Digbijay Das
With the rental housing market in India poised to witness growth, having clarity on the Rental Housing Policy is the need of the hour.
According to the 12th Five Year Plan (2012-17), India’s housing shortage stands at nearly 18 million. The Pradhan Mantri Awas Yojana (PMAY) was introduced by Ministry of Housing and Urban Affairs in 2015 to provide affordable housing to the urban poor by 2022.
Considering that it is highly optimistic to address the housing shortage with an ownership model, a “rental housing” draft policy was introduced. According to the National Urban Rental Housing Policy (Draft) 2015, issued by the Ministry of Housing and Urban Poverty Alleviation, rental housing refers to a property occupied by someone other than the owner, for which the tenant pays a periodic mutually agreed rent to the owner.
The vision of this draft policy is to create a vibrant, sustainable and inclusive rental housing market in India. It suggested that the housing units that are otherwise vacant can be made available for rental housing and investments in rental housing market.
The sensitivity around the tenant-landlord relationship, however, turned out to be its Achilles’ heel. The overlap between the state’s governance on rent control and the Union government’s autonomy to influence the rentals is a major impediment.
The Draft Model Tenancy Act proposed in the Union Budget 2019-20 re-emphasised the revival of tenant-landlord relationship while keeping in mind the “affordable housing” and “housing for all” as the focal points.
The core theme of this Model Tenancy Act revolved around tenancy, rental, obligation of landlord and tenant, re-possession of premise by landlord, rent courts and rent tribunals, appointment of rent authorities, primarily to balance the rights of the tenants as well as those of the landlords. Some clauses that worth highlighting include:
(a) Capping security deposit to two months’ rent for housing units (this may conflict the interest of the landlords in select metro cities, where the tenant pays security deposits equivalent to 6 to 10 months of rentals)
(b) Speedy dispute redressal through formation of rent authority, rent court or a rent tribunal
(c) Rent agreement to be made mandatory
Though rental housing can be delivered in many forms, from the industry perspective, it refers to the growing co-living, student housing, and senior-housing segments, where private developers and institutional investors are the frontrunners along with the state governments.
In the student housing segment, there are plethora of service -providers operating through the franchise, ownership hybrid model backed by institutional investors and property developers as stakeholders but due to the ambiguity in the policy formulation, developers have shown a lack of interest in participation.
In recent times rental housing or built-to-rent housing market in India has been growing exponentially, owing to various initiatives by the Union government and the changing buying behaviour of the millennials, indicating a preference for renting rather than owning.
To witness a breakthrough the rental housing market, the Budget should review the policies to benefit all the stakeholders associated with rental housing and the framework must simplify rental structure to promote the overall growth of the economy.
Considering the overall agenda of housing for all and rental housing, given below is a wish list, which the government may consider in the Budget:
- With the current burden of unsold inventory across different micro markets, some sort of financial incentives can be provided to the property developers to earmark a part of those unsold inventory towards rental housing schemes.
- Allow Resident Welfare Associations (RWAs) to redevelop old structures towards rental housing requirements and provide some sort of financial benefits during construction of those units or provide additional development rights with higher FAR.
- Provide mechanism for deferred ownership of rental accommodation wherein one can own the residential unit which he/she rents. It can provide an exit option to the institutional investor.
- Co-living can be recognised as a separate asset class, which is unique from a residential and commercial asset class. Whether an individual buyer or an institutional investor, financial incentives may be provided to investors in the co-living sector.
- Allow REITs to hold rental housing stock
- Provide a framework for making rental accommodation safe, affordable and available to wider income segments and make the landlord responsible for preventive maintenance and upkeep of the property
- Create a dedicated fund towards financing of rental housing
- Incentivise the public private partnership (PPP) model in rental housing
The real estate sector has a lot of expectations from the government in the 2020 Budget that will give the necessary thrust to the industry in the coming years.
(The author is general manager, Valuation & Advisory Services, Colliers International India)
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