Rental housing appears to be a step in the right direction. However, more work needs to be done to see some meaningful improvement in housing sector.
For a country with a housing shortage of approximately 20 million units, out of which more than 95% belongs to economically weaker sections (EWS) and low income group (LIG) categories of urban India, rental housing seems to be a viable option. Ministry of Housing and Urban Poverty Alleviation (MoHUPA) has come up with a draft ‘National Urban Rental Housing Policy (2015)’. The broad objective of the policy is to create an adequate rental housing stock by promoting Social Rental Housing (SRH); facilitate shelter for those who cannot pay the market rents; and need based rental housing for specific target groups who have the ability to pay only up to a certain amount of monthly rent.
Key initiatives proposed in the policy
- Provide incentives (fiscal and non-fiscal) to the tenants, i.e. tax exemptions, housing vouchers, etc.
- Facilitate income tax concessions and incentives such as exemption from stamp duty, registration charge for institutional owners that create mass rental housing, especially catering to the affordable SRH sector.
- Encourage Residential Real Estate Investment Trust (RREITs), Public Private Partnership (PPP), Special
- Purpose Vehicles (SPVs), Residential Rental Management Companies (RRMCs), Social/Need Based rental Housing.
- Earmark certain percentage of dwelling units for Social/Need Based Rental Housing under various Central/State level Housing Schemes.
- 100% deduction of the capital expenditure for building of mass rental housing either for own employees or for other socially vulnerable sections of the society under Corporate Social Responsibility (CSR)
Facilitate modifications in the legal and regulatory mechanism namely in Lease/Rent Agreement, Building Permissions, etc.
- Encourage adoption of the Model Tenancy Act, 2015.
- Create an online portal of database on rental housing stock, vacant houses/properties and facilitate online system for mandatory registration, enquiry on rental housing.
- Exempt property tax for predefined period (say for 5 to 10 years) for Social Rental Housing properties.
- Develop strategies to deal with the vacant/locked properties in consultation with various stakeholders and come up with options/alternatives.
- Provide for fast adjudication process for resolution of disputes through rent tribunals.
- Promote Residential Rental Management Companies (RRMC) to bring efficiency, especially in operation, maintenance and management of large scale rental housing projects/schemes.
The policy is primarily encouraging social rental housing (which means rental housing where the rent is set at a level below the market rates) to make it affordable for poor people (EWS and LIG). It does not provide much direct benefit for Market Driven Rental Housing (MDRH). The policy encourages introduction of Residential REITs, and Residential Rental Management Companies (RRMCs), PPP (Public Private Participation), etc. However, there is lack of clarity about the implementation and viability of such proposals. In India, office REITs are still not viable due to lower yield, residential yield is even below and range anywhere between 2 to 3% across markets. With such kind of returns, how will the residential REITs be viable, is a question that should be addressed for seeing active private participation.
A lot has been written on creation of adequate rental housing stock but there is no mention on availability of land, high prices of land, etc. The policy is talking about fiscal and non-fiscal benefits like tax exemptions, housing vouchers, etc. and facilitate income tax concessions for institutional owners, however current residential rental yield does not support the whole idea. One initiative that can be implemented fast and will encourage private participation is 100% deduction of the capital expenditure incurred on building of mass rental housing, either for own employees or for other socially vulnerable sections of the society under CSR.
Overall, the intent of the policy is admirable, but the draft does not provide much specific information in its current state. The policy is directionally right, however, much more is needed to address the issues at the implementation level and encourage adoption of the policy at each level, be it a central state or city.
Article authored by Surabhi Arora, Associate Director, Research | Featured on Moneycontrol.com