Leasing vs Renting: Which Is The Most Profitable Property Investment?

The debate over whether long-term leases or short-term rents are preferable as investment possibilities are always changing, especially in a country the size of India. The Indian real estate industry is now characterised by competition between the long-standing practice of key leasing and short-term key rental. Short-term and long-term leases seem to be clearly at odds in India's real estate market; it's not just about the financial resources, but also about diversifying your rental portfolio throughout the nation's socio-economic landscape.

Factors To Consider When Comparing Leasing vs Renting

The fast-developing real estate market in India depicts a new trend, as owners face a dilemma between opting for short-term rentals or long-term leases. Purpose-built short-term rental properties, notably through Airbnb and OYO Rooms, yield a higher income especially in tourist cities like Goa, Jaipur and Mumbai. These units always have high rates during peak seasons, fests, congresses and other facilities, as per LC Mittal, Director, Motia Group.

On the negative side, they also entail high operational costs and regular maintenance, and the problem of occupancy level. In contrast, long-term leases add a guarantee of consistent cash flow, which is definitely good news for places such as Delhi NCR, Bangalore and Pune which are frequented by working professionals and students in career moves. Occupants on long-term leases, too, enjoy economies on the cost of attracting new clients. The final decision is mainly dependent on Location of the property, characteristics of the building, and risk profile of the investor.

In tier-1 cities, there is likely to be persistent demand for the long-term lease as there is stability in demand, on the other hand in the tourist hotspots, short-term will likely be more rewarding. Another important aspect that should be discussed is the legal issues. Some cities have started actually regulating the use of property for short-term rental with more seriousness since they are aware of the housing affordability crisis that has been experienced in many parts of India, said LC Mittal, Director, Motia Group.

How Renting A Property Can Be An Attractive Choice?

With a country as vast as India, the argument on whether short-term rentals or long-term leases should be adopted as investment options keeps evolving. It has been noted that short-term rentals have become an attractive choice towards Emedar in major event cities such as during the cricket world cup in Ahm... or in IT summits in Banga. Most of these properties are occupied the best part of the year and at times their earnings around peak seasons can be higher than the annual returns of such properties on long-term leases as per Manoj Goyal, Director, Forteasia Realty Pvt Ltd.

The policies and legal context on short term rental in India is still under development and some cities have put up proposals concerning such seeking to support the housing market. Long-term leases on the other hand bring the least returns because they are mostly preferred due to stability since most of the major universities are situated in cities such as Pune or Manipal. In addition, such a low turnover rental strategy is also consistent with the tendency of housing preference in India. It also deals with the foreign investor tax considerations as to the length of the rental periods taken up. There is also a high degree of variation on this particular factor so there would also be need for a thorough investigation on this particular factor, Manoj Goyal further added.

Strategies To Follow While Leasing Or Renting A Property

The real estate market in India is currently characterized by a tussle between short-term key rental for tourism rentals and the long-term tradition of key leasing. In particular, short-term rentals have become popular in places like Udaipur, Rishikesh and Ooty among others as there is an increasing local and foreign tourist flow to those places. Such premises usually farmer good income as the peak rate of a room is charged and this is maximally realized on days such as Diwali and Holi, said Gunjan Goel, Director at Goel Ganga Developments.

There are, however, risks associated which include the seasonality of occupancy, high operating expenses, and the necessity for extensive advertising. Such is not the case with long-term leases which remain very popular as an eldorado for Real establishment in most Indian mega cities today. They also promise consistent returns and are even more so in cities such as Bengaluru and Hyderabad where there is a great demand from professionals looking for affordable housing. Simultaneously, the long cycle lease is well understood by the objective of Indian scheme 'Housing for all' which is expected to have policy support as well, as per Gunjan Goel.

One has to evaluate all concerned parameters such as geographical area, building measures, consumers characteristics as well as the place of such involvement by the investor. There may arise scenarios where it would be appropriate to use a hybrid model in which a property is rented out on a long-term basis during the low season but is made available for short term rental during the high demand season. This seems to yield better returns without exposing some of the risks associated with short term rental strategies, Gunjan Goel guided.

How Leasing A Property Can Be A Profitable Investment?

India's real estate market appears to show a clear dichotomy between short-term rentals and long-term leases; it is not only about the returns rather the diversification of the rental portfolio within the socio terrain of the country. Destinations such as Varanasi and Amritsar, interested in religious tourism, and Mumbai and Delhi, for the corporate populace, have adopted the short-term rentals model. There is an underestimated possibility of enhanced returns when this is done through management services and or through reputable platforms. Still, such investments suffer from dismal. Such as occupancy rates and constant requirement of repairs to remain competitive, as per Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited.

Long-term leases irrespective of their draconian tendencies within the Indian rental market still remain the choice of the majority of investors. Particularly within the tier 2 and tier 3 cities where the concept of short term stays is still in its infancy. Such investments have a lot of advantages such as lower vacancy extremes and low level of damage on the asset. Other determinants include the time which one has for management and the extent of his risk appetite plus the knowledge of local factors affecting the property market, according to Siddharth Maurya.

In metros such as Chennai or Kolkata, one dress one could further add here is that in the case for example of mixed-use areas in Chennai or Kolkata one could deploy a mix of both strategies both long term lease and short term or 'service apartments'. In conclusion, it is easy to see that success in real estate investment in India involves much more than simply the reading of the current housing market, Siddharth Maurya further recommended.

Why Should Investors Go For A Mixed Portfolio?

With the emergence of short-term rentals, the Indian real estate investment climate is undergoing a revolution. For the most part, long-term leasing properties particularly in the residential parts of the cities like Chennai, Hyderabad, and Kolkata has been the trend, but now the short-term rental market is emerging due to evolution of traveling trends and a more developed gig economy, said Aman Gupta, Director of RPS Group.

Seasonal variations in demand can be maximized through short-term rentals which also enables capturing lucrative seasonal destinations such as the backwaters of Kerala or the hill stations of Himachal Pradesh. However, this increases the onus of management of the property in relation to the guests, guest relations and management as well as regulatory compliance. The opposite is true of long-term leases; they are highly sought after by those investors whose appetite for risk is low and desire a steady passive income, as per Aman Gupta, Director of RPS Group.

These are particularly useful in areas with heavy presence of multinationals such as Gurugram or Noida, where the requirement of such quality accommodation by the working people exists all year round. Market conditions, demographics of the area and investment strategies are some of the factors that should guide a person on whether to go for short-term rentals or long-term leases. In the case of India, it seems rational to concentrate neither on the short-term rentals, nor on the long-term rentals only, but rather to adopt a mixed portfolio approach, recommended Aman Gupta, Director of RPS Group.