The Indian government is contemplating new legislation that will overhaul outdated laws that provide rent control in prime locations. Officials in the Housing Ministry believe allowing landlords to raise rent will encourage them to reinvest in their properties and open up more opportunities for a country that is suffering a housing shortage estimated at 25 million homes. People who oppose the rent hike say the current “pagdi” system is more than fair, wherein tenants pay an initial lump sum up front that reflects current market rates in return for lower payments throughout the rest of the tenancy. For more on this continue reading the following article from PropertyWire.
Plans are moving ahead in India to overhaul the property rental market which could result in tens of thousands of tenants paying more as part of a push to make the sector reflect market reality.
The Model Residential Tenancy Act, 2011, is intended to replace archaic rent control legislations that capped rentals, resulting in landlords getting a pittance for properties in prime localities in metros.
The draft legislation, which is yet to be adopted by the states, proposed that rents will be based on an agreement between the landlord and the tenant. Existing agreements can be frozen for 24 months but after that the landlord can seek a revision. In the absence of an agreement, the landlord will have the option to terminate the tenancy.
Adopting the new law will not be compulsory but the government intends to offer incentives for states that do such as making them eligible for funding.
Those who welcome the change point out that the current legal system has discouraged landlords from reinvesting in their properties as rentals have been kept artificially low. The Housing Ministry has estimated that there is currently a housing shortage of around 25 million in the country and by allowing for increase in rentals, the government in encouraging property owners to let out their properties and ease the deficient.
There are also clauses that have been built in to the new law to protect the interests of tenants. To check against arbitrary hike in rents, the revision would be based on terms set out in the agreement signed by both the parties. In addition, a three month written notice has to be given before the increase.
If the tenant decides the rent increase is not acceptable a termination notice will be required or it will be deemed that the new rent is okay. Any disputes will go to a rent tribunal.
However, tenant associations claim that the new law would spell disaster for large cities such as Mumbai where thousands of old properties are still rented out under the long standing pagdi system. Under this practice, the tenant pays a big non refundable lump sum at market rate at the beginning with the understanding that the landlord will charge only a minimal rent.
This article was republished with permission from PropertyWire.