The government needs to take measures for improving financial viability of rental housing projects such as exemption of property tax for pre-defined period and ease of capital for development, according to property consultant CBRE. In its report ‘The Advent of Rental Housing in India’, the consultant said that more than 11 million sold units have remained unoccupied out of the total 110.14 million houses in urban India and the unlocking of the existing unoccupied sold stock for rental accommodation can go a long way in addressing India’s housing shortage.
“…a shift in demographics, socio-economic trends and consumer needs are fuelling the demand for rental housing; large-scale reverse migration of labourers due to COVID-19 also reinforced the need for affordable rental housing options,” the report said.
To unlock the potential of the rental housing segment, CBRE said the government has already launched Affordable Rental Housing Complex (ARHC) scheme and also brought the Model Tenancy Act, 2021, but felt that “a lot more remains to be done”.
The model Act, which has been circulated to states for implementation, is aimed at overhauling the legal framework surrounding the rental housing market, thereby institutionalising the segment by creating a rent authority to provide a speedy dispute adjudication mechanism, the report said. The CBRE pointed out that the model Act has certain gaps that need to be plugged.
The creation of a robust rental housing market would require further measures, which include the enactment of a Rental Housing Policy, it advised. In its report, the consultant has given 11 recommendations for the growth of rental housing market in India.
“Implementation of the Model Tenancy Act would hold the key as housing is a state subject. The Centre needs to ensure that states amend their existing acts or enact a new policy, without diluting the essence of the central guidelines,” it said.
Stating that some provisions in the Act need greater attention, CBRE pointed out that the model Act has left multiple terms undefined such as ‘uninhabitable’, ‘detrimental to the interest of the landlord’ and ‘immoral purposes’.
“The timeline for resolution of some disputes needs to be specified in the Act. These include disputes on withholding essential services, revision of rent and contraventions by property managers,” the report mentioned.
The timeline for resolution of some disputes needs to be specified in the model Act. These include disputes on withholding essential services, revision of rent and contraventions by property managers. “While the bar on eviction has been removed by the act, the process remains as restrictive as before: eviction can be carried out only on limited grounds, and that too after taking permission from the rent court.” Besides the need to re-look at certain provisions in the model law, the CBRE said it was important that certain steps be taken at a structural/policy level to ensure that rental housing is able to flourish in the country.
“India is at the lower spectrum of gross rental yields, with most investors historically relying on property price escalation for financial returns. Therefore, there is a need for measures that improve the financial viability of rental housing projects in India,” the consultant said.
The measures could range from exempting property tax for an initial predefined period, allowing additional low-cost FSI for rental housing, encouraging PPP (public-private partnership) participation for developing rental housing on government land, facilitating ease of capital for build- to-lease and rent-to-own residential projects etc.
“The Model Tenancy Act will be a game changer for the Indian rental housing segment. The Act is expected to encourage private participation and help monetise the vacant rental stock by infusing trust in landlord-tenant relationship, in addition to providing a speedy dispute adjudication mechanism. We further expect the Act to have far-reaching implications towards formalizing the housing market in India,” said Anshuman Magazine, Chairman, India & South-East Asia, Middle East & Africa, CBRE.