Centre's draft Model Tenancy Act aims to bridge demand-supply gap

The draft Model Tenancy Act, 2019, released by the government on Wednesday, has the potential to bridge the demand-supply gap in the rented residential property market. The draft, through a slew of reform measures, could unlock about 25 million residential establishments across the country that are vacant. 

According to the latest Census data in 2011, nearly 10 per cent or 11.1 million of the urban residential establishments, are vacant. In the rural market, or 13.58 million homes are unoccupied, or 6.2 per cent of the total properties. According to estimates, there is a demand for 18.8 million homes in urban areas. 

Further, the proposed reforms could bring in much-desired relief to tenants and home owners alike. A cap of two months’ advance rent at the time of letting out a property has been proposed, a move which could help tenants. 

Besides, owners will not be allowed to impose any mid-term hike in rents, according to the proposal. Owners will also be required to give notice three months’ notice before any hike in tariff, and would also be required to repair their properties.

Owners are entitled to get twice the amount of rent for the first two months if the tenant fails to vacate the property after the agreement gets over. The tenancy ceases if the tenant dies, unlike earlier when relatives of the tenant continued to stake claim. 

The new rules, if implemented, will help about 27.37 million families across India, especially in urban areas where about 28 per cent families live on rent. 

However, as land and tenancy are state subjects, unless individual states implement the rules, the benefits may not reach the people. 
 

Anuj Puri, chairman, Anarock Property Consultants, said prima facie the draft policies seems to be favouring tenants and landlords. 

“However, the cap on the security deposit will certainly not be favourable to many landlords because in cities such as Bangalore, a 10-month security deposit is the norm, with some negotiations. Also, in case a tenant defaults or causes significant damage to property, then two months’ security deposit is not enough to cover up the expenses,” he said. 

Avnish Sharma, partner, Khaitan & Co., said the Act had enough provisions for owners to recover the penalty if the tenant failed to leave the property on time. 

However, experts pointed out that if it actually manages to unlock the vacant homes and bring them into the property market, it may negatively impact demand in the real estate market, and can bring down rent.