With the pandemic raging nationwide, several owners of apartments have had to deal with situations where their tenants left for their hometowns or cities. Their investment homes have been lying empty although the owners still have to account for costs of EMIs on home loans, maintenance and property taxes. Reports indicate that 11-25% of residential homes are lying vacant in key cities. On average, rental yields are just 2-2.5% while maintenance costs and property taxes further reduce this down to 1.5-2%. Along with lower returns, many homeowners do not rent out properties based on fears that tenants may refuse to vacate the same.
When it comes to investing in rental homes, there are mixed perceptions held by industry experts. Some feel that waiting for 2-3 years may be wise. They opine that investments in residential housing are primarily geared towards achieving appreciation in capital values. However, prices have been reducing over the last 5 years and may not appreciate over the next two years or so. Some experts call this a good time to deploy investments. Prices have remained at stagnant levels for quite some time while having bottomed out as well. Buying for the long haul makes sense in this scenario.
Capital appreciation of approximately 7-8% and rental yields of 2-3% per annum may be expected over a decade according to experts, pushing overall returns up to 10-11%. Developers are more willing to negotiate on house prices and are offering attractive payment plans currently. There are some other aspects favoring rental housing at the moment. Rents will be revised periodically and hence you will earn returns adjusted for inflation. You can also put 30% of your capital and obtain a loan of about 70%, hence enjoying leverage benefits. Escalation in prices will take place on the entire 100%. Location should be key criteria if you are looking to invest. Purchase in a zone where there are IT parks, offices and commercial centers nearby along with the metro and good facilities of public transportation. With regard to the sizes of apartments, focus more on what is known as rental value fit. Each locality will draw specific sets of renters who are prepared to pay specific levels of rent. Find out this level for your area and then purchase property of a suitable size according to Chief Business Officer, Rental Business, Square Yards, Altaf Ahmad.
Home owners should also be prepared to compromise a little over the next few months on rent. Rather than sticking to what they were getting last, they should ideally compromise with a few thousand rupees and get the income flowing once again. Owners are anyway liable to pay taxes even for vacant properties. Altaf Ahmad also cautions owners against demanding a security deposit that is too hefty or excessively large. Ahmad advises owners to focus more on rates at which the last 5 transactions have been executed nearby. Aggregators like PropsAMC have such information available online.
Combat your fears of the property being taken over by tenants and instead get good legal help for drafting a solid agreement. Choose the leave and license agreement instead of only a lease agreement. Leave and license will only grant temporary property usage rights while lease agreements transfer some interest in a property. Some things to note include the fact that actual rent should be equal to or higher than reasonable rental determined by your municipality. These tips will help home owners greatly.
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Published Date: July 03, 2021
