??

The past 2 years have been significant years for an average property buyer and he or she will surely remember them for long as these years have given him the maximum returns in terms of Capital Appreciation and Rental Returns now. The City which they say, “it never sleeps” this year itself will have close to 600 new buildings and complexes ready for possession all across Mumbai, Thane and Navi Mumbai. These are complexes and individual building blocks loaded with swank amenities, gardens, swimming pools, gyms, play areas and owned by HNI’s, NRI’s and Investors.

A lot of these projects are located in prime locations across the city and these will also cater to the growing demand in this booming economy by Corporates, Multinationals, Executives, or Corporate Employees looking to lease property for themselves and Expatriates relocating to Mumbai. The property laws have become quiet simple and secure for home owners leasing their apartments and hence there is a confidence to lease out their properties is pretty much in place.

Real Estate overall is becoming unaffordable for a common man in Mumbai and a lot of property buyers who cannot find their dream home even in the stretched budgets are still confused where and what to buy or stay put in there present properties. With a lot of these new projects getting ready the depressed buyers will have some respite or an option to get into their dream home temporarily on what in Mumbai is popularly known as “Leave and License” basis or in simple words “stay in a rented apartment”.

A lot of people may still believe that leasing is like money down the drain, it is correct to an extent, but the main aspect here is that if you have long term plans to be in Mumbai or you are particular about your requirement and choice then you can go in for an outright purchase if you can afford, but if you are here for a short term say 1 to 3 years and do not want to get into a big commitment then it is better to lease out and plan your next move once you are settled comfortably in the leased accommodation.

If you are doing a rent vs buy calculation, then, the financial pendulum tilts more towards leasing for sure today, as if you look at the returns your property fetches in average and upcoming location is around 4 to 6% and in prime locations with high end apartments it can go upwards of 7% depending on a lot of factors. One has to be content with this as the appreciation in the real estate compensates you more than any thing. If you look at the prespective of an individual who is doing a Rent vs Buy calculation then he is paying Interest Rate @9.5 to 10% per annum for a new home loan as well in any case so he finds easier to rent a property then buy one.

The trend now shows that more and more people like to have better quality and lifestyle living and they are willing to travel if need be and hence more and more suburban areas with basic infrastructure and new developments are getting popular.

As a licensee (tenant) you are not liable to pay out any society outgoings. The Society Outgoings in most of the buildings today is varying between Rs.2/- to Rs.4/- per sq.ft, and in select buildings which have modern amenities like club house and swimming pools etc it could be more or less depending on how the society is managed. This is the most important saving the Licensee (tenant) does apart from the fact that he gets a home which in a lot many cases can be semi furnished or furnished.

Most of the apartments which are given on leave and license for a term of 1 to 3 years can be terminated earlier by giving 1 or 2 months notice and if you find your dream home you can Terminate the lease (leave and license agreement) of the rented apartment.

If you are a salaried employee and you have taken the apartment on a personal lease then you are also entitled for a complete tax deduction. If you are taking the apartment on company lease then you are in for a "Fringe Benefit Tax" of nearly 20%. A lot of executives from Senior Banks and Corporates are given the option to go in for a personal lease as it becomes tax efficient for both parties. The property owners are now getting a little comfortable with this by taking in a deposit and monthly rent by way of Post Dated Cheques to cover their backs. Payment made by individuals licensee’s to property owners (licensors) is not subject to Tax Deduction at Source and this saves an upfront deduction of nearly 16.83%.

A lot of property owners are confused that the leave and licence agreements can be only done for 11 months, the rules have changed now and you can enter into an agreement from 12 months to 60 months by paying the appropriate stamp duty and registering your agreements.

So, if you are dreaming still about the future and the dream home, then enjoy one if you can afford one.

A few complexes which have ready lease availability offered by Individual property owners and investors are: