Three years back in June 2015, the Indian government launched the Pradhan Mantri Aawas Yojna (PMAY) with the aim of providing affordable housing for urban poor. The scheme proposes to build 20 million houses for urban poor and low income groups by 2022. The objectives of the scheme are noble and far-reaching.
Contrast this to the 2011 census by the government itself, which states there are 11 million vacant urban houses! This is ironic and suggests systemic breakdown.
In a previous article I had mentioned about the plight of home owners in India. Home rental yield in urban India is amongst the lowest in the world at around 2%. Add to that the owner-unfriendly tenancy laws in the country and it starts making sense why so many home owners do not bother to put their property assets to productive use in the rental market. That’s a loss to the owner, tenants and the economy.
The key reason is the fear of tenant squatting. Even with a Lease and License Agreement, it is difficult for home owners to protect their property from unwanted overstaying tenants. While the contract is enforceable in courts, it can take years & decades to reach a solution. That’s where things break down.
Here are three steps I believe can uncover massive unused inventory to revolutionize housing market in India.
Bring Home Renting under RERA
Real Estate Regulatory Authority (RERA) seeks to protect home buyers from unscrupulous property developers. Its purview should expand to protect not just home buyers but also home owners as a class. It takes a home owner years to get his house vacated through the consumer or civil courts in India. Simple resolutions through a regulatory body will instill confidence in the home owners.
Scrap Rent Control Laws
In India, if a lease agreement is signed for a period of more than 12 months, rent control laws apply. These laws are extremely restrictive. In Delhi, as per the law, the maximum rent is 10% of the cost of construction and price of land as determined by the government. The law also transfers the right of ownership to the tenant for an indefinite period! These archaic laws are well past their utility and are only distorting the market. At 2%, rents are already tenant friendly, and these laws serve no purpose.
The Law must stop viewing home owners as Zamindars!
The Tenancy & Rent laws in India, most of them enacted in the 40s & 50s, see the home owner as a repressive Zamindar (land owners) out to exploit the poor peasants. That’s a bygone era and the realities of urban India today are different. Home owners are regular people who have legitimate rights over their assets, built with their own hard earned money. And the law must protect that right.
There is a sufficient number of houses available in urban India. We have a problem of artificial scarcity, esp. at the middle and higher income levels. Much of that can be solved by enacting few logical new laws and scrapping other archaic ones. That will revolutionize the housing sector.
Author: Pallav Pandey
Passionate about building tech-enabled businesses in emerging markets. Excited to work with young companies in their journey from 0 to 1.