Protecting property: Before you decide to let

Dec 01 2012, 10:27 IST
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There are instances of litigations especially due to the lack of safeguards on the part of the owners while renting out properties. There are instances of litigations especially due to the lack of safeguards on the part of the owners while renting out properties.
SummaryRental segment of residential realty space is picking up with growing demand.

removing the worry on account of maintenance. For example, NRIs usually rent out their flats to MNCs, for are not able to visit, check and follow-up on their property frequently. Hence they need a legally sound agreement and a tenant who can maintain the property well. MNCs fit the bill.

The legal agreements are drawn in professional manner and the companies take care of these flats very well as people who stay there are of very high ranks such as CEOs, directors etc. “I have a 3 BHK flat at Marine Drive in southern Mumbai. I have given it to a foreign bank at Rs 2 lakh per month. The agreement is executed by the solicitors of both the parties. I cannot take risk of any kind since I stay in USA and my flat here costs about Rs 20 crore,” says Reena Asher who is busy renewing the agreement and renegotiating the rent.

If a flat owner does not have any pressing priorities, he must compare the monthly rent against the maintenance outflows. When deciding to choose the flat in which he would live and the flat to be let out, the owner should compare factors such as location, age, neighbourhood, common amenities, size, facilities, outgoings or expense towards maintenance etc of the flat, proximity to amenities and connectivity.

If these are better, it is wise to stay in that locality and let out the other property. Initially, the yields versus outflows may have a gap, but can eventually be squared as rents would increase with time.

Rent calculation

The rent is usually based on the capital value of the premises. It is usually 2.5-3 per cent of the market value. For example, if a 2 BHK flat of 700 sq ft commands a market valuation of R30,000 per sq ft, then the capital value is about R2.10 crore.

The 3 per cent of this value is R6.3 lakh per annum translating into a monthly rent of R52,500. The flat owner should set a target of R50,000 to R60,000 depending on other value factors.

If a building is in a prime location with good proximity, garden or parking , compound, lift, security etc and the flat is well painted, with decent furniture and fixtures, good ventilation and sanitation etc the same flat may fetch up to R80,000 per month.

The customer is ready to pay more

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