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Are deposit-free rentals a potential solution to Bengaluru's tenant struggles?
Bengaluru real estate market: Deposit-free rental schemes are emerging as a possible solution for tenants trying to navigate the city's costly housing market
Ashwin G has been searching for flat mates in Bengaluru's prime areas like HSR Layout and Koramangala for over a month due to steep rentals— ₹40,000 for a 1BHK and ₹75,000-90,000 for a 2/3 BHK—and an equally exorbitant deposit amount of up to ₹4.8 lakh. With rentals increasing by 20-30% in the IT Capital over the past two years, the high deposit demands leave potential tenants struggling to afford a place.
In Bengaluru, landlords typically ask for a security deposit of 6–10 months of rent. So, for an apartment with a rent of ₹40,000 or more, the deposit will be ₹4.8 lakh. The high-security deposits have made it difficult for new employees moving to the city to rent apartments.
"We see several tenants struggling to get an apartment just because the landlord does not want to negotiate on the deposit. The inventories are available in prime areas like HSR Layout, Koramangala, Whitefield, and north Bengaluru and come with very high deposit amounts," Kiran Kumar, vice president of Hanu Reddy Realty added.
Also Read: Bengaluru rentals: What can tenants do if landlords do not refund the security deposit?
Can deposit-free rentals resolve tenants’ woes?
A few experts believe that a deposit-free rental scheme can potentially resolve issues faced by tenants struggling to pay hefty security deposits.
What is a deposit-free rental scheme?
Under the scheme, the prospective tenant signs a rental bond with the landlord, and the third party executes it for a nominal one-time fee. The rental bond serves as a guarantee in favor of landlords, providing financial security in the event of tenant default, covering unpaid rent, utility bills, breach of lock-in periods, and property damages.
Amit Kumar Agarwal, CEO and co-founder of NoBroker.com, explained that the tenant pays a premium for a bond, which replaces the security deposit and provides cover to the landlord in the event of a default in payment of rent and utility bills, loss of rentals due to a breach of the lock-in period, or damages to the property.
"Let's say the rent is ₹25,000, and the security deposit would be around ₹2.5 lakh. However, under this model, the tenant must pay a one-time yearly premium of about 6% of the deposit or ₹15,000 and no deposit amount," Agarwal said.
The damages incurred by the landlord in this case, such as broken cabinets or faulty geysers, will be covered by insurance until the tenant occupies the property.
Also Read: Bengaluru real estate: Landlords start compromising on rents as city sees new supply, more rental options
Are landlords willing to sign up for the deposit-free rental scheme?
According to a survey of 570 tenants conducted by NoBroker, 35% are willing to opt for zero-deposit rentals. Deposit-free rentals have seen a Y-o-Y growth of 400%.
"We see tenants, including families and young bachelors, opting for the model. However, Gen Zs and millennials (landlords and tenants) are more adept at the concept. Faster rent-outs and credit-verified tenants are a draw for owners. Similarly, a lower upfront cost is a draw for the tenants," Agarwal said.
Local brokers say the concept is picking up in cities like Bengaluru, and an increasing number of queries continue to pour in. "However, the major problem is that there are fewer companies who are offering such models. So even though we get queries for such rental models, we have to go for traditional agreements," Sunil Singh from Realty Corps said.
The challenges
Currently, 5% of all the properties are rented out without a deposit. NoBroker has more than 500 properties (under property management) in Bengaluru.
"A major challenge to overcome is to spread awareness of the concepts. Several landlords remain in doubt, especially the ones who are non-tech savvy. What if I do not get the insurance amount? They ask," Singh added.
Realtors say while adoption is a challenge, more companies need to take the initiative to change. They add that even landlords who are willing to sign up for the concept agree only if the rentals are high in their areas.
"Seamless claims process and landlord's willingness to forego upfront lumpsum deposit will be key to the future of this concept. We see success more in Bengaluru due to the high deposits being charged here by the landlords; however, it will take time to see a healthy adoption," Agarwal added.
