Model Tenancy Act: Real Estate developers expect a boom in the rental business

Model Tenancy Act has been implemented by the central government or Modi 2.0 Government and the real estate developers are expecting it to fuel rental business in India. They are of the opinion that the new act will certainly help bring many unsold units, which are in lakhs, to the rental market hence helping fill the demand of houses in every segment. The industry insiders are of the opinion that the model act looks favorable to both tenants and landlords but there are some challenges that can be faced such as the cap on the security deposit might turn out to be a pain-point for landlords especially in cities where a multiple month's security deposits is an accepted norm.

Elaborating upon how rental business will gain moolah once the act is implemented by the respective state governments Harinder Singh Hora, MD, Reach Group said, "There was an urgent need of the tenancy act as we have seen that many landlords face the problem while renting out their properties. On the same hand, many tenants face numerous hurdles when they seek a home for rent. With India becoming a real estate investment hub, we have many NRIs buying residential properties but they avoid renting it out in the fear that they might face problems when they ask the tenants to vacate the property. Such scenarios leave the infrastructure unutilised and unproductive. This new and refreshed tenancy act will certainly help bring many lakh unsold units to rental market hence helping fill the demand of houses in every segment,  Model Tenancy Act 2019 is at the right time and we might see some good movement in the rental market after it gets implemented by all states."

Nakul Mathur, MD at Avanta India said, "The model act looks favorable to both tenants and landlords but there are some challenges that can be faced such as the cap on the security deposit might turn out to be a pain-point for landlords especially in cities where a multiple month's security deposits is an accepted norm. Another scenario is where tenant defaults on rent payment or damages the property then a two-month security deposit might not cover the expenses of repairs or losses to the landlord in case of non-payment of rent." 

Mathur said that as far as the impact of model act is concerned, people have to abide by it irrespective of the impact. And normally, people adjust to the laws no matter how discomforting they are. But the government has the responsibility to make sure that any law or act should not affect the lives of people.

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Expecting a boom in Co-living business Vikram Chari, Founder and CEO of SmartOwner said, "For co-living, one of the advantages of the Act is that it reduces deposits.  Since lower deposits are one of the key advantages of the co-living industry compared to traditional leasing, it brings co-living and traditional leases more in line with each other. However, it may also actually reduce the competitive advantage of co-living from a tenant perspective as it reduces deposits, which has been one of the USPs of the co-living sector.  On the other hand, traditional landlords may find it difficult to operate in an environment with only 2 months' deposit as the time and cost of evicting tenants is quite high.  So this may give them an incentive to do deals with co-living operators instead of trying to manage tenants themselves.  Overall, I think the Act may be slightly negative for co-living from a demand-side and positive from a supply-side." 

Ajit Panda, Founder, Spaciya Advisors said, "The Model Tenancy Law in draft stage, seems to have found a way to plug the loopholes in lease transactions wherein both parties seem to be protected from mala fide intentions or acts. However, it will be a matter to observe if the government is able to roll it out without state-level dilutions as it has been the case in RERA. Till now, it has been really difficult to evict unruly tenants but the new law if in place in severity, can boost the confidence of owners to let out properties legitimately. At the same time, a tenant is protected from whimsical landlords. Categorically this will help, professional investment into underwritten residential properties like PGs on large scale and it will give a boost to Student Housing, Co-Living Aggregation."