New policy likely to improve rental yield
11.09 million n houses are vacant in urban ban areas as per Census 2011. 1. The draft National Urban ban Rental Housing Policy icy proposes that these properties rties be made suggests that at if these vacant houses are made available for rental housing, ousing, then some of the urban housing ng shortage could uld be addressed The draft proposoposes rental housing using models such as PPP P and schemes such as rentt to own, shared ownership, rental voucher and rental allowance.llowance. It also proposes income come tax concessions for institutional titutional owners to create mass ass rental (especially affordable)able) housing The Centre, states and local governments s are likely to give direct and indirect ndirect tax relief to home owners ners and tenants. Now, rentingg of homes is a “commercial” al” activity, which means increased eased taxes for home ownersrs voucher and rentaltal allowanceallowance. It also proposes income tax concessions for institutional owners to create mass rental, especially affordable, housing.
“The policy is expected to enable formalisation of rental housing through regulatory and legal frameworks; enhance fund flows along with incentives for rental housing; and promote institutions/organisations for constructing, managing, maintenance and operations of rental housing stock, thereby helping achieve the goals of Housing for All by 20222022. The draft policy has called for developing a strategy to deal with the vacant or locked properties in consultations with various stakeholders and come up with options,” says Dr Debolina Kundu, associate professor at the National Institute of Urban Affairs (NIUA).
The draft proposes bringing in rental management companies to ensure efficiency in operations, maintenance and management of large scale rental housing projects/schemes.
According to Kundu, his- toricallytorically, housing policy and prog ramme i nterventions have been oriented towards promoting ownership housing. The share of households living in rented accommodation was reported at 27.5% in 2011. This share was over 50% in 1971. Rental housing in India has reported a decline over the decades.
The housing shortage will be addressed by bringing in more housing stock for various income categories that cannot afford or plan to buy property.
If the rental policyp is able to address thet fears of landlords and bring more housing stock in the ambit of rental housinhousing, it will help improve rerental yield in times to come. In IndIndia, the residdential rental yield is about 1.5% to 3%. Experts say that if the proposalspropo underlinedlined in the drdraft policy are implementedimplemented, residential properties in India, too, will be able to achieve a yield of 4% to 6%, as is the case in develodeveloped markets.
The rental yield of residentialdential units is extremely low in India aat about 1.5% as compared to commercialcial propertiproperties for which t he yield ii s anything between 5% tto 10%. Also, the value of a commer- AlsoAlso, the governmgovernment role has shifted from provider to facilitator, which is why the PPP route has been mooted as the government cannot on its own meet housing requirements.
The Centre, states and local governments are likely to give direct and indirect tax relief to house owners and tenants. This has been proposed as renting of homes is a “commercial” activity, which means increased property tax for individuals and service taxes for institutional rental housing operators of cial property is a derivative of rental value unlike in a residential property where the capital value is the most important determinant. It is because of this reason that most people in India prefer to lease out commercial properties but wait for prices of residential properties to appreciate, says Mudassir Zaidi, national director, residential at Knight Frank India. The rent of most commercial properties depends on the quality of the building and location. Residential properties on the other hand give a yield of only 1.5% to 3%. Globally in developed markets, the rental yield for residential properties is anything between 4% to 6%, Zaidi says, adding that the proposals outlined in the draft Policy can improve rental yields in future. hostels/PGs and dormitories wherein electricity and utility rates are calculated at par with commercial properties, reducing the rental yield.
The document has suggested different “need- based rental housing” models to address diverse housing needs for various segments of the population such as students, working men/ women, construction workers and migrants. These can be owned by individuals, private players, companies and government.