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Rental housing: The road ahead

Extra FSI clubbed with tax incentives for developers can give a shot in the arm to rental housing projects in the country and provide tenants with more leasing options

realestate Updated: Jun 21, 2013 19:56 IST

Out of the 1.8 crore new houses built between 2007-2012, owners of over 1.1 crore units in India prefer not to let out the properties fearing that that evicting tenants will be next to impossible. This is primarily because India does not have a rental housing policy with incentives or benefits for private developers who could be encouraged to construct only rental housing. Stringent legal safeguards, too, are not in place for people wishing to rent out their properties.

The government has finally woken up to the need to address the issue of organised rental housing for those who cannot afford to buy their own homes, especially those migrating from small towns to cities to work. A government-appointed task force has recommended a separate law for regulating residential rental housing in India and tax benefits to encourage private developers to set up rental housing projects.

The 19-member panel headed by Jaithirth Rao, chairman, Value and Budget Housing Corporation Private Limited was set up by the housing and Urban Poverty Alleviation ministry last year to analyse the causes of non-availability of sufficient rental housing and recommend policy interventions for creation of such properties.

In its report to be submitted in July, the panel has recommended setting up of a residential rental housing act specifically for the rental housing sector on the lines of the Model Residential Tenancy Act 2011. A separate law has also been proposed for residential and commercial rental properties.

Other recommendations include basing rent prices on contractual agreement between landlord and tenant instead of standard prices at present being regulated by a rent controller or court. It’s said arbitrary increase in rent prices should be discouraged and a special fast track rental housing tribunal be set up for speedy resolution of all rent related disputes. According “infrastructure” status for large rental housing projects and tax benefits for rental management companies to help them operate smoothly have also been mooted.

The panel wants that affordable rental housing should include affordable hostels and dormitories and flats of less than 60 sq m and that the total charges be kept to the minimum per month per bed.

For large projects earmarked for rental housing, infrastructure status should be conferred, thereby allowing for a tax holiday, lower financial cost, depreciation benefits etc.

Employers wanting to offer rental housing, rent-out facilities to their employers could be given specific grants or financial assistance by way of lower interest rates earmarked for rental housing projects.

It has recommended that rental management companies should be given tax benefits so that they are able to provide the important bridge between the landlord and the tenant and facilitate smooth transition between the two parties.
It has also proposed that once the project is completed, there should be a tracking system to monitor the expenditure of the projects.

According to Arvind Nandan, executive director, consulting, Cushman & Wakefield, this is “a very positive step forward. It will institutionalise that market segment.”

Rental housing can receive a shot in the arm only if there is a watertight legislation in place and tax incentives/subsidies for material and land moratorium on initial investment are provided to the builder community to enter the field.