SMART SOCHO: Is the lure of PG income really worth it?

Rajesh Kulkarni

For Mumbai-based Mr and Mrs Ravi Desphande (names changed), the marriage of their only daughter to a well-settled NRI businessman in the US, was not just a happy occasion but raised some serious questions too. The marriage expenses had left a big hole in their bank balance and their daughter's departure a huge empty space in their hearts and spacious 2BHK apartment at Andheri West, a prime residential and commercial location of the city.

That's when a close family friend suggested a solution that would take care of both problems, why not take on a Paying Guest? Not only would it generate a healthy monthly income for the retired couple, but it would also fill up the space left empty by their daughter's marriage.

It was a suggestion that made perfect sense and before long, the fully-furnished room vacated by their daughter had a new tenant in the form of Neha, a Delhi-based professional employed by a MNC in Mumbai in exchange for a monthly consideration of INR 10,000 (including breakfast).

The Desphande's are a part of an increasing number of people in most metros, who are now opting to take on paying guests, to earn a healthy monthly income from their property, which in most cases is their biggest asset.

On the flip side, paying guest accommodations, commonly referred to as PG are today a preferred, cost-effective option among a majority of unmarried working professionals working in other cities, graduate and post-graduate students enrolled in reputed institutions away from home and in some cases even young, married couples looking for a home away from home in an alien city.

While the regular income and sense of companionship generated by a PG are welcome aspects, is it really a good idea to convert your home and rent it out as PG accommodation? If so, what are the various factors that a landlord must be aware of before implementing such a decision?

To begin with not many home owners are aware that on converting your personal space into a PG accommodation, it gets converted into a commercial property and the landlord is liable to pay all the relevant charges for the electricity, water, property and other applicable taxes at commercial rates, which needless to add are much higher than the taxes applicable on properties for self-use.

It's a long and expensive process that usually begins with making smaller changes like exchanging your residential gas cylinder for a commercial one, which again costs a lot more (approx INR 1,800-2,000 per unit in Mumbai) than the subsidized one (about INR 600 per unit in Mumbai) for self-use.

As per urban planning rules and regulations that usually vary from city to city, landlords may have to take the required approvals from their city's municipal authorities prior to the conversion. In some cases, they may also be required to inform/seek the permission from other state agencies like the police and fire department. Therefore a thorough due diligence on the various approvals required prior to finalizing a PG deal is usually the correct way of going about things.

A frequent doubt among landlords wanting to opt for the PG route pertains to the need to seek prior approval from their society / housing committee before going ahead. Can a society bar a member from taking on an individual or multiple Pgs?

Admittedly it's a relevant concern, with many societies frequently raising multiple objections to any such suggestion/decision by any of their members. However from a legal standpoint, there is nothing presently that permits a society to bar a member from sub-letting his/her premises to bachelors on a PG basis. However, the onus is on the landlord to ensure that they do not create a nuisance or disturb the other society members in any which way.

From a security perspective, it is crucial that landlords insist on documentary evidence from a potential tenant verifying his identity, background and employment details prior to sealing the deal. Further ensuring an advance payment of about 3-6 months of the rent, as a security deposit against potential damage to the property and/or rent arrears by the tenant, is also an accepted part of such rental transactions.

While safeguarding the landlord's rights is of paramount importance, it's equally important that they ensure the privacy, security and promises made (in terms of the accommodation & facilities provided if any) are upheld on finding the right tenant. The lack of quality food, privacy and a strictly enforced - No Visitors - policy are among the Top Three complaints that most tenants have against their landlord. Among other resources, Internet connections, clean drinking water and spacious rooms are much in demand.

So while a strategically located, self-contained, well-serviced, hygienic and non-intrusive paying guest accommodation provides the ideal option, negotiating the terms and conditions in details prior to moving in is another must for both the landlord and the tenant.
With most cities getting increasingly crowded and rentals shooting up especially in preferred locations, PG accommodation is slowly gaining popularity among landlords and working bachelors as a cost-effective, hassle-free way of securing a roof over their head.

In Pune for example, the growth of the IT industry in areas like Hinjewadi and Wakad has triggered a boom in the supply of PG accommodation for working professionals. PG options available here range from one spare room in an independent home to serviced apartments with a full range of facilities (Wi-Fi, security, hot meals, furniture etc) on offer. A majority of these are shared by two to three tenants for a per-head cost of approx INR 4,000-6,000 p.m and above.

Up north at Gurgaon, the two preferred PG destinations in the city are DLF Phases 3, 4, 5 and Sector 31-45.  Costs for a twin-sharing PG accommodation (inclusive of meals) is said to range from approx INR 8,000-10,000 in DLF colonies to between INR 5,000-7,000 in Sectors 31, 40, 41, 45 and 50.

Given the large space and reasonable costs, both options attract an increasing number of young working professionals from the city's adjoining areas like Sainik Farms, Saket and Malviya Nagar. In Mumbai, the financial and entertainment capital of the country, PG tenants are known to pay anywhere between INR 5,000-50,000 for fully-furnished apartments in the city's up market locations.

With an increasing number of young working professionals now opting for jobs in other cities to pursue their career ambitions, the demand for quality, hassle-free and economical PG accommodation in metro cities is expected to go up. While this may come as welcome news for home owners looking for additional sources of income, it could just as fast turn into a nightmare if they don't play by the rules.


PG Checklist for Landlords:

• PG/Tenant Identity: Take a signed copy of an original identity proof i.e. driving license, passport, voter's ID or workplace ID. Verify from workplace/school/college the authenticity of tenant.
• Police Tenant Verification: It is mandatory to submit a complete tenant verification form to the nearest police authority. The same can vary in different locations, please check with your nearest police station.
• Lease Agreement/Contract: Study the terms and conditions of the lease agreement. If in doubt get the same prepared by an advocate for proper clauses. The document is vital which proves your status as a landlord giving rights to the tenant. The same can be typed on a stamp paper and then notarized or it can be registered thru the sub-registered by paying the prescribed fee. Make a copy and give to the tenant. The original document is to be kept by you for future reference.
• Rent/Security: In the agreement carefully note that the rent, advance rent and the security amount has been properly entered. A security of one month is the usual practice to cover up damages which might occur when tenant leaves.
• Inventory: A list of the inventory is preferably annexed in the agreement to avoid unpleasantness at the time of tenant vacating the premises. The inventory page has to be signed by the tenant. The same includes furniture and fixing given for common use of the tenants.
• Condition of bedroom/bathroom/common areas: The landlord is to see that the condition of the living quarters of the paying guest/tenant is in proper shape as spelled in the contract. Sanitary leaks should be avoided and cleanliness properly maintained.
• Building Insurance: It is advisable to insure the premises. Insurance premium is based on the value of the building and can cover earthquakes, floods, riots, fire, terrorism etc. It is highly advisable because of the nominal premium for the cover.
• Electricity/Water: It is preferable to have a backup for electricity as summers are hot. The cost of inverters which are silent have come down. Water should be uninterrupted through a constant overhead tank supply.
• Meals: When the landlord decides to offer meals it is highly advisable to only offer high standard and hygienic meals.
• Drinking Water: It is advisable to invest in a dependable water-purifier system in places where impurities are common go for the (RO) Reverse Osmosis system..
• Fan/Air Cooler/Air Conditioner: Each room should have a basic fan to tide over the summer months. An air cooler doesn't cost much and is advisable during dry summers.
• TV/Internet Wi-Fi: A television set is a basic source of entertainment for the paying guest. The cost of providing internet access thru a Wi-Fi setup has come down drastically. Go for an unlimited monthly plan and set up a hot spot for your tenant.
• Security of Premises: The landlord has to see that the premises and the belongings of the tenant are secured from theft by employing a trusted guard in the premises.
• Keys: Provide duplicate keys to the paying guest and change the lock and keys when they move out, this simple procedure can save you future intrusions in the future.
• Important Telephone Nos.: Display a list of telephone numbers to be contacted in times of emergency in a prominent spot in the premises.

*Checklist Courtesy: payinguests.com