Renting out a property is one way to generate income. In this competitive rental market, it’s important to manage your property professionally. While this can be a great avenue for income, there are challenges, such as market oversaturation, which may stagnate rental prices, or rising demand, which can set the stage for success. Thus, as a landlord you have to be well informed about the market trends to maximise your investment. In this guide, we will focus on important factors to consider when you, as a landlord, are looking to increase the rental rates of your property.
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When can a landlord increase the rent?
- Increase in maintenance costs
If the maintenance cost of the property is increased significantly, the landlord might want to pass on this charge to the tenant. While as per agreement, the owner is the one who pays the maintenance charges of the property- this is included in the rent that the tenant pays. This is one of the reasons why a standalone property commands less rent than a gated community (whose maintenance charges are more.)
- Increase in property tax
If the property tax that the landlord has to pay annual sees a revision in the charges, then the property can command an increase in the rent.
- Infrastructure development in the area
If the demand in the area increases owing to sudden infrastructure connectivity, the property prices as well as the rentals of property see a hike. For instance, with the Mumbai Metro 3 phase-1 operations inaugurated, experts expect a positive impact on the real estate with a surge in prices immediately from Aarey-JVLR to BKC. This will be on property prices for both buying and renting. Additionally, with Pitru Paksha period having ended, there will be demand also which will further help encash the advantage.
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- Preferred location
If the area is a sought after location, then the landlord can look at increasing the rent based on the market correction that happens. For instance, Ulwe, a node in Navi Mumbai which was not doing as well as expected when the node was launched has become one of the most preferred areas in Navi Mumbai. Rentals in Ulwe in Navi Mumbai have seen a surge ever since the Mumbai Trans Harbour Link Road has been inaugurated in February 2024. This is because with the MTHL, going to South Mumbai where most commercial offices are located from Ulwe by road is less than 20 minutes, which would otherwise take around 2 hours. According to Housing.com, the average rent here is Rs 23,894. This is expected to further go up when the Navi Mumbai International Airport operations will start by early next year.
- Premium additions
The amount that is in addition to the market rental value is known as the premium rent. This is charged because of the many features of the property such home automation, semi-furnished or fully furnished property, presence of an array of amenities in the complex etc. Note that when the landlord charges the premium, he includes in that the damages cost if any that may incur in future in the house. Most tenants opt for premium rent because of the convenience that it offers.
- Renovation to the property
Rents can also be increased if improvements have been made to the rental property through repairs or other changes.
- Extra parking
If you have made any changes to the property such as getting renovations done or some major repair work, fittings and fixtures done or furnishing the property, you can increase the rent. Additionally, note that a property with parking in a building that has limited parking spaces demand more rental money.
When can the rent be increased?
According to the Model Tenancy Act 2021, landlords cannot increase the rent in the middle of the tenancy period unless specified in the rental agreement.
How to inform the tenant about a raise in the rent?
According to Section 106 of the Transfer of Property Act, 1882, it is necessary that a tenant is given a prior written notice on the increase in rent of the property. If you have gone through the broker to find the tenant, this information can be communicated to the tenant through the broker.
What to do if the tenant doesn’t agree for an increased rent?
In case the tenant doesn’t agree for an increased rent, first discuss with him on why this decision has been taken. If the tenant is further adamant and is unwilling, then, you will have to send an eviction notice to the tenant and ask him to vacate your property.
When should you not consider increasing the rent?
You should consider not increasing the rent when
- The property is really old and up for redevelopment in a year or two. So, just before it goes for redevelopment, you could do with whatever rental rate is fixed.
- If the tenant staying in your property maintains the property really well and is prompt with paying his rent. You as a landlord share a good relationship with the tenant.
- If you are increasing just for the doing so, without any plan. This will affect the entire setup and also force tenants to leave your property for other ones.
- If the market has more supply than demand and there are many rental homes available, then it’s not a smart move to raise the rent.
- If you are in need of rental money, its not advisable to risk the setup as if the tenant moves out, you may have to return the security deposit and also may take sometime to keep another tenant.
Note that while most rental agreements are registered with a 10% hike clause at the end of 11 months, there are cases where the landlords only hike the rent by 2-5%. This is also because of reasons as mentioned above. However, there are also landlords who hike it by 10% every 11 months, generally because they would have initially rented out their properties at a lower rate than the market value. Thus, there are exterior situations that also play a role in decision making by the landlord when it comes to hiking the rent.
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The rent fixed for your property and any revisions largely depend on the local rental market. Several factors come into play when deciding to increase the rent, including the current rental value, the condition of the property, and the relationship with the tenant. To stay informed about changes in the market rental rates, you can engage with local estate agents or use property portals such as Housing.com. This knowledge will enable you to take appropriate actions that can be financially beneficial for you as a landlord.
FAQs
What are the side effects of increasing rent?
There is a possibility of losing the tenant if the rent increase is high, when the other properties in the market are status quo.
What are the reasons why rent on property is increased?
Increase in costs such as maintenance, property tax, renovation to the property or improvement in connectivity etc. are some of the reasons why rent on property are increased.
What is the process to increase the rent?
The landlord has to give an advance registered notice of around a month or two to the tenant stating that new rent will be increased on renewal of the lease. This will ensure that the tenant is well-prepared for this. Also, there is always an increase in rent once the rental agreement of 11 months or the agreed time period is complete unless mentioned in the agreement. Note that the rental increase also has to be mentioned in the agreement and cannot be done verbally.
Can a landlord increase the rent during the lease term?
Genenrally a landlord should increase the rent only when the lease is on for renewal unless mentioned otherwise in the rental agreement.
How much can a landlord legally increase rent?
A landlord can legally increase the rent by 10% every year or corresponding value every two years. But this is just a reference figure and rentals and rental corrections largely depend on the local market.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
