The disadvantages of keeping the property vacant are more than any apparent advantages
There is shortage of residential properties in urban India, and yet many houses remain vacant. According to Census 2011, out of the 110 million residential units in urban India, 11 million were vacant; that's about 10 per cent of the total urban housing stock. The National Capital Territory (NCT) of Delhi alone had more than 500,000 vacant houses, as per the Census.
Similarly, more than 3.7 million residential houses were vacant in Maharashtra, followed by more than 2.4 million units each in Uttar Pradesh and Gujarat.
Why do so many residential units remain vacant in urban India, when there are so many people who are willing to take houses on rent?
“When the average national rental yield is 2-3 per cent, it is not an attractive proposition for landlords to rent their property,” says Sudhir Pai, CEO, Magicbricks. Besides that, weak rental laws and risk of disputes prompt homeowners to leave their houses vacant rather than renting them out.
“In India, there is a clear absence of proper legislation outlining the rights and obligations of both tenants and house owners. As a result, disputes between tenants and house owners are quite common. Non-payment or late payment of rent is common and, worse, many landlords are even suspicious that they may lose their property or the tenant may damage the property,” says Mani Rangarajan, Group COO, Housing.com, Makaan.com and PropTiger.com.
However, in spite of low rentals and risk, it does not make sense for a homeowner to keep the property vacant. “The disadvantages of keeping the property vacant are more than any apparent advantages that it offers,” says Amit Kumar Agarwal, CEO and co-founder, NoBroker.com.
No return on capital
Earlier, property prices would increase every day, and home owners were hardly bothered by low rental yields. Moreover, most investors would keep the property vacant so that they could quickly sell it off as and when they get a good deal, without worrying about the task of getting the property vacated.
However, in the last five years or so, property prices have either remained stagnant or have witnessed a correction across the country. For next few years, at least, property prices are expected to remain stagnant.
In such a scenario, instead of keeping your property vacant and seeing its value decline because of time correction, it is better to rent it out and earn some returns.
Expenses to be paid
Even if a property remains vacant, there can be several expenses that the owner has to pay, such as property tax, fixed charges of utility connections and others. If the property happens to be in a gated housing society, then there are society maintenance charges that one needs to pay.
If a property gets rented out, most of these expenses, except property tax, are paid by the tenant. “Keeping in mind that property ownership comes at a cost it doesn’t make sense to keep properties vacant or locked,” says Pai.
Tax on notional rent
In order to discourage taxpayers from leaving their houses vacant and also to make properties available for tenants, the government imposes tax on national rent. Notional rent is the rent that you are assumed to have earned even if you don't actually earn any rent on a property. “In a way, it is a double whammy. The owner of the vacant property is not earning anything out of it, but needs to pay tax,” says Rangarajan.
However, from F.Y. 2019-20, tax on notional rent only comes into play if you have more than two properties. “In case an individual is holding two properties for self-consumption purpose, then the gross annual value shall be taken as nil as per Section 23 of the Income Tax Act, 1961,” says Sumit Batra, a taxation expert. But if you have more than two properties, “in such a case, even if the other properties (beyond two properties) are vacant, expected rent from other properties is taken into consideration to calculate gross rental income,” adds Batra.
Property gets dilapidated
“A vacant property suffers more from wear and tear as compared to an occupied property,” says Rangarajan. Agarwal echoes the thought: “A fully functional and livable property enhances the life and upkeep of the property.”
Vacant properties are also prone to harm like fire, seepage, electrical damage, mold and pest infestation and so on. It’s better to have tenants in your house so that regular maintenance takes place and immediate action is taken.
More prone to theft, squatting, trespassing and encroachment
Vacant properties face threats such as theft, vandalism and other such crimes. Copper wiring, expensive interior or sanitary fittings, electrical units, iron/metal from the windows and doors or even main gates can be stolen.
Independent cottages in isolated places also tend to attract intruders who carry out nefarious and illegal activities as they seek out lonely places in the dead of the night. Such homes also tend to get vandalized and robbed. Vacant buildings are more susceptible to squatters or be encroachers.
The bottom line is that whether or not there are profitable returns on a property by letting it out, there are many points that point in favour of leasing it out and also ensuring its safety. It is in the best interest of the owner not to keep the property vacant for a long period of time.(The writer is a freelance writer who writes on personal finance)