The Indian property market will become more attractive to non-resident Indian (NRI) investors with a host of policy reforms that aim to give protection and better returns for investors.
Above and beyond personal use, NRIs look to invest in property because they have an appreciation of the potential value and rental returns.
However, the existing rent control laws lack an efficient and time bound dispute adjudication framework and are biased towards the tenants, making rental housing less attractive and resulting in NRI investors staying away from the sector.
Model Tenancy Act
The Indian government, in a bid to address the shortcomings of the current legislations, recently approved the Model Tenancy Act (MTA), which is aimed at refurbishing the legal framework concerning rental housing across the country.
Further policy reforms include the Real Estate (Regulation and Development) Act (RERA), GST, insolvency and bankruptcy rules that have stabilised the realty market.
“The MTA aims at creating a vibrant, sustainable and inclusive rental housing market in the country. It will enable creation of adequate rental housing stock. It will enable institutionalisation of rental housing by gradually shifting it towards the formal market,” said Benoy Sasi, international lawyer at DIFC Courts.
The new rules seek to ensure affordability, formalisation and increase private investment in the rental housing market. The government has claimed that the MTA act will balance the interest and rights of both the owner and tenant in an accountable and transparent manner.
NRIs have been apprehensive about investing in property market for rental returns for fear of legal disputes with the tenants; concerning eviction, collection of rents and tax compliance.
MTA seeks to cover both urban and rural areas and will apply to premises let out for residential, commercial, or educational use but not for industrial use. Rental accommodation is predominantly a need of urban settlements as more of migration is towards urban areas of the country.
The property market is expected to attract more investments from local institutional investors as well as from abroad with the investment climate in India is becoming conducive for better return.
With the legal framework becoming easier and more transparent, the rental market is expected to see greater participation. The eviction of tenants, from both residential and commercial properties, has been a thorny issue that deterred investors.
MTA makes it compulsory for the landlord and tenant to enter into a written agreement which must specify the rent, the time period for the tenancy, terms and period for revision of rent and the security deposit to be paid in advance.
The agreement should also specify any responsibilities with regard to maintaining the premises in the prescribed format, which is then required to be submitted through e-filing with the rent authority along with other relevant documentation.
Tenants under MTA are required to pay security deposit subject to a cap of a maximum two months’ rent in case of residential premises and maximum six months’ rent in case of non-residential/commercial premises. The security deposit will be refunded by the landlord to the tenant after completion of tenancy period subject to genuine deductions, if any.
The new law requires that the tenant may request the landlord renew or extend the tenancy period. The tenant will be liable to pay enhanced rent if a tenancy period has ended and not been renewed, or the tenant fails to vacate the premises at the end of such tenancy.
If the tenant fails to vacate the premises at the end of tenancy, or on termination of tenancy by an order, he will be liable to pay twice the monthly rent for the first two months and four times the monthly rent subsequently till he occupies the premises.
The trust factor
The new legislation will protect and balance the rights and interests of both tenants and landowners to promote rental housing. It will also bridge the trust deficit between tenants and landowners by clearly demarcating their rights and obligations.
Further, it helps creation of adequate rental housing facilities for all income groups and encourage private participation in rental housing as a business model to address the huge housing shortage and the issue of homelessness, Sasi said.