To rent or sell property? Here's what you should know to make the right decision

Hindustan Times

3 days ago

Rajiv Sharma, a 38-year-old IT consultant in Chennai, owns a 2BHK flat in Velachery. He's torn between selling the flat for ₹ 85 lakh or renting it out for ₹ 22,000 per month. The flat is fully paid off, and he currently lives in Bengaluru for work. While renting would give him a steady second income, he worries about tenant issues and maintenance from afar. On the other hand, selling now could help him invest in a new property near Bengaluru, but he's unsure if property values in Chennai might rise further. Rent versus buy: Renting a property is typically more viable in mature, saturated markets, while selling is often better suited to early-stage growth areas. (Picture for representational purposes only)(Unsplash)
In India's Tier 1 cities, net rental yields typically range from 2–3%, while capital appreciation in developing areas has averaged 6–8% annually over the past five years. Rental income offers steady cash flow, while selling can deliver higher one-time returns in fast-growing zones like Navi Mumbai or emerging micro-markets in Bengaluru.
'However, if the area has already seen significant appreciation, rental income may be the more viable short- to medium-term strategy with relatively lower ongoing costs. Ultimately, the decision depends on market maturity as renting tends to be more attractive in saturated markets, while selling is often better suited for early-stage growth corridors,' says Ram Naik, co-founder and director, The Guardians Real Estate Advisory.
If Sharma decides to rent his apartment out, he can earn ₹ 22,000 per month, which adds up to ₹ 2.64 lakh annually. This gives him a rental yield of approximately 3.1 per cent, which is modest but typical for residential properties in Indian metro cities. The rental income would be taxable, but he can claim standard deductions for property tax and maintenance.
If he chooses to sell the flat, he could receive ₹ 85 lakh as the sale price. Assuming he bought the flat 8 years ago for ₹ 55 lakh, his indexed cost of acquisition would be about ₹ 75.3 lakh. This results in a long-term capital gain of ₹ 9.7 lakh. At 20 per cent long-term capital gains tax, he would pay roughly ₹ 1.94 lakh in tax, leaving him with net proceeds of around ₹ 83.06 lakh. This lump sum could be reinvested in financial instruments or a new property, depending on his long-term goals. Caught between renting and selling? Here's how to decide
'In stable markets, renting can ensure consistent income over the medium term. However, if new infrastructure (e.g., metro extensions, business districts) is likely to drive strong capital appreciation, resale value may outpace cumulative rental income. Assessing both upside scenarios, renting and resale, is crucial,' says Sudhanshu Mishra, Principal Partner, Square Yards.
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For example, infrastructure-led development, such as metro and expressway projects, has driven price growth in cities like Pune and Hyderabad, where values have appreciated by 7–10% annually. In such locations, resale gains over 5–10 years often outpace cumulative rental income.
'However, in more stable or supply-saturated markets like South Mumbai, rental income over the same period may offer greater predictability. With tax benefits and depreciation factored in, long-term renting can deliver reliable cash flow when capital appreciation prospects appear limited,' says Naik.
However, there are other aspects that need to be considered too. Prolonged vacancies and unexpected repairs, often costing ₹ 1– ₹ 1.5 lakh annually, can erode rental profitability. In areas with weak demand or limited public infrastructure, properties may remain vacant for extended periods, reducing effective rental yields.
'For investors lacking professional property management support, selling in a favourable market may be the more prudent decision,' says Naik.
Given the relatively modest rental yields of 2–3%, selling the property and reinvesting the proceeds can potentially offer stronger long-term growth, unless rental demand remains robust and consistent. Ultimately, the choice depends on the individual's risk profile and financial goals: capital appreciation versus steady income and asset preservation.
'Owners should weigh the income stability of renting against potential capital gains, considering local market dynamics, such as proximity to commercial hubs where both rents and resale values tend to be higher, to make an informed decision aligned with their investment strategy,' says Mishra.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics