Which is more attractive: Rental income from residential or commercial property?

February 2019

If you are planning to invest in property to earn returns, which type of property should you choose – residential or commercial? We analyse the benefits and drawbacks of each

Rental income is an important consideration, for people who want to invest in the real estate sector. Property buyers are often confused over which would provide better income option – an investment in a residential property or a commercial one. Arvind Nandan, executive director – research, Knight Frank, points out that the broad principles of asset-selection, such as the location of the property, quality of construction, age of the property and usage, remain similar between residential and commercial properties. “While most residential properties need to be leased on an annual basis, commercial properties are leased for longer tenures. The vacancy risks in residential properties are higher, given the frequent turnovers of tenants. Hence, property buyers need to pay attention to the qualitative aspects of these two segments,” he explains.

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Rental yields in residential and commercial properties

Experts advise that any investment in commercial property (other than for self-use), like office, retail, warehouse, etc., require the potential purchaser to consider aspects like the current leasing environment, the existing ecosystem in the region, distance from complementary and auxiliary industries, legal due diligence, clearances that are specific to the property’s usage, etc. On the other hand, a residential property must be analysed for liveability with respect to social infrastructure, the neighbourhood and profile of other residents.

“In residential realty, the gross rental yields are usually in the range of three to five per cent, per annum, on the fair market value of the property. Net of insurance, property tax and maintenance, the net yields tend to be in the range of two to three per cent per annum. Escalations in home rentals are between five and seven per cent, per annum. On the other hand, in commercial realty, the gross yields are usually in the range of six to 10 per cent, per annum. Net of insurance, property tax and maintenance, the net yields tend to be in the range of five to eight per cent, per annum. Escalations in rentals here, are between three and five per cent, per annum. The overall returns estimate over 10 years, are now around eight to nine per cent per annum in the residential realty sector, in comparison to 13-15 per cent per annum in the commercial realty sector,” explains Amit Goenka, MD and CEO at Nisus Finance.

Risk versus rewards between commercial and residential properties

• Tax benefits: Commercial and residential properties that are let out, attract tax on income from house property. However, a house property that is taken on a home loan, qualifies for tax breaks under Section 24 and Section 80C of Income-Tax Act.


• Risk and volatility: This is perceived to be higher in a residential property, due to frequent change in tenants, higher maintenance and upkeep costs and lower returns. Commercial properties offer stable, long-term rentals, with predictable income streams.


• Entering and exiting an investment: Both are illiquid assets. However, with Real Estate Investment Trust (REIT) regulations, it would be easier to create a portfolio of commercial properties than residential properties. Also, since the supply of Grade A pre-leased assets is low, the demand is much higher, making it more liquid than residential properties
  
  Above all these considerations, it is also important to examine the location, investment size and tenure, before making the final decision to invest in a residential or commercial property.

Benefits and drawbacks of investing in residential property

Benefits and drawbacks of investing in commercial property

Also read: Can The ‘Design And Build’ Model Transform Interior Fit-Out Projects In Commercial Realty?

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Source: housing.com

Co-borrowers: The fastest way to enhance loan eligibility

February 2019

Only a few people are eligible to become co-borrowers to a home loan and claim the tax benefits on such a loan, provided other conditions are also fulfilled 

With the prices of houses rising significantly faster than salaries, it has become increasingly difficult for individuals to buy a house on their own. Consequently, most people now opt for home loans. To enhance the loan eligibility, once can opt for a loan with the longest available tenure or, additionally, get someone to join you as a co-borrower.

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Persons who are generally accepted as co-borrowers

When it comes to adding a co-borrower to a home loan, lenders give first preference to the borrower’s spouse. It is presumed that the income of both individuals will be pooled for the purpose of household expenses, including for paying the home loan EMIs. The second category includes sons, daughters and parents. This is also considered as a relatively strong relationship, from a financial point of view. Please note that in case you add your parents as co-borrowers, their age shall be crucial in determining the overall eligibility.

The lender will only take the remaining years of their earning life into account, while computing the overall eligibility. So, in case your parents have already retired, including them as co-borrowers will not help you, as they do not have any income to help you service the home loan. 

Few lenders will be willing to let a daughter join as a co-borrower because the dynamics change once the daughter gets married and her ability to help you in servicing the home loan does not remain certain. 

Lenders have to take this reality into account. In case a son or daughter joins you as a co-borrower, the lender would insist on them being the first owner of the property, to ensure that the loan is serviced properly.

Persons who are generally not accepted as co-borrowers

Brothers and sisters of an applicant are generally not accepted, as co-borrowers for a joint home loan. However, if the brother/sister is able to convince the lender that the incomes of the siblings are pooled together, then, the application may be considered. This may be possible, if the brothers/sisters are staying together and are past their general marriageable age. However, the decision is made by lenders on a case-to-case basis.

People who are not eligible to be joint borrowers for a home loan

Banks generally do not approve of friends, partners or unmarried couples living together and other relatives, to join as co-applicants to a home loan. Lenders avoid granting home loans in such cases because these relationships are not considered to be strong. However, lenders may grant business loans to people who are partners in a business.

Tax benefits for joint borrowers

A co-borrower’s eligibility to claim tax benefits is not automatic. A co-borrower may not necessarily be a co-owner of the property. All the joint borrowers can claim the tax benefits, only if they are also co-owners of the property and are actually servicing the home loan. The ratio in which you can claim the tax benefits for the home loan, shall be according to the ratio in which you are servicing the home loan. This may be different from the ratio in which you own the house property, as each co-owner may not service the home loan.

Also read: Investment Tips: How To Buy A Home That Delivers Long-term ROI

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Source: housing.com

Vastu Shastra tips for the main door/entrance

February 2019

Besides being aesthetically appealing, the main door/entrance of a house also has to be in the correct direction, as per Vastu Shastra, to attract positive energy into the house 

According to Vastu Shastra, the main door of a home is not only the entry point for the family but also for energy. “The main door is a transition zone, through which we enter the house, from the outer world. It is a place from where happiness and good luck enters the home,” says Mumbai-based Vastu consultant, Nitien Parmar. “Consequently, the main entrance has been accorded prime importance, as it lets in or keeps out the cosmic energy flow that promotes health, wealth and harmony. Moreover, the main door also creates the first impression of a house,” he points out.

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Direction of the main door

“The main door should always be in the north, north-east, east, or west, as they are considered auspicious. Avoid having the main door in the south, south-west, north-west (north side), or south-east (east side) directions. A door in the south or south-west, can be corrected by using a lead metal pyramid and lead helix. A door in the north-west can be corrected, with a brass pyramid and a brass helix, while a door in the south-east direction can be corrected, by using a copper helix,” suggests Parmar.

The main door should be bigger than any other door in the house and should open in a clockwise manner. Avoid having three doors in a line, parallel to the main door, as this is considered as a serious Vastu defect and can affect the happiness in the home.

Materials used for the main door:

Try and create an appealing harmony of colours, or a soothing interplay of contrast, for the walls and furnishings. Shades of green, purple, baby pink, etc., have a calming effect and these colours add style to one’s bedroom. The only private space in the house, other than the bathroom, is the bedroom. “The size of the bed should always be as large as the space will allow. Ideally, opt for a king-size or queen-size bed, with a comfortable, good quality mattress and throw cushions. Bedside tables on either side of the bed, with ample space for a lamp and keeping laptops, books, etc., is a must. This will create an inviting atmosphere, where one can unwind alone, while still enjoying your partner’s company,” adds Gupta.

• A wooden door is considered most auspicious for the main entrance.
• South direction: the door should have a combination of wood and metal.
• West: should have metal work.
• Northern door: should have more of silver colour.
• East: should be made of wood and adorned with limited metal accessories.

Decorating the area around the main door

A clean house, especially the main entrance, attracts positive energy. Do not keep dustbins, broken chairs or stools, near the main door, cautions Kajaal Rohira, a holistic healer from Mumbai. “The area surrounding the main door, should have adequate light. Never place a mirror opposite to main entrance, which reflects the main door, as it will cause the energy to bounce back,” says Rohira. Tanya Sinha, a homemaker from Delhi, rejected almost a dozen flats, as the main entrance of the house was not according to Vastu Shastra, before buying a home with an entrance in the east. “The main door of my house has been artistically designed, with a matte gold finish. It has a carved swastika design and a gold-coloured name plate on it. The main entrance exudes a warm welcome and I have also placed a lovely yellow lamp at the entrance,” she explains. The main door should always have a threshold, (marble or wood), as it is believed that it absorbs negative vibes and allows only positive energy to pass through. Decorate the main door with divine symbols like, Om, swastika, cross, etc., and put rangolis on the floor, as they are considered auspicious and invite good fortune.

Vastu dos and don’ts for the main door

• Always have a bright light at the entrance but avoid red lights. The main door should be well-lit in the evening.
• Never place a mirror opposite the main door.
• Decorate the entrance with green plants, if there is space.
• The main door should open at 90 degrees, without any obstacles in the way.
• Ensure that the hinges are oiled regularly and door accessories are polished. There should not be any broken or chipped wood, or missing screws at the entrance. Extra nails must be removed.
• Always put up a name plate. A metal name plate is recommended, if the door is in the north or west direction. Use a wooden name plate, if the door is in the south or east direction.

Also read: Tips for renovating a bachelor’s house into a couple’s home

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Source: housing.com