How is rent for residential property in India calculated? What are the basic components of Rent?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Are you a tenant looking to occupy a residential property? Or are you a landlord looking to earn income from your residential property? For both the parties, rent is the primary area of discussion before they enter into a lease agreement. How much rent shall be paid for a given residential property? What are the main components of rent? How much is the security deposit? What are the other monthly charges? How is security refunded back when tenant vacates the property? These are some of the questions we will discuss below in this article:

How much rent shall be paid for a given property?

Rent is the monthly payment paid by the tenant to the property owner for the use of property. A residential property is used by tenant for living purposes or for the purposes defined in the lease agreement. Any deviation in the use of property by tenant can lead to eviction. And what is the agreeable rent that tenant and owner can arrive at? Principally there are 2 methods:

• Rent comparison method

It is the most common yardstick that is used by both tenant and owner for determining the rent of the residential property. This method is based on the ability of similar properties to generate monthly rent. For example, in a given locality, one needs to look at the rent that others are paying on a monthly basis. If properties in question are highly similar, then, one would expect the same rent for a specified property. However, if the properties are dissimilar, then monthly rent is adjusted. If the subject property is superior to other properties in the locality, then, chargeable monthly rent will be on higher side. And if the subject property is inferior to other properties in the locality, then, chargeable monthly rent will be on lower side.

• Cost method

This is a method based on the cost of the property. Cost of the property is the sum of current market value of land + cost of construction. In India, rental yields for residential properties are not very high. Typically, a property fetches anywhere between 2-3% of annual return on the cost of property. For example, if the cost of property is say Rupees 1 Crores, then, expected yearly rent could be in the range of Rupees 2-3 Lacs Or in other words, Rupees 16000-25000 per month. One must take note of the fact that, this 2-3% annual rent is calculated when the property in question is fully developed or its FSI (Floor Space Index) is fully utilized.

What are the main components of Rent?

Monthly Rent for the residential property comprises of following elements:

1. Base rent which is calculated by ‘rent comparison method’ or ‘cost method’.
2. Utility charges to be paid by tenant as per actual. Utility charges include electricity bill, water bill, Gas charges.
3. Maintenance charges. Maintenance charges are paid extra by the tenant.
4. Security deposit – it is the lump sum payment demanded by landlord at the beginning of the lease. It is an interest free payment and is refunded by the landlord to the tenant when the property is vacated. However, if the property has been damaged during the tenure of tenant, then, landlord may hold some part of security deposit to cover the expenses. This is clearly highlighted in the lease agreement as well. Security deposit differs from city to city. In Delhi, security deposit is about 2-3 months of rent. However, in Bangalore, the security deposit demanded by landlord is around 10 months of rent.

It is imperative for both tenant and landlord to discuss these things well in advance and all the charges shall be clearly mentioned in the lease agreement to avoid any difficulties during the course of stay.

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What are the landlord’s rights and what precautions a landlord shall take before renting out a property?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Real estate is a lucrative investment class. Not only it gives you capital appreciation gains but at the same time one can earn rental income from his/her property. Whether the property you own is commercial or residential, one can rent the property to earn stable monthly income. However, as easy as it may sound, there are always issues when it comes to renting out a property. What if the tenant does not pay the rent on time? What if the tenant mishandles the property? What if the tenant doesn't pay the utility bills on time? These are some of the questions a property owner is confronted with and therefore taking precautions at the beginning of renting out a property will make sure that the property is rented out to good quality tenant.

At the same time, a landlord enjoys legal rights as laid down by the Transfer of Property Act, 1882. These are ‘Right to timely accrual of lease amount’, ‘Right to know about the condition his property is in’, ‘Right to know of any changes that the tenant might want to make’, ‘Right to notify the tenant of an intention to increase the rent’, ‘Right to be informed of any disclosures’, ‘Right to get back his property on repossession’, ‘Right to repossess the property complete with all fittings and furnishings’, ‘Right to claim all the charges for supplies’.

Therefore, before one rents out or leases his/her property to a prospective tenant, make sure to go through the following document about ‘Precautions before renting out’ and ‘landlord's rights’.

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What landlords need to know about renters given the sluggish real estate market?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

If you’re a landlord owning a residential or commercial property for the purpose of renting it out, then you’re probably well aware of the rental market. Demand is limited but there is ample supply of real estate including the office space properties and residential houses. So, your property would fetch less. Except for the markets of Bangalore, and Pune, rental market is sluggish across all other cities in India.

A look at the commercial office space market in Gurgaon. See how rents have fallen across micro markets during the period of July - September 2014.

source: Magicbricks


It’s a buyer’s market to say the least. As renters sit comfortably in the driver’s seat, here’s what else they are up to:

• Saving money:

Renters who are looking to rent out office space or residential houses are able to save more in current market scenario. Barring the places like Pune, and Bangalore where there is steady demand for real estate, all other markets across the country are in downturn. Renters are getting office space or residential property at a substantial discount, thereby, able to cut their operating expenditures.

• Negotiating harder:

Renters are able to negotiate hard with landlords. Whether they are looking to rent office space or residential property, tenants are taking their time, sometimes months to finalize the deal. By doing so, they are being able to get substantial discounts on rent paid to the landlord. Many well settled tenants have also moved out of their existing properties to get new spaces at lower rates.

• Getting lucrative deals:

A rent deal these days is not just about rent and maintenance charges. Tenants are having a considerable say in the use of common facilities of the building. In addition to getting price cut on rent, tenants are bargaining for free car parking spaces, shorter lock-in period, and less upfront money which goes out in form of security deposit & advance rent. For example, a typical office space deal in past would have standard lease terms of 3 years lock-in period, 6 months security deposit. However, tenants are now negotiating hard for 12 months lock-in period and security deposit of just 3 months.

• Getting posh facilities:

Common facilities such as toilets, corridors, parking spaces, reception, signage boards, etc. are being renovated by the landlords to attract renters. In some instances, landlords are going out of their way to provide high quality interior work for furnished office spaces and residential properties.

Keeping all these factors in mind, many prospective buyers are also evaluating the pros and cons of renting versus owning. And in many instances, buyers are postponing their decisions to buy real estate and instead they are opting for lucrative rental deals.

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