Amid the renewed focus of the government on the manufacturing sector with the launch of the ‘Make in India’ campaign, there is a growing clamour for a rental policy to accommodate migrant workers. While such policies already exist in several countries including Singapore, it is time that India takes note of the demand and prepare a legislative framework to promote the rented housing sector, say experts.

Om Ahuja, CEO-residential services, Jones Lang LaSalle, told The Indian Express, that with the mushrooming of manufacturing centres in the near future, a significant number of people working in these set-ups would need accommodations around them. Given the fact that not all can afford to buy them makes a strong case for having a policy that promotes rental housing in the country.

“You can’t expect the workers to find out their own housing overnight and therefore you need structures which are available on rent. A policy that provides an enabling environment for rental housing in the country is the need of the day, especially in light of ‘Make in India’ that will lead to a spurt in manufacturing centres,” Ahuja said.

Several South American countries, along with Denmark and Belgium, have the policy for the sector, he said, though in India, before embarking on the exercise, there is a need to bring in institutional money through REITs (Real Estate Investment Trusts) in the cash-strapped real estate sector.

PSN Rao, head, department of housing, School of Planning and Architecture, said that the rental housing should be taken seriously by the government, which should intervene to frame a comprehensive policy. Though many states in India have rent control or similar legislation, there is no over-arching law streamlining the procedures or for promoting the sector.

“Although for several years we have been saying that rent laws in various states need to be modified, the same has been not been done… we need to immediately take steps to take up reforms in this area on a fast-track basis,” Rao, who is also a member of the taskforce on rental housing, ministry of housing and urban poverty alleviation, said.

In India, states including Maharashtra, Delhi, Tami Nadu and Karnataka have Rent Control Acts with provisions to resolve the disputes arising among the landlords and tenants. In countries like the UK, though there is no legislative framework for private rented sector, the government provides for funding to the sector to meet the housing needs and promote economic growth.

Sachin Sandhir, global managing director — emerging business and MD, South Asia, RICS, said that as per estimates, by 2030 the urban population in the country will increase to 590 million, so “in addition to increasing the supply of affordable housing, we need to focus on addressing the issue of affordable rental housing in our cities. The affordable housing shortage in the EWS and LIG segment cannot be fulfilled alone through ownership of properties.”

He said that most of the government programmes like JNNURM, Interest Subsidy Scheme for Housing the Urban Poor (ISHUP), and Rajiv Awas Yojana (RAY) are oriented towards home ownership and not renting. Having a rental housing policy, “in metropolitan areas, semi-urban areas and suburbs can support social and economic upward mobility. People who move to cities for jobs, at all socio-economic levels have renting as their preferred, and more often, their only option.” As such, he added, there is a growing recognition that the housing shortage cannot be solved through incentives for ownership alone and needs to be tackled through innovation, and rental housing scheme offers a plausible solution . All the same, for the sector to take off, hand-holding by the Centre is needed, the experts said.

Rao said that to encourage private developers, fiscal incentives in form of income tax concessions, floor-area ratio (FAR) relaxation, and property tax concession can be given to construct and maintain rental housing complexes. Earlier, the task force on rental housing set up by the ministry of housing had recommended minimised rental registration and stamp duty along with service tax and income tax exemption on the rental income.

Sandhir said that the development firms and private sector institutions should be incentivised, especially for affordable hostels and dormitories and captive employee housing, to get cost benefits and improve rental yields and profit margins. In fact, he added, landlords should also be given tax exemption on their rental income if they agree to build rental housing under the government scheme.

Both Ahuja and Sandhir said that REITs should be introduced in the rented housing segment to ensure fund flow in the segment. Ahuja said that the institutional money needs to come in residential real estate segment for which the REITs structure needs to be fully in place. REITs are listed entities which are allowed to invest in commercial real estate assets, either directly or through special purpose vehicles (SPVs). However, for it to be a game changer, tax clarity is required, Ahuja said.

According to the task force, REITs focused on rental housing and with more than 75 per cent of their income accruing from rental income, should be enabled so that new players enter this market. This would also allow smaller investors to participate in the rental housing market, Sandhir said.

However, developers say that more than the rental housing, there is a need to have workers housing where they can partner with factories to provide basic accommodations to the factory workers.

“There is definitely a need for workers’ housing. There is huge inventory lying unsold so instead of creating new houses for renting, you need basic housing for workers. They need community centres, education, medical facilities. As the migration of agricultural workforce continues to happen, workers housing becomes an imperative,” Navin Raheja, chairman and managing director, Raheja Developers, said. He added that the mandatory 2 per cent CSR amount can be allowed by the government for use towards the housing for workers.

Sandhir, meanwhile, said that there exists the case for replacing “weak rental laws in states” with new legislation to accommodate the rental housing schemes across states.