I. Draft Act has little room for owner-tenant fights (Source - mint)

• Draft Model Tenancy Act tries to balance the rights and interests of owners, tenants.


• The draft Act proposes to cap security deposit to a maximum of two month’s of rent for residential houses.


• The draft act also makes it mandatory for tenants and landlords to enter into a written agreement.

Renting a house in most Indian cities is usually difficult for people, especially millennials and those who have just started working, due to the high security deposits and other conditions that owners place. But that does not mean owners land the sweeter deal. Giving your house on rent usually is a huge risk, given innumerable cases of squatting and tenants causing damages to the property. Recognizing the problems at both ends, the Model Tenancy Act, 2019, drafted by the ministry of housing and urban affairs, tries to strike a balance between the interests and rights of the tenants as well as the owners. We take you through its proposals and the issues it seeks to address.

Security deposit:

The draft Act aims to increase accountability and transparency in the ecosystem for renting out the premises in a disciplined and efficient manner. Among various other things, it tries to address the most ambiguous factor how much security deposit should a landlord ask for? At present, the security deposit amount is, typically, about two or three times the monthly rent in cities like Delhi, but it goes up to 10-12 months of the monthly rent in cities like Mumbai and Bengaluru. In Bengaluru the security deposit is 10-12 times the monthly rent.

The draft Act proposes to cap the security deposit to a maximum of two month’s of rent in case of residential properties and a minimum of one month’s rent in case of non-residential property.

The landlord usually enjoys the power of position and this often leads to the tenant being treated as an underling.

Amount of rent:

Though the general practice is to include a clause in the rent agreement related to increase in rent after a certain period at a certain rate, that may or may not always be in line with what the law says. In case of tenancies, which are governed under the existing rent control legislations, the landlord cannot increase or determine the rent without the approval of the rent control tribunals nor do the rent control legislations envisage escalation of standard rents to market rate.

The draft Act tries to address the issue of how rent can be increased. It proposes that rent can either be increased as per the terms and conditions mentioned in the agreement, or the landowner shall be required to give a notice in writing three months before the revised rent comes into effect. On the other hand, the tenant should either accept the increased rent or give a notice for termination of the agreement. If the tenant fails to reply on the notice of increase in rent, the tenant shall be deemed to have accepted the increase proposed by the landlord.

Vacation of house:

Most disputes between tenants and landlords get triggered when the landlord increases the rent or seeks vacation of the property. Further, there are only limited grounds through which a landlord can evict a tenant, as the present rules favour tenants more.

Under the extant laws, landlords can seek eviction of non protected tenants through a civil court by filing a suit for recovery of possession. In case of protected tenancies, the landlords can evict tenants only by approaching the rent tribunal.

Similarly, the tenants have to approach a civil court or the rent tribunal for seeking protection from eviction or any adverse action from the landlord. This has proved to be a very lengthy adjudication mechanism and thus, did not yield expected results.

Protected tenants are those who are protected under various state rent control regulations, while non protected tenants are those whose leases are governed by the provisions of the Transfer of Property Act, 1882. The laws apply depending on the amount of monthly rent and the state you reside in. For instance, in Delhi, if the rent is below Rs. 3,500 per month, the tenant will fall under the Transfer of Property Act; if the rent is above Rs. 3,500 per month, the Delhi Rent Control Act will apply.

Rent agreement:

The draft Act also makes it mandatory for tenants and landlords to enter into a written agreement while taking or giving a property on rent. Moreover, within two months of executing the rental agreement, both the landowner and tenant are required to inform the rent authority about the agreement. Within seven days of doing so, a unique identification number will be issued by the rent authority to both the parties.

To make the process smooth, the draft Act proposes to set up a digital platform in the local vernacular language of the state for submitting the tenancy agreement and other documents. It has also proposed a grievance redressal mechanism comprising of the rent authority, rent court and rent tribunal, in cases of disputes.

Even if the draft Act comes into force, it is unlikely to affect existing rent agreements. The Model Act is prospectively applicable and will not affect existing tenancies.

Implementation:

The draft Act has some proposals that can go a long way in enabling the owners and tenants to live in peace, but there are certain concerns over its implementation. Experts fear this Act, too, may go the RERA (Real Estate Regulation and Development Act, 2016) way.While five states are yet to notify rules under RERA, 10 had not yet launched their websites, as on April 2019and a few others have diluted the rules.

It is still a matter of choice for states and Union Territories to repeal or amend their existing Acts. Like in the case of RERA, the fear is that states may choose not to follow the guidelines, diluting the essence of the draft Act. It remains to be seen to what extent the states will toe the central government line.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.

However, as far as the supply and rentals are concerned, experts believe that the draft Act will have a positive impact on the rental market because it will lead to more confidence among owners. It will affect the tenure and pricing of rental contracts, including rent amount and deposit, in a positive way.

The copy of the draft Act is available on the ministry’s website (Mohua.gov.in) and is open for comments from the public and other stakeholders till 1 August.

II. As realty bites, builders want you to own a ready home and pay later (Source: Live mint)

• Most of the projects in which such schemes are being offered are high end homes in India’s top cities.


• The schemes are being selectively offered in Bengaluru and NCR, but are more common in Mumbai.


• Selling luxury homes has been a challenge for real estate firms in India, as interest costs pile up on unsold inventory.

Builders are offering customers a “buy now, pay later" scheme for read to move in homes, buyers can move in with a small down payment and pay EMIs after a year or two as property developers take “desperate" measures to liquidate their bulging inventory amid slowing demand.

The easy payment schemes, which were earlier offered only for under construction projects, have now found their way into projects with unsold inventory, as the sector continues to be buffeted by poor demand and a cash crunch.

Most of the projects in which such schemes are being offered are high end homes in India’s top cities. While these schemes are being selectively offered by some developers in Bengaluru and the National Capital Region, they are more common in Mumbai, where homes are the least affordable and unsold inventory has seen the steepest rise this year.

In recent years, buyers have favoured ready projects, which have no execution or delay risks. Yet, selling luxury homes has been a challenge for builders, as interest costs pile up on unsold inventory.

Realty firms are also marketing these offers to buyers, saying occupancy certificate has been obtained and no goods and services tax is applicable.

Mumbai based Sheth Creators has multiple schemes running across a couple of its ready projects. At “Vasant Oasis" in suburban Marol, where apartments cost Rs. 2.3 crore and above, buyers can pay 10% now, move in and the builder will take care of equated monthly instalments (EMI) for a year. The EMI payment for buyers starts only after that. In the “Beaupride" project in upscale Bandra, buyers can pay 25% now and 25% annually for the next few years.

The primary reason is to sell the ready apartments as quickly as possible, but you do not want to lose out on customers, and want to give them the time and comfort to pay in a staggered manner. It is not easy for builders to bear the EMI costs, but it is less expensive than holding on to inventory.

Property advisory Knight Frank India’s half yearly July report India Real Estate said unsold inventory is at 450,263 units in the top eight cities. Mumbai recorded a 14% rise in inventory overhang between January and June.

Gulam Zia, executive director of Knight Frank India, said that while interest subvention schemes have been common in under construction schemes so far, similar easy payment schemes for ready properties reflect the desperation or urgency to sell.

Properties are ready, but there are no sales. Developers have to do this. Tough times call for desperate measures.

If Oberoi Realty has introduced such schemes for its high end homes in suburban Mumbai, Lodha Group has an offer for its Palava smart city project.

This trend indicates overpriced properties in a micro market, which a developer is struggling to sell and now, trying to make them a bit affordable for buyers. If you have a Rs. 3 crore apartment in Goregaon (East) in Mumbai, it will not sell. Investors are not participating any more and end users are not finding such projects attractive.

Developers of luxury projects Total Environment Building Systems Pvt. Ltd and Embassy Group in Bengaluru, said these schemes make it easier for customers to buy ready homes, where payments start immediately.

Sometimes, instead of a discount such a scheme is offered.

The developer may add to the price but it is a staggered payment timeline, where such a scheme on some duplex units is offered.

At Embassy Group, 70% of its buyers are self funded and the firm is contemplating to introduce a scheme to widen the net of buyers for its luxury projects.

The Bengaluru developer has apartments priced at Rs. 10-17 crore in “Embassy Grove", Rs. 5-18 crore in “Embassy Lake Terraces" and Rs. 8.5-25 crore in “Embassy Boulevard".

Embassy held back sales in some of these projects in the last year or so, after selling around 65% of inventory, in a bid to complete them and then resume sales.

The impetus on the developers is to spur buyers to make faster sales.

Hope you enjoyed reading this edition of our newsletter.

Disclaimer:

The views of the authors/publishers should not be construed as advice. Investors must make their own investment decisions based on their specific investment objectives and financial positions and using qualified advisors as may be necessary. Opinions expressed in various articles are not necessarily those of Wealthmax Enterprises Management Private Limited(WEMPL) or any of its directors, officers, employees and personnel. Consequently, WEMPL or any of its directors, officers, employees and personnel do not accept any responsibility for the editorial content or its accuracy, completeness or reliability and hereby disclaim any liability with regard to the same. Stock picks and mutual fund snapshots are not exhaustive and should not be construed as recommendations.