Portfolio

Mumbai tenants may soon prefer owned properties

Shanker. S | Updated on November 15, 2017 Published on April 07, 2012

House rents will go up to compensate for the 10-fold increase in stamp duty on rental agreements.

The proposed stamp duty hike on leave and licence agreement in Maharashtra is a further dampener to the real estate sector.

A leave and license agreement provides for the property owner to rent — give a license — to a tenant to occupy the property for a specified period. The tenant doesn't have any legal right on the property. In the absence of such an agreement, the tenant becomes a trespasser. Whereas, a lease creates a charge on the premises in favour of the tenant.The Government has increased the rate from 0.1 per cent to 1 per cent for the current fiscal.

However, real estate consultants who registered lease deeds after April 1 said it hasn't been implemented so far. While corporate leasing won't be impacted that much, as in most cases, the lease is between three and five years, it is expected to make residential rentals more expensive.

More so, as residential space leases are generally for 11 months. In almost all cases, it is subject to renewal with a 10 per cent hike in rent.

PROPERTY REGISTRATIONS

A Prabhudas Lilladher report said February property registrations were down 11 per cent Y-o-Y, at 4,203. Lease transactions were, however, up 6 per cent to 8,515.

Mr Subhankar Mitra, Head – Strategic Consulting (West), Jones Lang LaSalle India, said it would definitely impact the rental market in the residential, commercial and retail asset classes. The current stamp duty on these agreements is nominal at 0.1 per cent of the lease amount. With the hike, for a person paying a rent of Rs 10,000 a month, the stamp duty will be Rs 1200, as against the Rs 120 collected earlier.

He felt that the impact would not be much in the near term. However, more tenants in Mumbai would begin showing a preference for owned, rather than leased properties, as this would make more financial sense. This would be more evident in Mumbai, as this city sees a higher incidence of property leasing on the account of the high cost of ownership.

Mr Pankaj Kapoor, Managing Director of real estate research firm Liases Foras, said there will be no drop in the rental segment, as capital values of properties were far higher than the returns computed on rentals, which, in most locations in Mumbai, work to a maximum of 2 per cent per annum. A two-BHK in suburban Kharghar is available for a monthly rent of Rs 6,000, while its value is upwards of Rs 60 lakh.

RENTALS UP

Mr Vineet Singh, Business Head of real estate portal, 99acres.com, said residential rentals in Mumbai have been rising in recent years. “Rentals values in Mumbai are likely to show a further upward pattern in the medium term. This is largely due to Mumbai being a highly supply-constrained market, where the demand for dwelling unit outstrips the supply by a huge margin.”

Rentals in key localities of Navi Mumbai indicate that the area is a hotspot to stay on rent, because of the affordability factor. Localities such as Kharghar and Vashi saw a 42 per cent and 12 per cent increase in rental values in the first quarter of calendar 2012, compared to Q1 of 2011. Rentals at Nariman Point remained almost steady.

Areas in central Mumbai, such as Bhandup (West) and Chembur logged a 29.41 and 22.67 per cent rise during that period, he said.

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