Mumbai real estate: Should you consider renting your apartment for zero rent with a heavy deposit?

Mumbai real estate update: Should you opt for a zero-rent agreement in exchange for a heavy deposit? Here’s what you need to know

In Mumbai’s soaring rental market, the unconventional ‘zero-rent’ model, where tenants pay no monthly rent but provide a large upfront deposit, has recently made headlines.

Mumbai rental real estate market: Under the zero rental concept, tenants secure occupancy by paying a one-time, lump-sum deposit, often equivalent to 6 to 24 months' rent. (Picture for representational purposes) (Pexels)

This follows an unusual incident in Jogeshwari, where a landlord filed a police complaint against his tenant for failing to pay the full ₹6 lakh 'heavy deposit' as agreed. The tenant had paid ₹4.5 lakh during possession, promising to settle the remaining ₹1.5 lakh later, but failed to do so. When the landlord demanded the balance, the situation escalated and the tenant allegedly rammed his car into the landlord in anger.

What is the zero rental concept?

Under this arrangement, tenants secure occupancy by paying a one-time, lump-sum deposit, often equivalent to 6 to 24 months' rent. In return, they are exempt from paying monthly rent. Landlords typically invest this deposit in fixed deposits or other low-risk instruments to generate interest income, effectively substituting traditional rent.

According to PropertyPistol, a real estate consultancy firm, nearly a third of those looking for rental housing in Mumbai are ready to pay a high deposit to save money on monthly rent. Landlords require a large deposit, typically 100 times the monthly rent, based on the current rental rate in a specific location.

For example, a large deposit of ₹20 lakh would be required for an apartment offered for ₹20,000 per month. Similarly, for a flat that is rented for ₹30,000 per month, the cost would be ₹30 lakh, Property Pistol said.

According to Maharashtra government data, more than three lakh leave and license agreements are registered annually in the Mumbai real estate market for renting property.

Should landlords rent an apartment against a heavy deposit?

Darshan Talajia, a Mumbai landlord, said, "Two months ago, I had a tenant offering to rent my 1 BHK apartment in Virar near Mumbai for a heavy deposit of ₹7 lakh for three years. The per-month rent that I had quoted was ₹10,000. However, assuming 10% fixed deposit interest on ₹7 lakh, I would have made a mere ₹2.40 lakh vs ₹3.60 lakh in three years."

"I feel a heavy deposit makes sense if it solves your purpose for repayment of a loan, business investment, or getting interest more than the rent. Otherwise, it is a very risky proposition. One has to spend or save that money judiciously; otherwise, it can be a misfortune," Talajia said.

Viraj Shah, a Mumbai-based chartered accountant, said, "A heavy deposit is a good option for landlords if they want liquidity for business. If not, the landlords need to invest it wisely to get good returns equivalent to the monthly rent they would get. If not invested or spent wisely, the heavy deposit will become a liability and ensure that the tenant may not vacate your house until you return the money."