As India gears up for its 71st independence day, and hopes for freedom from its housing woes, our expert makes a case for rental homes, a must in current times
For decades, independent India peacefully lived with the concept of perpetual leases, inherited from the colonial era. Today, India is a country under construction. However, the governments’ design for housing, has perhaps failed to keep pace with the changing times. From building industrial nodes to smart cities, the mammoth workforce orchestrating this makeover, demands an immediate switch in our housing policy. Much like the current government’s recent focus towards affordable housing, a massive exigency for rental homes stares at the country.
Home ownership: A wise choice?
Today, young professionals often feel the pressure of procuring a residential asset to start a family. This trend became more prevalent since 2002, which saw a mortgage meltdown in India. Home loan rates hit a historical low (ABN Amro offered home loans at 6.75 per cent, the lowest ever). Now, a large section of young India, is unable to afford a house. Many others, have either found themselves engulfed in a debt trap or have become prisoners of the city. In today’s fiercely competitive times, where job cuts are a rampant reality, the ‘wise’ decision to buy a house, might not be the wisest anymore. Residential real estate, purely as an investment vehicle, has also run out of steam. The National Capital Region (NCR) is a case in point, where values have eroded.
Advantages of a rental home over property ownership
The Economic Survey 2016-17, described India as a country on the move. It refers to the emergence of a free-wheeling generation, averse to build their lives around a permanent fixture called a ‘home’. While the debate, over living in an owned residence over a rental property can be unending, certain benefits of the latter are undeniable. Firstly, you could afford a rental house that is more than 2-3 times the value of a property within your purchasing power. Moreover, this value is not restricted to just the size or quality of the apartment. It also pertains to other crucial yardsticks such as the social infrastructure, the time spent on commute and the difference in the overall quality of life.
Secondly, it could have a huge bearing on one’s career. A person in a rental accommodation is obviously more mobile, as compared to someone tied down by equated monthly installments (EMIs). The advantage assumes huge relevance, considering that a large section of the workforce in our metro cities belong to small towns. However, the acute shortage of rental housing in India and its unorganised structure, continue to be natural pain points.
The market for rental housing in India
Despite the burning demand for rental properties,
there is no structure for this kind of accommodation in India. Unlike
matured economies such as Singapore and Dubai, our housing policy has
failed to consider the housing needs of the large population migrating
across the country. This explains the massive slum population infesting
our metros today. According to the National Sample Survey of 2012, 71
per cent of the households living on tenanted apartments did not reflect
on paper. On the other hand, industry estimates show that approximately
11 million housing units lie vacant in India.
While the demand for rental homes might not be enough to offset that number, a strategic government policy could still bridge the demand-supply divide. Worse, the pro-tenant Rent Control Act (RCA) is probably the most draconian regulation of our times. The regulation that prohibits landlords to charge market rates and face long-suffering litigations to evict tenants, played a major role in squeezing out market confidence in rent-yielding developments. However, the addition of the leave and license clause in the RCA, brought some reprieve for landlords. Markets such as the Europe have a flourishing rental management business, thanks to a flexible policy environment to evict defaulters and nurture investors, including pension funds, with healthy returns.
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