Model tenancy law is right step to boost rental housing

"That's such a depressing song to play," she said, as soon as she entered my room with a view, overlooking the bus depot.

I had been listening to Amit Trivedi's rendition of Zinda hoon yaar kaafi hai, written by Amitabh Bhattacharya, from a movie called Lootera.

"Rains and melancholy go together," I said.

"Oh, when it comes to you V, anything and melancholy go together," she replied.

"Why are you so chirpy today?"

"Oh that," she said. "Papa had called, and he sounded happy."

"Now that is a rarity."

"Don't be nasty V."

"So why was he happy?" I asked.

"There was something in the government's budget that made him happy. As the finance minister Nirmala Sitharaman said in her speech: "It is proposed that several reform measures would be taken up to promote rental housing. Current rental laws are archaic as they do not address the relationship between the lessor and the lessee realistically and fairly. A model tenancy law will also be finalised and circulated to the states.""

"Okay. So what has made your father happy?"

"You see, he owns three flats and has a constant fear in his head."

"Which is what?"

"That the tenants won't leave when the agreement runs out."

"Oh. Why this fear?"

"Because there have been tenants who have not left when they were supposed to."

"Hmmm."

"Hence, now he doesn't rent out the flats unless the prospective tenant comes through someone he knows."

"Oh."

"Which means that there are occasions when one of the homes is not on rent."

"And he loses out on money."

"Yes."

"So how will this change now?"

"You know we keep talking about real estate and the idea of buying homes all the time."

"Yes," I said.

"So, here is the thing. India's housing problem is not just about high home prices which have been discouraging people from buying homes to live in. It is also about too many homes that people have bought and are simply locked."

"True that."

"They don't like the idea of renting these homes out simply because they think it's too risky. What if the tenant does not leave when the agreement runs out," she said.

"Hmmm."

"Also, what has not helped is that the rental yields (annual rent divided by market price) are in the range of 2-3%, so it is simply not worth the risk to rent out a home."

"Yes."

"Now Papa believes that with the government bringing in a model tenancy law and circulating it to states, things will improve," she said.

"It is clearly a step in the right direction," I said.

"He thinks that after this law comes out and is adopted by the state governments, it will be easier to rent out homes."

"That I guess is the main aim of the law."

"Hmmm."

"And I think if it is implemented well enough, it will end up helping both the landlords and the tenants."

"How?" she asked.

"With a well-defined law in place, the tenant will know exactly what will happen to him, if he overstays. On the flip side, given that the landlord knows that there is a law in place, he might be tempted to let an average tenant stay longer than ask him to vacate the place after a year or two, as tends to happen as of now."

"Yes, makes sense."

"In the longer-term, the entire idea of renting will pick up. Currently, there is great pressure on a new family to buy a house and settle down. But with more homes being available for rent that pressure is likely to come down."

"Hmmm."

"Also, as more homes become available for rent, the pressure and the demand to buy a new home is likely to come down. This, in turn, should help in bringing housing prices down in general."

"Yes."

"But all this is in the air currently."

"Ah, and I was wondering, how are you being so positive V," she said.

"Too many ifs and buts. What sort of law the government will bring in. Whether state governments will adopt it? What sort of a role will the judicial system play in this? Too many questions that don't have answers, as of now."

"It's raining again," she said. "Let's go to the sea face."

The example is hypothetical.

Vivek Kaul is the author of the Easy Money trilogy.