Renting Instead of Buying a Home? Take a Deep Breath
Accessing the perks and downsides of renting and buying houses before making a decision
The Government's much-touted aim to deliver Housing for All by 2022 may not have met with spectacular success in terms of on-ground deployment, but it was certainly a very effective electoral promise. Housing is a sensitive subject in India, precisely because so many people don't have it. Such an electoral promise was bound to draw attention - and hope.
Providing a self-owned home to every Indian household in the promised timeline seems unlikely. Building enough dedicated rental housing and backing it with a sound rental housing policy could have brought this electoral promise closer to its goal. However, there has been little progress on this front beyond the discussion stage, either.
While a large number of Indians do hope to live in self-owned homes someday, renting homes is still the default option for many. For some, rental housing is seen as a temporary measure until the dream of homeownership is fulfilled. For others, it is a more or less firm lifestyle choice.
Either way, rental housing is important in India. However, just like homeownership, rental housing is not a 'one-size-fits-all' proposition - finding and securing the 'perfect fit' does have its challenges.
Let’s examine the main criteria for renting a home:
Getting the Price Right
As a thumb rule, a tenant should not spend more than 25-30per cent of the household income on rent. After all, apart from the monthly rental amount, one needs to pay maintenance cost, water and electricity bills, oftentimes some top-up charges and a hefty one-time deposit. If one has used an agent for finding the rental property, one will also need to pay a month's rent amount as brokerage.
After these calculations are factored in, one needs to sift through properties that fall within one's budget, in the preferred localities.
Nailing the Accessibility Factor
One of the most attractive advantages that renting instead of buying a home is that one gets a wide choice of locations, and flexibility to relocate if one property doesn't work out as well as hoped.
Once the budget is finalised, one must shortlist the locations of rental properties based on either proximity to the workplace or children’s school - preferably (but rarely) both. This helps save on commute expenses and time, resulting in a better work-life balance.
If the selected locality is a city suburb, then easy accessibility via both private and public transport must be considered. Alternately, one may prefer to live close to their workplace (where rents may be higher). This is an option provided one is able to adjust the commute expenses from a distant locality with that of the higher rentals in a closer option.
The tech-savvy correctly assume that the ability to scout for rental properties online takes a lot of the sting out of the rental housing hunt. In fact, there is any number of realty portals that list rental options in a given locality. Some are posted directly by owners, but most by brokers.
However, there are two problems with conducting one's search for the right rental option exclusively online:
The Sheer Multitude of Options - Not only can these be confusing, but many options may also have expired - the persons who posted them may simply have neglected to take them down.
Social media like WhatsApp or Facebook groups have also become an informal and popular way of searching for rental options. To avoid broker fees, many owners post their listing on the WhatsApp group of the concerned housing society, from where they percolate down to a larger community of potentially interested tenants.
Not all Available Property Options May be Online - A thorough rental housing hunt can, therefore, involve both online and offline searches - the latter again involving local brokers (read brokerage).
Vetting Rental Properties - Inside and Outside
Once the search is over, one must take out time to personally visit the shortlisted properties. The main external factor to focus on is whether social infrastructure facilities like daily-needs shopping outlets, entertainment options, hospitals, etc. are within easy reach. If not, day-to-day life becomes difficult.
If this vital aspect checks out, the property itself must be vetted for ventilation, natural light, water and electricity supply, damage in the property including seepage, stains on walls, electrical and bathroom fittings, etc. Ideally, one should aim for a damage-free property.
The All-Important Rental Agreement
Though the rental agreement is the last piece in the puzzle, it can be the most critical aspect of finally securing the right rental property and living in the aspired-for comfort and assurance. After negotiating the price, one must read the rental contract details carefully, from a legal standpoint.
Some of the key aspects to focus on are the termination clauses, contract dates, penalties, repair costs, visitor limitation if any, rent renewal and escalation, etc. This is very important from a financial planning perspective because there are more costs to renting a home than just the monthly rent.
The 'Hidden' Costs of Renting a Home
Besides a lump-sum deposit charge and the monthly rental, there is a maintenance cost which may or may not include the monthly water and electricity charges. These need to be discussed with the landlord and also clearly specified in the rental agreement.
In some housing societies, there is also an extra charge for using the clubhouse facilities, which can add to the monthly bill. In some premium societies, there are extra charges for security options like CCTV, intercom facilities and other smart home features.
If the property is old and needs external or internal repair and a fresh coat of paint, there is the probability for a one-time fee collected by the housing society. If this is the case, the landlord must specify whether he/she or the tenant pays this amount.
In most instances, it is a lack of awareness which causes confusion. A prospective tenant must do thorough research well before negotiating with the landlord for both the price and other issues. A written agreement with all points listed is the only safe and viable way to go.
A landlord-tenant relationship may turn into a close friendship in the long run, but it must be treated as a pure business relationship at the outset. This means that everything needs to be in writing and the agreement duly registered.
The Elements of a Sound Rental Agreement
A tenant has the right to - and must insist on - a clear, well-documented lease agreement. The agreement must mention the name, address, father’s name of both parties and the exact rental amount – including or excluding maintenance fee, the quantum of increase in the rental amount and the time-frame of this revision.
The agreement must also document the penalty amount in case of a late payment, and the lease period for the concerned property. The process of premature termination of the lease must be clearly stated for both tenant and landlord.
The agreement must also list out all the fittings and fixtures available in the property, and repair charges in case of damage. Above all, Section 17 of the Registration Act makes it mandatory to get the rent agreement registered if the lease period is for more than 11 months.
For veteran rental home users, this whole process is either behind them; or, if they shift homes frequently, they have mastered it to the point where the process has become more of second nature and less of a strain.
However, as is evidenced above, finding and securing the right rental home while simultaneously safeguarding one's interests as well as one's budget is obviously not as easy as booking a ride on Uber.