Rental Housing in India

Rental housing has been a much passed over subject in context of housing in India. Even after 72 years of independence, there is no policy framework to catalyse private sector participation in this vital subgroup of housing despite 21.72 million urban rented households. Historically, the Indian housing policies have been directed towards home ownership which alone cannot solve the housing conundrum.

The National Urban Rental Housing Policy, 2015 (draft), defines “Rental Housing” as a property occupied by someone other than the owner, for which the tenant pays a periodic mutually agreed rent to the owner. The need for rental housing was first mentioned in National Housing Policy, 1988, but housing shortage continues to persist in almost all Indian cities (Zia, 2019).

Related Article: What is Flexible Housing?

Overview of the current rental housing scenario

As per Census 2011, there are a total of 27.37 million rented households in India, of which 79.4% or 21.72 million are urban rented households (Census, 2011). Of these 21.72 million rented households, the households with a size of 3 or 4 family members alone constitute 50% of the total or 10.95 million urban households. Households with 3 to 4 members are typically nuclear families constituting a married couple with one child or a married couple with two children, respectively. The fact that 50% of typical nuclear families in urban households live with a rented roof over their head proves that home ownership is not a priority in an average Indian family’s scheme of things.

Currently, the total urban rented households’ statistics in India may be much more as compared to the Census 2011 data. However, the fact that Tamil Nadu, Andhra Pradesh, Maharashtra, Karnataka, Gujarat, West Bengal, Uttar Pradesh and the National Capital Territory (NCT) of Delhi command a hefty percentage share in the total rented households in urban India (Figure 1) is largely attributed to key urban employment hubs in the cities of Chennai, Hyderabad, Mumbai, Pune, Bengaluru, Ahmedabad, Kolkata and the National Capital Region. Most of the urban population in these cities living in informal rented housing accommodation provides a huge opportunity for private developers, property owners and private housing operators to enter the formal rental housing market in India.

Related: Constraints With respect To Demand and Supply of Affordable Housing

Challenges for rental housing in India

Census of India data shows a sharp drop in the share of rental housing from 58% in 1961 to 28% in 2011. While the share of 58% came on a lower base of housing stock as compared to the housing stock in 2011, several factors have obstructed the growth of rental housing market in India and pushed it into informality (Vaidehi Tandel, 2015).

• Low rental yields in residential asset class: Rental yield is defined as annual rent as a ratio of the property price after deducting all expenses. Low rental yields have kept landlords away from investing in the property.
• No regulatory backbone to formalise rental housing: The model Act proposed modification of some of the existing provisions on inheritance of tenancy and prescribed a rent level beyond which rent control could not apply. The New Delhi Rent Control Act that was passed in 1997 was based on this but failed to be notified due to resistance from traders who were sitting tenants. Due to the state level policies and local political climate, reforms in the rental housing sector remained a work in progress since, nearly, the past 25 years.
• Landlord and tenant equation: The landlord-tenant relationship in India has always been a very sensitive subject and despite tenancy and rent-related laws in Indian states, conflicts do arise between the two. The risk of property litigation in cases of conflicts is a major deterrent which has made the rental market unattractive for property owners.
• No rental housing industry body: In the absence of a national rental housing industry body to govern all rental housing related matters and bring stakeholders together, encourage dialogue with government, enhance awareness on rental housing matters, there is no organized marketplace for rental housing in India.

Rental housing models that can be used in India

Though the rental housing phenomenon is still evolving in India, rental housing models are a vital component of the mainstream housing market across the globe. From an Indian context, these two rental housing models can be adopted to bring rental housing to the forefront and attract institutional investments.

Related Article: Classification of Towns as per Census of India 2011

Build-To-Rent

Build to Rent (BTR) refers to private rented residential properties, which are constructed specifically for the purpose of renting, rather than sale. As the name suggests, this type of construction refers to purpose built residential inventory to cater to the needs of all kinds of renters. BTR developments is an emerging sub-market in United Kingdom and Australia’s private residential market. A BTR model can also work well with a Special Purpose Vehicle (SPV) in partnership with urban local bodies or with public sector bodies under Ministry of Housing and Urban Affairs through PPP models or through joint development agreements between parties to share the development risk. Due to high development costs, such BTR developments can work only for large-scale developments, as smaller projects will not be able to support the operational cost.

Rent to Own (RTO)

Under an RTO contract, the owner or developer agrees to sell the house to the renter in future. During the rental period, a portion of each monthly rental payment is credited to an escrow account which is utilized for down payment against the purchase price when the time comes. If the tenant decides to not exercise the option to buy, the owner or developer is then free to rent or sell the property to another buyer, or to restructure the contract. In such an instance, the deposit already paid is forfeited by the owner/developer as per the terms of the agreement.

The way forward

The current shortage of housing in India stand out to be around 18 million houses which cannot be only catered with an approach of providing housing on the basis of ownership basis. It is also estimated that demand for rental housing in India will continue to be growing in future (Kumar, June, 2016). Therefore, to have an inclusive and equitable social housing, the rental housing sector requires a major public thrust and attention apart from effective contribution from other stakeholders. The states, urban and local self-governments have an important function to perform in this regard, and can contribute towards the goals of fostering “smart” cities and villages in the country.

Author: 

Protim Shankar Talukdar
Member of NOSPlan
School of Planning And Architecture, Delhi

References

• (2011). Census.
• Kalpana Gopalan (2015) Affordable housing: Policy and practice in India, IIMB Management Review, 129-140
• Kumar, A. (June, 2016). India’s Residential Rental Housing. Economic and political weekly, 114-116.
• National Urban Rental Policy, 2015 (draft)
• Vaidehi Tandel (2015) Decline of rental housing in India: the case of Mumbai, Environment & Urbanization, Vol 28(1): 259–274
• Zia, G. (2019). Institutionalising The Rental Housing Market In India. Khaitam & Co.