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Like RERA, Model Tenancy Act 2019 may lose its purpose if states dilute guidelines: Experts

Mumbai had the highest number of vacant homes with nearly 4.8 lakh units, followed by Delhi and Bengaluru with nearly 3 lakh homes each, says a report

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To fulfil its promise of Housing for All, the Modi government has proposed a model tenancy Act that seeks to establish an independent authority in every state and Union Territory for registration of tenancy agreements and even a separate court to take up all tenancy-related disputes but experts warn that like RERA, the Model Tenancy Act, 2019 may lose its real purpose if states do not follow the basic guidelines and dilute them.

There is also a dire need for the government to throw policy-backed weight behind rental contract enforcement and property rights, they said.

"While the government lays down the basic policies, the exact rules will likely change within each state since land is a state subject. Like we saw in the highly lopsided roll-out of RERA, the Model Tenancy Act, 2019 may lose its real purpose if states do not follow the basic guidelines and dilute them. For this reason, the Model Tenancy Act, 2019 - like RERA - may well become a process rather than an event, and need several course corrections to reduce regional dilutions before it becomes a force to reckon with," said Anuj Puri, Chairman - ANAROCK Property Consultants.

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The model tenancy law has proposed limiting the advance security deposits to two months’ rent and has also suggested heavy penalties for tenants who decide to overstay. Those who do may have to shell out double the rent for two months and even four times. The draft also makes it the landlord's responsibility to rectify structural damages and undertake measures like whitewashing walls and painting doors and windows.

It must be noted that this is only a model act because since land is a state subject, states have the right to either adopt it or reject it. Also, the laws to be notified by the states will not have a retrospective effect.

The Housing and Urban Affairs Ministry has put the draft law in public domain for stakeholder consultation and will seek Cabinet approval on it later.

"As of now we have uploaded the draft on our website for 21 days to invite comments, we have sent it to states and we are expecting their comments within 15 days, thereafter we will re-examine everything and will take it to the Cabinet," said Durga Shanker Mishra, secretary, ministry of housing and urban affairs at an ASSOCHAM event held in the Capital on July 12.

Finance Minister Nirmala Sitharaman on July 5 while presenting the Budget had proposed that several reforms will be taken up for rental housing. A modern tenancy reform will be floated among the states. The FM had called  the old rental laws archaic and stated that the government will soon formalise a modern tenancy policy and share it with all states.

Reasons why most owners prefer to leave their homes vacant

Distorted property rights (in the absence of a sound rental policy), weak rental contract implementation and low rental yields are some of the major factors that prompt homeowners to leave their houses vacant rather than rent them out. Another reason for high vacancy levels is the vast spatial distribution of new residential units in cities - this is evidenced by the fact that vacancy rates increase as we move further away from the denser urban areas, according to an ANAROCK analysis.

Despite the acute housing shortage in the country, according to the National Census, vacant houses comprised around 12 percent of the total share of the urban housing stock in India, amounting to nearly 11.1 million homes in 2011 – an increase of 71 percent since 2001.  Mumbai had the highest number of vacant homes with nearly 4.8 lakh units, followed by Delhi and Bengaluru with nearly 3 lakh homes each, it says.

In Mumbai, there are vacant homes because the HNIs who invested in them largely did so to diversify their portfolios - not to earn rental income. Also, there are very few takers for homes in the most far-flung areas. In Delhi-NCR, many vacant homes are in infrastructure-starved areas far removed from the economic activity of the main cities. In Bengaluru, NRIs who invest in homes find it difficult to remote-control their properties in terms of finding the right tenants, managing rental agreements and property maintenance if the property is rented out.

Rental housing lucrative proposition for REITs and FDI

The Rental Housing can gain traction with a conducive policy framework which shall attract corporate players to provide serviced apartments for their employees. It also gives a lucrative proposition for REITS and Foreign Direct Investments players with steady income as well as appreciation in the property value.

With emerging young workforce entering in to Indian employment cycle, BFSI & IT sector encourages mobility of its work force to different job centres for newer exploring multiple opportunities. This will encourage new emerging platforms like co-living and student housing in order to provide additional housing to create ready services apartments as a new business model, said Niranjan Hiranandani- national president- NAREDCO.
First Published on Jul 12, 2019 05:00 pm
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