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By Rajkamal Rao
Go back to Housing
For the returnee, the question is not so much to invest in Indian real estate (to rent it out), but whether to buy or rent - to live life. If financial considerations alone matter, renting a home is the best choice for the returnee - at least for the short term. Plus, renting offers an easier transition - as factors such as location, neighborhood, shopping, amenities, transportation facilities, school or work commutes - can all be considered when you rent.
Renting in modern India is not at all like the horror stories you heard your grandfather tell you when you were growing up. Those were the days of rent control when the government stipulated to a landlord to rent homes in prime neighborhoods for a fraction of the market rate. And renters would have significant control over the property - in some cases, handing the property from one generation to the next. Promises were constantly broken between landlord and tenants - and the distrust so acute that one party usually hated the other.
Renting has changed for the better, and generally, the entire lifecycle of renting is professional, courteous and reliable. Lease contracts are modeled after those in the west. Click here for an example of a residential lease.
Realtors are professional and stay with both parties through lease signing. In many cases, returnee families may never see the landlord because he is in another city or country! The prime concern for many landlords is to generate some cash flow in the form of rent, although, as we have seen, rent ratios are so high in India that rents pay only a fraction of the landlord’s mortgage bills. But an even more important concern for the landlord is to have someone house-sit his property. Landlords therefore are often picky about who they choose to rent to, and it is not uncommon to see landlords preferring to keep their homes empty rather than rent to the wrong tenant.
Many steps in the renting process, though, have not adopted western practices and this can be frustrating to the returnee. Websites listing rental properties are woefully short on information and often unreliable. There’s no Multiple Location Service (MLS) feature - a US system where each property is assigned a unique number that is searchable across multiple websites - in Indian real estate. There is no unique showings clause which means that multiple realtors peddle the same property often with incorrect information. Images of properties on websites are intentionally misleading and may never represent the property to be rented. Phone numbers listed on web pages may never answer your eager call. Worse, there may not even be a phone number to call with the website urging you to fill out a web form so that someone can call you back at their convenience. And most transactions continue to rely on word-of-mouth interactions and now, the mobile phone.
The best way to start your search is still the old fashioned way - sit down with the real estate section of your weekend newspaper. [If you are still in the west, have someone in India do this for you. Or you may want to explore properties when you are already visiting India for business or pleasure]. You will see ads for rent by landlords directly but more often, you will see a few prominent realtors repeatedly advertising properties for rent. A typical ad will use Indian shorthand that you will quickly get used to. 3BHK means three bedroom, hall (another term for living room) and kitchen. “Servant quarters” indicates a small room for a live-in maid and generally comes attached with a toilet.
Semi furnished accommodations are those which have wall cabinets, lighting fixtures, fans and wardrobes - and qualify as unfurnished accommodations in the west. Some landlords offer furnished properties and are unable or unwilling to remove their furniture to accommodate your own furniture. Size is measured in square feet - although the effective living area could be about 20% smaller for flats. This is because common areas (such as balconies, walkways and access areas) are counted in the calculation - called “Super Built Up Area” - to clearly inflate the total living area.
Much like in the rest of the world, realtors work on commission - and stand to earn well because they collect fees, generally 1 month’s rent, from both landlord and tenant. The chance to earn a quick commission simply by connecting landlord to tenant, in a vibrant market where homes practically rent themselves, causes realtors to be well responsive even into late hours of the day. A call to a realtor will result in him (realtors are predominantly men) arranging for a showing of the property. The landlord does not generally participate in the showing. The realtor will act as a negotiator for both parties but for more advanced questions, it is best to have a conversation with the landlord, realtor present.
An important difference returnees will notice is that Indian housing is just not designed with storage in mind. Returnees used to buying more than they need knowing that they can toss overage into a garage, a shed in the backyard or a self-storage facility will have to quickly change their ways.
Every landlord will require a 10-month deposit as a precondition to lease signing. No interest is paid on this deposit. Such practices are illegal in western countries but are permitted in India. You will also pay the first month’s rent in advance - and the realtor’s commission as well - effectively setting aside a year’s rent simply to move in to the property!
Most villa and flat developments also extract a monthly maintenance fee to provide for security, and the upkeep of common areas, gardens and playgrounds. This fee is a fixed amount per square foot of your rental property (one huge Bangalore apartment complex charges INR 2.50 per sft for maintenance). All negotiations of rent explicitly use the word “plus maintenance” - as in “the rent is 38,000 INR plus maintenance” - as though the maintenance component is small. But at INR 2.50 per sft for a 2,400 sft apartment, maintenance charges can amount to INR 6,000 a month, not a trivial amount.
Some housing communities implement differential pricing for maintenance charges requiring tenants to pay 10% - 20% more than landlords. To a returnee family,. challenging such practices with common-sense questions such as, “ Do tenants use more electricity than owners?”; “Do tenants burden the security staff more than owners?”; “Do tenants utilize more water?” generally result in meaningless shrugs as a response. A broader argument about fairness - that these charges are similar to a sales tax where a merchant does not charge one patron a higher sales tax from the next - also is likely to be of no avail. The best justification you can probably get is that this practice is common in other local housing societies!
Service taxes also are likely to bite into your budget. In 1994 the then Finance Minister, Dr. Manmohan Singh, introduced a direct tax on all services as a means to collect much needed revenue for the government. This means that any business that provides a service (chartered accountants, lawyers, plumbers, your local gym) must collect a tax from their patrons. Over the years, this tax has remained a popular tool of the government although some exemptions have been granted. The current net effective service tax rate is about 12.5% and this is imposed on all businesses which generate over 10 lakh rupees in revenue. If the homeowners association of your villa community or apartment building collects more than 10 lakh rupees in maintenance charges, you will be assessed a service tax on any amounts that exceed INR 60,000 in maintenance fees. For some reason, residents of the state of Jammu and Kashmir are exempt from paying service taxes.
Lease terms rarely exceed 11 months and almost always include an option clause to extend the lease for another 11 months. What is different from western leases is that the escalation clause in rent for the second term (5 - 8% is common) has to be agreed to at lease-signing for the initial term. Maintenance charges are likely to go up as well, although this is not generally specified. Returnees used to more stable economies in the West are likely to be surprised (and sometimes, shocked) by such steep increases.
Landlords try to enforce the standard language in the lease but as tenant, you must review each word and make appropriate corrections. In some cases, the corrections are mundane (the landlord will have used a boilerplate lease between two other parties but will have forgotten to tailor the lease to your situation); in others, the corrections are vital to protecting yourself or to improving your quality of life. For example, if you are renting a flat, ask if you have designated parking spaces available and how you can be authorized to use them. If you are moving into a planned community which has lifestyle conveniences such as a gym or club, ask to see how membership can be transferred to you. These clauses must be part of the lease document. Landlords will protest wording changes but will generally agree to them if they are reasonable and important to you. No landlord wants to lose out on a potential good tenant.
Before you make payments and sign the lease, have the landlord walk you through the property. Test all fixtures, locks, doors, latches, lights, wall sockets (also called plug points), fans, toilets, geysers, cabinets and faucets. If something is not working, secure a commitment that it will be repaired before you move in. Make sure you get two sets of keys for all doors and cabinets, including for the mailbox.
Insist on making all payments traceable; use checks or NEFT. It may be best to pay your monthly rents also via NEFT - these are safe, secure and automatic.
Go back to Housing
For the returnee, the question is not so much to invest in Indian real estate (to rent it out), but whether to buy or rent - to live life. If financial considerations alone matter, renting a home is the best choice for the returnee - at least for the short term. Plus, renting offers an easier transition - as factors such as location, neighborhood, shopping, amenities, transportation facilities, school or work commutes - can all be considered when you rent.
Renting in modern India is not at all like the horror stories you heard your grandfather tell you when you were growing up. Those were the days of rent control when the government stipulated to a landlord to rent homes in prime neighborhoods for a fraction of the market rate. And renters would have significant control over the property - in some cases, handing the property from one generation to the next. Promises were constantly broken between landlord and tenants - and the distrust so acute that one party usually hated the other.
Renting has changed for the better, and generally, the entire lifecycle of renting is professional, courteous and reliable. Lease contracts are modeled after those in the west. Click here for an example of a residential lease.
Realtors are professional and stay with both parties through lease signing. In many cases, returnee families may never see the landlord because he is in another city or country! The prime concern for many landlords is to generate some cash flow in the form of rent, although, as we have seen, rent ratios are so high in India that rents pay only a fraction of the landlord’s mortgage bills. But an even more important concern for the landlord is to have someone house-sit his property. Landlords therefore are often picky about who they choose to rent to, and it is not uncommon to see landlords preferring to keep their homes empty rather than rent to the wrong tenant.
Many steps in the renting process, though, have not adopted western practices and this can be frustrating to the returnee. Websites listing rental properties are woefully short on information and often unreliable. There’s no Multiple Location Service (MLS) feature - a US system where each property is assigned a unique number that is searchable across multiple websites - in Indian real estate. There is no unique showings clause which means that multiple realtors peddle the same property often with incorrect information. Images of properties on websites are intentionally misleading and may never represent the property to be rented. Phone numbers listed on web pages may never answer your eager call. Worse, there may not even be a phone number to call with the website urging you to fill out a web form so that someone can call you back at their convenience. And most transactions continue to rely on word-of-mouth interactions and now, the mobile phone.
The best way to start your search is still the old fashioned way - sit down with the real estate section of your weekend newspaper. [If you are still in the west, have someone in India do this for you. Or you may want to explore properties when you are already visiting India for business or pleasure]. You will see ads for rent by landlords directly but more often, you will see a few prominent realtors repeatedly advertising properties for rent. A typical ad will use Indian shorthand that you will quickly get used to. 3BHK means three bedroom, hall (another term for living room) and kitchen. “Servant quarters” indicates a small room for a live-in maid and generally comes attached with a toilet.
Semi furnished accommodations are those which have wall cabinets, lighting fixtures, fans and wardrobes - and qualify as unfurnished accommodations in the west. Some landlords offer furnished properties and are unable or unwilling to remove their furniture to accommodate your own furniture. Size is measured in square feet - although the effective living area could be about 20% smaller for flats. This is because common areas (such as balconies, walkways and access areas) are counted in the calculation - called “Super Built Up Area” - to clearly inflate the total living area.
Much like in the rest of the world, realtors work on commission - and stand to earn well because they collect fees, generally 1 month’s rent, from both landlord and tenant. The chance to earn a quick commission simply by connecting landlord to tenant, in a vibrant market where homes practically rent themselves, causes realtors to be well responsive even into late hours of the day. A call to a realtor will result in him (realtors are predominantly men) arranging for a showing of the property. The landlord does not generally participate in the showing. The realtor will act as a negotiator for both parties but for more advanced questions, it is best to have a conversation with the landlord, realtor present.
An important difference returnees will notice is that Indian housing is just not designed with storage in mind. Returnees used to buying more than they need knowing that they can toss overage into a garage, a shed in the backyard or a self-storage facility will have to quickly change their ways.
Every landlord will require a 10-month deposit as a precondition to lease signing. No interest is paid on this deposit. Such practices are illegal in western countries but are permitted in India. You will also pay the first month’s rent in advance - and the realtor’s commission as well - effectively setting aside a year’s rent simply to move in to the property!
Most villa and flat developments also extract a monthly maintenance fee to provide for security, and the upkeep of common areas, gardens and playgrounds. This fee is a fixed amount per square foot of your rental property (one huge Bangalore apartment complex charges INR 2.50 per sft for maintenance). All negotiations of rent explicitly use the word “plus maintenance” - as in “the rent is 38,000 INR plus maintenance” - as though the maintenance component is small. But at INR 2.50 per sft for a 2,400 sft apartment, maintenance charges can amount to INR 6,000 a month, not a trivial amount.
Some housing communities implement differential pricing for maintenance charges requiring tenants to pay 10% - 20% more than landlords. To a returnee family,. challenging such practices with common-sense questions such as, “ Do tenants use more electricity than owners?”; “Do tenants burden the security staff more than owners?”; “Do tenants utilize more water?” generally result in meaningless shrugs as a response. A broader argument about fairness - that these charges are similar to a sales tax where a merchant does not charge one patron a higher sales tax from the next - also is likely to be of no avail. The best justification you can probably get is that this practice is common in other local housing societies!
Service taxes also are likely to bite into your budget. In 1994 the then Finance Minister, Dr. Manmohan Singh, introduced a direct tax on all services as a means to collect much needed revenue for the government. This means that any business that provides a service (chartered accountants, lawyers, plumbers, your local gym) must collect a tax from their patrons. Over the years, this tax has remained a popular tool of the government although some exemptions have been granted. The current net effective service tax rate is about 12.5% and this is imposed on all businesses which generate over 10 lakh rupees in revenue. If the homeowners association of your villa community or apartment building collects more than 10 lakh rupees in maintenance charges, you will be assessed a service tax on any amounts that exceed INR 60,000 in maintenance fees. For some reason, residents of the state of Jammu and Kashmir are exempt from paying service taxes.
Lease terms rarely exceed 11 months and almost always include an option clause to extend the lease for another 11 months. What is different from western leases is that the escalation clause in rent for the second term (5 - 8% is common) has to be agreed to at lease-signing for the initial term. Maintenance charges are likely to go up as well, although this is not generally specified. Returnees used to more stable economies in the West are likely to be surprised (and sometimes, shocked) by such steep increases.
Landlords try to enforce the standard language in the lease but as tenant, you must review each word and make appropriate corrections. In some cases, the corrections are mundane (the landlord will have used a boilerplate lease between two other parties but will have forgotten to tailor the lease to your situation); in others, the corrections are vital to protecting yourself or to improving your quality of life. For example, if you are renting a flat, ask if you have designated parking spaces available and how you can be authorized to use them. If you are moving into a planned community which has lifestyle conveniences such as a gym or club, ask to see how membership can be transferred to you. These clauses must be part of the lease document. Landlords will protest wording changes but will generally agree to them if they are reasonable and important to you. No landlord wants to lose out on a potential good tenant.
Before you make payments and sign the lease, have the landlord walk you through the property. Test all fixtures, locks, doors, latches, lights, wall sockets (also called plug points), fans, toilets, geysers, cabinets and faucets. If something is not working, secure a commitment that it will be repaired before you move in. Make sure you get two sets of keys for all doors and cabinets, including for the mailbox.
Insist on making all payments traceable; use checks or NEFT. It may be best to pay your monthly rents also via NEFT - these are safe, secure and automatic.
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