Technical Assistance Consultant’s Report

Technical Assistance 7148-IND

May 2013

India: Promoting Inclusive Urban Development in

Indian Cities

Prepared by CDM Smith Inc.

India

For Ministry of Housing and Urban Poverty Alleviation (MoHUPA)

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and
ADB and the Government cannot be held liable for its contents. (For project preparatory technical
assistance: All the views expressed herein may not be incorporated into the proposed project’s design.
 NOTE ON RENTAL HOUSING

A. Background

A study on Rental Housing in India is conducted under Asian Development Bank (ADB) supported
Technical Assistance (TA 7148-IND): “Promoting Inclusive Urban Development in Indian Cities”. The
Ministry of Housing and Urban Poverty Alleviation (MoHUPA) is the Executing Agency (EA) for this
TA. The TA also consolidates findings and recommendations of “Task Force on Rental Housing” set
up by the MoHUPA.

Though the TA was originally formulated to address “inclusive approach towards slum
development”; after its commencement in July 2011, the focus mutually shifted to address supply
side constraints of housing by “developing affordable housing framework for the urban poor”. The
TA during its implementation period developed framework to create mass affordable housing stock
with private sector participation which comprised three major sub-components i.e. Land,
Infrastructure and Housing1. The affordable housing framework will act as a guiding document for: (i)
MoHUPA to help formulate “Model Affordable Housing Development Framework” (i) at central level,
or (ii) state governments to formulate their state specific affordable housing policies. Towards the
end of TA (December 2012) it was however felt that, as an extension to affordable housing
framework, it is also important to develop sound policies and strategies for rental housing as it
represents a real alternative to poor households who cannot yet afford to purchase a suitable house
or choose to purchase an affordable house due to their informal and transitory nature of employment
and lack of access to formal finance. Considering this, a preliminary study on Rental Housing was
conducted in April-May 2013 taking into account three case studies in cities of Hyderabad, Mumbai
and Chandigarh. It is proposed that preliminary findings and recommendations presented in this
note will be explored further in detail as a part of separate ADB Project Preparatory Technical
Assistance (PPTA)2. A draft Terms of Reference (ToR) is included in this note to conduct such a
PPTA (Attachment-1).

Urban housing shortage is a growing concern among many policy makers in India. As per the recent
estimates, a close to 370 million population reside in urban areas whereas it is expected to touch
590 million by the year 2030. With increasing urbanization effects, urban housing shortage is an
accentuated reality that is expected to touch 38 million by 2030. Nearly 99 percent of this estimated
shortage belongs to urban poor and an inadequate supply of affordable housing is a key reason to
the formation of slums and informal settlements that home close to half of the population in many
cities. Subsidized ownership housing could be one alternative to address housing shortage however
low income households typically with seasonal incomes portfolios and transitory employment
patterns cannot afford to buy even such housing in one steady step as they don’t have access to
formal housing finance and lack worthy credit history. Small monthly rents hence suit their profile
and levels of affordability. Furthermore, urbanization has increased migratory patterns from rural
areas and small towns to cities and even within cities in search for work, education etc. The
pressure of accommodating these migrants have increased double fold while many such migrants

1
Land sub-component focused on addressing constraints of current land management practices in India to
ensure adequate supply of urban land for sub-urban expansion and availability of land for the urban poor.
Infrastructure sub-component focused on concepts of integrated land/housing development with basic
services provision and public transport connectivity, and locating urban poor housing along public transport
corridors. Housing sub-component focused on encouraging private sector participation in actual housing
construction by providing various fiscal incentives. The TA has reasonably analyzed all the three sub-
components taking “Rajasthan Affordable Housing Policy-2009” as a practical case study and has
formulated guidelines to create ‘functional and enabling’ environment for affordable housing development.
2
Such pipeline funding for additional PPTA with MoHUPA is currently not included in ADB’s total pipeline
funding for India and needs to be sanctioned by the ADB after having discussions with Department of
Economic Affairs (DEA), Government of India and MoHUPA.
1
prefer rental housing arrangements over ownership based housing. Though rental markets are fairly
developed in India, it has always been a great challenge to obtain formal rental housing for the
urban poor, in particular when they first arrive in urban areas so as to gradually link themselves with
institutional/formal sources of credit and eventually buy ownership housing.

Rental Housing Scenario. After independence for about two decades or so, government policies
focused on constructing and handing over finished housing units to urban poor segments. However,
this benefitted a lucky few as budget allocated was not adequate to meet the actual demand. A
majority of this stock eventually went into the hands of middle/higher income groups as market value
of units was increased and poor households sold them to make quick gains. Considering this, the
government turned its attention towards being an enabler of housing than a provider through
schemes such as “sites and services, slum development and housing finance”. The outcomes of
these initiatives were limited and did not contribute much to the total housing demand. Towards
1990s though first generation of reforms were initiated in housing sector by facilitating more housing
finance and private sector participation, emphasis on ownership housing remained intact and
benefitted mainly construction companies and aspiring middle/higher income homeowners. Thus,
national housing policies in India have shown little sign of departure from their primary objective –
the conferring of ownership rights. Additionally, there has been little success in reaching out to the
poor and addressing overall housing shortfall.

As a result of policy environment that focused on ownership based housing, it can be seen that the
formal rental housing accounts for only five percent3 of the total stock while home ownership is
significant at 62 percent followed by 25 percent as rental stock which is available on informal basis.
With changing urban scenario and migration patterns, rental housing is in demand not only for
families but also for singles (studying, working etc.) men and women. Currently, biggest players in
provision of rental housing for all categories are small landlords. They provide housing space as an
extension to their house or an additional house/flat offering variety of options in terms of area and
amenities and cater to all income segments. Within the given policy environment they face many
challenges and risks (low yields, non-eviction of tenants etc.) and hence prefer to operate informally
for small tenure periods of less than 11 months to avoid coming under purview of current rent control
acts4. Today, as high as 80 percent of the rented units are by small landlords that are operating
informally. Small landlords operate to earn additional income by way of renting additional space and
smaller changes in policy/act (such as better eviction laws, reduced stamp duty or registration
charges etc.) may not considerably increase supply of rental housing from this segment. Hostel
providers can support rental housing supply that can cater to single men/women. Though
government hostels receive some benefits/grants private sector entry in this sector is discouraged
as it is treated as a commercial activity and rates for water, electricity and other utilities being higher
for commercial use, their margins are reduced.

These individual small landlords and hostel providers will still cater to bridge the housing gap up to
some extent; however in current scenario where housing shortages are pretty high, policies require
enabling environment and bigger schemes/models to generate mass affordable (own+rent) housing
supply. In contrast to Indian rental market, many developed economies during their early stage of
development recognized the importance of formal rental housing that was provided by private
developers and still comprises up to 30 percent of their housing stock. An enabling environment that
encourages both stock creation and private sector participation is required to address housing
shortages that facilitate both affordable ownership and rental housing concurrently. With this
background, the given note highlights some key issues in current service delivery and provides
broad recommendations to create enabling policy environment. The note is a result of three case
studies that were undertaken by the TA team and includes a range of different rental housing
delivery models and concerns (including private, public and public-private initiatives) whilst catering
to urban poor residents and migrants in the formal economy.

3
As per NSSO 65th Round (Report on Housing Conditions and Amenities in India, 2008-2009)
4
Like many other countries, the rental housing market in India is also characterized by rent controls; harsh,
tenant-favoring laws; and a restrictive regulatory environment that restrains fluid functioning of the market
and, thus, limits vibrant private sector entry in the provision of more rental housing.
2
B. Case Studies

1. Case Study-1: Rental Housing Scheme by MMRDA (Public-Private)

Mumbai has been a pioneer in experimenting relaxation of floor space index (FSI) and offering
transferable development rights (TDRs) to make more space available in its highly congested
environment. The same has been attempted again by the Government of Maharashtra (GoM) for
creating mass rental housing stock for urban poor families/migrants.

About the Scheme. In 2008, under the new Housing Policy, Government of Maharashtra (GoM)
launched affordable rental housing scheme with private sector participation and Mumbai
Metropolitan Regional Development Authority (MMRADA) was appointed as a Project
Implementation Authority (PIA). Currently the scheme under implementation is applicable to entire
Mumbai Metropolitan Region (MMR)5 and promises to develop rental stock of self-contained (with all
basic infrastructure) dwelling units comprising 160 sq. ft. carpet area units by extending FSI/TDR
benefits to private developers. Private developers will have to develop rental stock on 25 percent of
the total plot area and hand it over to MMRDA free of cost. The total FSI is released based on the
construction progress of rental units to ensure that rental housing stock is completed much before
the housing stock that developer will construct for higher income groups on the remaining 75
percent of the land. A total of three models were formulated as mentioned below and units
generated thereby are to allotted based on online lottery system to eligible candidates/families6. The
scheme did not specify maximum income cap which indicates that it is not designed to cater to
EWS/LIG segments exclusively. However, smaller unit size indirectly specifies income brackets and
hence rents were also fixed at bare minimum of Rs. 800-1,500 per month. The scheme targeted
construction of around 0.1 million houses a year to meet the existing backlog of around two million
houses and projected demand of EWS/LIG migrants. MMRDA estimated modest earnings7 at 80
percent occupancy which were proposed to be utilized towards management of rental stock and rent
collection by independent management company.

• Model 1: Higher FSI up to 4.00 with TDR application on Private Land. Of the total 4.00
FSI granted; 3.00 will be used for the rental housing; however TDR will be applicable for
the non utilized balance FSI.

• Model 2: Higher FSI up to 4.00 with no TDR application on Private Land. Of the total 4.00
FSI granted, only 1.00 will be utilized for rental housing; however TDR transfer benefits
will not be available to the developer.

• Model 3: Higher FSI up to 4.00 on MMRDA (government land). Of the total 4.00 FSI
granted, 3.00 will be utilized for rental housing while the remaining 1.00 will be utilized for
commercial development.

5
The FSI scheme is applicable to most of the Mumbai Metropolitan Region (MMR) with the exception of the
island city, Navi Mumbai and a few other areas. Zones which lie outside any municipal corporation or council
jurisdiction and are marked as “urbanizable” (U1/U2) on the development plan are also included. These
zones have an FSI of 0.40 compared to 1.33 for the island city and other MMR areas.
6
Eligibility Criteria: a) monthly family income up to Rs. 5,000; b) no house in MMR region; c) resident of the
state for last 15 years; and d) allotment in the joint name of the spouse if married.
7
Rent collection for 0.25 million units was estimated at Rs. 4,243 million per year at 80 percent occupancy
while annual maintenance cost was estimated at only Rs. 1,470 million. Considering the high densities
generated through this scheme, developers are asked to pay additional external infrastructure charge
between Rs. 250-1,000 per square meter (sqm). Of this 90 percent will go to the local municipality towards
upgrading the external infrastructure while remaining 10 percent will be kept with MMRDA towards rental
housing maintenance.
3
 Chart 1: Location of Sanctioned Rental Housing Proposal in MMR

Figure 1: Rental Housing Projects at Thane, Mumbai

Closely located ground +12 storey buildings Rental Housing located close to main road

4
 Long corridors, less ventilation and light Long dark corridors

Inside a typical rental housing unit

MMRDA received good response for the scheme and currently around 50 projects are being
sanctioned. It is estimated that ongoing 30 projects will generate around 65,000 units. Discussions
with few developers indicated that they are earning good profits due to additional FSI/TDR benefits
however many times profits are dependent on location and price of land. According to them, rental
housing project is profitable generally on a larger piece of land (more than 8-10 acres) which is
bought at comparatively lower price (or over the period of time developed) with proximity to various
amenities and transport, that guarantees appreciation of property prices in the long run.

Key concerns and issues. The scheme initiated by the MMRDA is ambitious and promises the
creation of mass rental housing stock with private sector participation. Some of the key challenges
and issues observed through this case study in provision of formal mass rental housing are
summarized below:

• Rental housing units were initially a least priority for the developers and hence no proper
attention was given to overall layout and building plans which created poorly ventilated, dark
and congested multistoried spaces with long corridors along with small patches of
open/semi-open spaces. This was however rectified later by MMRDA’s project team by
paying attention to smaller details and participating in design/planning consultations with
developers8. However MMRDA officials indicated that much more revision is required in
scheme (guidelines/specifications) itself to create habitable spaces and developers needs to
be sensitized towards this.

• Restricted floor plan and unit area ensures mass creation but does not necessarily meet the
needs (type of housing) of many urban poor households. The current plans are suitable for

8
MMRDA Project Team currently comprising around 4-5 architect-planners incur up to one month’s time per
scheme to understand the planning proposed by developers and suggest necessary changes. These also
include site visits and sometimes MMRDA officials itself prepare plans and give it to developers. There are
few cases where constructed items were demolished to create better spaces and space for parking.
5
 singles but not suitable for a family or family having small household business. MMRDA
understand there is need to provide further options in terms of unit area and plans however
has not included such elements considering that it will create difficulty during their allotment.

• Higher FSI create much higher densities; higher than those prescribed by standards;
especially when unit sizes are kept very low. Currently, rental housing projects have
densities more than 10,000 population per hectare and this has been highly criticized by the
Ministry of Environment and Forests (MoEF) while giving environmental clearance to these
projects. The Ministry has advised MMRDA to either revise unit size to double (320 sq. ft.) or
have lower FSI for future projects.

• Higher FSI also require adequate and accessible basic services in place (such as water
supply and sewerage). Though the scheme collects additional external development
charges from private developers to meet the additional infrastructure requirements
accordingly to the service providers (Corporations/municipalities in MMR) it is not always
possible to augment/strengthen and provide such infrastructure. This is mainly because
projects like these create pockets of high density and sometimes it is difficult to link overall
infrastructure in a given area to such schemes having higher infrastructure requirements.
MMRDA has indicated resistance to rental housing scheme by urban local bodies in MMR.

• Recently, GoM has proposed some changes in the scheme which undermine the very basis
of an affordable rental scheme. It is proposed that two units will be combined to make one
single unit of 320 sq. ft. and majority of the stock will be distributed among various
government organizations/public sector undertakings for their employees on rental basis9.
The remaining stock of up to 10-15 percent will be sold by MMRDA (as per eligibility
criteria). The GoM has set up special committee to finalize allocation policy and market price
of units that will be directly sold in the open market. It is also proposed that some subsidies
will be included in fixing market price of units and approximately price may vary from 0.5-1.0
million per unit depending on the location of the project. With these changes in the scheme,
MMRDA will now earn substantial money through sale of rental units which will not be
utilized towards further creation and management of rental units. It is however proposed to
utilize these earnings towards improvement of regional infrastructure in MMR region.

• The GoM has denied the proposal of Rental Management Company due to limitations in the
current legal and institutional system and weak law and enforcement (such as laws
concerning management of rental stock, revising of rent prices that many a times are
intentionally kept low by groups that favour urban poor, eviction of defaulters which are at
times supported by local leaders, fear of illegal renting out of units to higher income
households etc.). The GoM has also proposed to lower down the FSI from four to three as it
is creating higher densities and adding burden to existing infrastructure.

With proposed key changes in the scheme and lowering of FSI that can discourage participation of
developers, the rental housing scheme may see its own death in near future. The discussions with
government officials clearly indicated lack of political will to continue with the mass rental housing
scheme and additional proposals from developers (around 200) have currently given stay. It is likely
that with suggested changes the scheme will be converted as an ‘Affordable Ownership Housing
Scheme’ than ‘Affordable Rental Housing Scheme’.

9
The part of the stock is also proposed to be given to mill workers who had been promised by GoM for house
and have been waiting from last two decades.
6
2. Case Study-2: Rental Accommodation by Aarusha Homes (Private)

Hostel providers accommodate much of the transit migrant population and it has been recently
estimated that as high as 10 million hostel beds (exclusive of government owned initiatives) in the
cities are made available to migrant population by hostel operators (intermediaries) in the private
sector. Such facility is made possible by the active participation of close to 0.1 million private hostel
operators in the rental housing market, with a capacity of providing 10 to 1,500 beds per operator in
different cities of India10.

About the Scheme. Aarusha Homes is a registered private company11 that provides rental housing
solutions to low and middle income group customers for short term stays through formal hostels and
paying guest accommodation. Aarusha Homes calls themselves as ‘operators’ within the rental
housing economy. Aarusha Homes is one of the 6,000 hostel operators in Hyderabad that cater to
0.35 million students and employees at price points ranging between Rs. 2,400 to 4,500 per month.
It is one of those few operators who are registered as a private company and manage rental housing
formally. Most of their clientele are either students or young workers hailing from different parts of
the country. These migrants are single men and women falling within the age group of 17 - 32 years.

The company tested the rental housing sector with several one-off initiatives and in the process was
exposed to the unique housing demand of such migrants. These initiatives included constructing
and operating a dormitory in Chennai for EWS and LIG migrant population for their client, a contract
partnership with Andhra Pradesh Government with the mandate of providing housing/ rental
accommodation for rural youth undergoing vocational training in Hyderabad, and a twelve hours shift
based accommodation with meals facility for security guards through a corporate contract with a well
established Security Services Company. Overtime, Aarusha Homes emerged as an entrepreneur
that runs the ‘retail model’ of rental housing, catering to migrants from low to middle income groups
on a first come first serve basis.

The Company does not own any of its rental property stock and properties are acquired from land
owners on a lease period of 3-9 years. These properties are located in close proximity to the
tenant’s place of work or study. The company holds healthy partnership with their landlords and
builders who are consulted well in advance to achieve and execute a mutually agreed design and
layout plan for such hostels that can ensure both ease of sharing rooms and access to corridors
amongst its tenants. A tenant typically enjoys 95-100 sq. ft area that includes the room, kitchen,
toilet and other common spaces. Each tenant provides a nominal security deposit of Rs. 1,000 on
registration with the majority of the tenants paying Rs. 3,000-6,000 monthly rent. In this price range,
the tenant makes avail of services like meals, property maintenance, laundry service and utilities like
electricity, internet and hot water supply. The lowest rent is in the range of Rs. 1,400-2,400 and
excludes meals.

The company does not face any defaulters. In the coming years, Aarusha Homes plans to scale up
their business and outreach to other cities of southern states with the vision to provide 0.1 million
beds in the next 6 years. They plan to own and operate a few properties as rental housing units that
cater to families of low income groups. The Company also envisages that a small proportion of their
property can possibly be developed as hostels for back packers and tourists on short stays.

10
Some cities are highly active in rental housing market: Bangalore (0.25 million beds), Chennai (0.25 million
beds), Ahmedabad (0.10 million beds), Pune (0.10 million beds) and Kota (70,000 beds). On an aggregate,
these rental housing facilities cater to the housing demand of 3.79 percent population of such cities.
11
The Company was established in 2007 and is operating and managing rental housing properties in the cities
of Hyderabad (Andhra Pradesh), Bangalore (Karnataka) and Pune (Maharashtra). Most of their clients are
young IT professionals and students who migrate from different States across the country.
7
Figure 2: Typical Hostel Projects, Aarusha Home

Dining room Twin sharing room

Three bed sharing per room Solar water heaters

View of building of one of the hostel sites, Hyderabad

Key concerns and issues. Some key challenges and issues of the aforementioned retail rental
housing model for short term migrants in the formal market are observed through this case study
and can be summarized below:

• Rental Housing delivery based on Aarusha Homes initiative is (i) value demanding; (ii)
requires huge capital investment; and (iii) faces stiff competition from the informal landlords.
The major risks involved include price escalations in food and other services and non
occupancy during start up phase/holidays. The total capital cost of furnishings (excluding the

8
 cost of land and building) is estimated at around Rs. 14,000 per bed12 which is almost
double than what Company gets from the tenant as rent per bed.

• The company gives an upfront security to the landowners that ranges city wise from 3 to 10
months of total rent value (for land/building). The rents and subsequently security deposit
costs are revised and escalated every year by 10-20 percent in response to 12.36 percent
service tax that is levied on landowners13,14. Such transferring of tax burden directly from
landowner to the operator within the given regulatory environment is acutely felt whilst
managing and running the business. The levy of service tax is one of the biggest concerns
for operators in the formal rental housing business. Realizing this, Aarusha Homes has
made a request to the Ministry of Finance, GoI for exempting service tax on buildings used
for hostels and/or rental housing that is being delivered by such intermediaries with rent
above 0.1 million per year.

• Private hostel operators (like Aarusha) lack institutional and financial support that
discourages them and other willing formal players who are eager to enter the business.
Aarusha Homes does not get financing facility from financial institutions (like the Small
Industries Development Bank of India-SIDBI) since financial institutions fail to recognize it as
a business venture in the absence of owning any property.

• Private hostel operators (like Aarusha) are forever burdened by various taxes and charges
given the inflexible regulatory environment. Formal sector hostels and such properties have
earned the status of non-residential category and are charged at commercial rates for
property tax, water and electricity, apart from the levy of service tax. The property tax levied
on the hostels relates to 30 percent of their total expenses and are equal to 4-6 percent of
rent per bed/tenant. Furthermore, deduction of income tax at source and very high trade
license fee add to the existing burden of managing the rented properties.

• Providers in the formal rental market are on shaky grounds given the stiff competition from
informal landlords and financially secured business groups. Consequentially, very few
players find it necessary to operate as formal intermediaries given the risk of irregular
occupancy, high lease rents and escalating fixed costs. The biggest disadvantage of
operating in formal economy is that the operators like Aarusha Homes has to be pay taxes
and bills (water and electricity) on commercial tariff basis that the informal sector providers
do not comply. Besides, self occupied houses enjoy a rebate of thirty percent on property
tax which is not the case for rented houses and hostels. Since the market is highly
competitive, the formal sector operators cannot translate such costs to customers else their
offer becomes redundant or less attractive to many. Consequentially, such intermediaries in
formal space do not get to enjoy a good profit margin that over time discourages overall
formal supply of rental housing.

Reservation of land, financial assistance, possible partnerships with willing investors and better
regulatory environment may encourage private sector entry as formal hostel operators.

12
Includes security deposit to the landowner and other infrastructure cost like beds, fans, TV, cupboards etc
13
Service tax is paid by the landowner. However landowner recovers the same from Hostel Operator by
appropriately increasing rents/security deposits.
14
One of the landowners who partnered with Aarusha Homes purchased his land for Rs 20 million and parts
with nearly Rs 50,000 per month as property tax as the said land is categorized as property for commercial
use.
9
3. Case Study-3: Rent-to-Own Housing by Chandigarh Housing Board (Public)

This scheme is one of the first schemes in India which is based on the rent-to-own concept. It is
formulated to achieve slum free city of Chandigarh and accommodates slum households of various
income ranges.

About the Scheme. The Chandigarh Small Flats Scheme 2006 was launched by the Chandigarh
Administration in November 2006 under the control of Chandigarh Housing Board (CHB) as the
executing agency. This Rent-to-Own initiative, which was initiated as standalone Slum Rehabilitation
Project, was later included under JnNURM’s Basic Services to Urban Poor (BSUP) as JNNURM
provided substantial grants towards its implementation. The scheme covers the construction of
25,728 dwelling units in G+3 storey building typology benefiting 23,841 families (approximately 0.1
million population15) that were residing in 18 identified slums/unplanned habitations in the city. The
government offered land free of cost (370 acres) at eight different locations that were 1-10 km away
from beneficiary’s existing location of residence. These sites are linked with new public transport
routes that are made operational to facilitate mobility for work from new locations. In near future,
most of these scheme sites will get connected by the proposed metro train alignment that will make
these sites highly accessible with prime land values. The total project cost was estimated at around
10,215 million with cost of two typical units of size of 270 sq. ft. and 370 sq ft. at 0.2 and 0.4 million
respectively16.

The CHB employed a strenuous and just approach during the pre-launch period that helped in a
seamless implementation of this scheme. The Board studied previous slum rehabilitation schemes
in Chandigarh and other such initiatives like the Slum Rehabilitation Scheme in Mumbai. As a fair
deal, initially all the slum residents were observed to be eligible for allotment without any restriction
on income levels or period of stay at the current site. Furthermore, a socio-economic profiling and
surveys with bio-metric details (digital photograph, thumb and finger prints) of each household of the
notified colonies were accomplished way before disclosing the scheme17. All biometric details of
beneficiaries along with documents matching the above criteria were shared and scrutinized by a
Screening Committee for final approvals. These procedures helped the scheme to capture authentic
details of each worthy beneficiary without any possibility of double ownership and manipulation. The
scheme encourages joint ownership of the head of the family and spouse during allotment
processes. Single person ownership is considered only where the beneficiary is either single or runs
the household singlehandedly.

The application and allotment process employed in this scheme are straightforward, citizen-friendly
and time saving. Beneficiaries fill a simple application form that entails basic identity details and self
declaration sans affidavits or certificates. Moreover, CHB developed a special purpose software
application, namely Srishti (Slum Rehabilitation for Improvement, Security and Hygiene of the
Inhabitants) which is used extensively in allotment camps organised at various sites. Biometric
details including digital photograph of the family, thumb and finger prints of the head of the family
and spouse are recaptured and verified electronically at the time of receiving application from
eligible residents through this software. Allotment letters and possession slips bearing photographs

15
Majority of these beneficiaries are migrants from various states and are engaged as daily wagers,
construction workers, industry labourers having an average monthly income of rs 3000- Rs 5000.
16
The total project cost was revised from Rs. 5,649 million in 2006 to Rs. 10,215 million in 2012 to cover
inflation and cost of constructing an additional room under the revised scheme. Considering the requirement
of additional room, total unit area was slightly increased. However all units irrespective of their area will be
charged with same rent.
17
However, after the completion of biometric surveys there were certain mandatory criteria that beneficiaries
are required to fulfill to be eligible to apply for this scheme. These include: (i) Inclusion of the beneficiaries in
voter list of 2006 and in the year of the allotment; (ii) Their name shows on the bio-metric socio economic
survey that was conducted by the Chandigarh Administration in March 2006, and (iii) Beneficiaries who do
not own or have ever been allotted any residential site on free-hold or lease-hold basis in the Union Territory
of Chandigarh, Panchkula or Mohali by respective Government/Administration or its Agency either in their
own name or in the name of any other dependent family member.
10
of the joint allottees with their sanctioned flat number and documentation related to utility services
(water and electricity connection) are issued on the spot. Srishti sped the turnaround time for
application and allotment immensely by speeding the entire process to just a few hours. Through
such efficient application CHB managed to shift over 700 families from a slum site (Madrasi Colony)
to Sector 56 within a matter of few days, a process that generally takes 6 months to 2 years in
normal circumstances. This software also helped to put to rest any possible claims and counter
claims as regards to the eligibility criteria. This process was further facilitated through the organised
coordination and presence of other line departments and offices (Engineering Department, Estate
Office, Municipal Corporation, a scheduled commercial bank, Notary Public) at the allotment camps.
These arrangements are the biggest strength of this scheme.

Figure 3: Rent-to-Own Housing, Chandigarh

Transit Shelter – Sector-56 Transit Shelter – Cleaning space

Sector-49C-Occupied Rental Flats Dhanas Flats ready for allotment

Inside view of Rent-to-Own housing unit Dhanas Conoly View

11
Prior to allotment of flats that is done on a random basis, beneficiaries were shifted to transit
shelters. Allotment is initiated through a processing fee of Rs. 900 as a onetime payment.
Afterwards, allotment is ensured through monthly license fee based accommodation. The monthly
license fee for those residing in the Transit Shelter is Rs. 600 per month and Rs 800 per month
when they occupy the flats. At the time of allotment, three months license fee is deposited wherein
two months fee is kept as deposit. Metered water and electricity charges are payable to the utility
agencies while water supply was provided free of cost in transit camps. License fee for the flat is
expected to be revised by twenty percent as compounded after every 5 years. This will account to
Rs. 960 per month from the sixth year, Rs. 1,152 from eleventh year and Rs. 1,382 from sixteenth
year onwards. By the twentieth year, the occupant gets the option of lawful ownership through
purchase provided the licensees hold a continuous occupation for the entire term.

A part of the allotment is already completed the remaining is in process. In present scenario, five
sites out of eight are completed with construction of blocks that equates to 12,736 flats. The
construction on the remaining three sites (i.e. Maloya-I & II and Maulijagran- I) will include the
modified layout of two room flats. Around 1,629 families have occupied regular flats and 329 families
are staying in the transit shelters waiting for their turn. Nearly 8,448 flats spread over 122.28 acres
at the site of Dhanas are ready for allotment. After the allotment, beneficiaries are responsible for
maintaining their individual units while maintenance of common areas and resources (like water
tanks, STPs and circulation area, open spaces etc) along with overall maintenance of the blocks is
shouldered by the CHB for first five years and thereafter by the Municipal Corporation. Rent
collection is currently managed by the CHB where an officer visits each colony from 1st to 10th date
of every month. The officer verifies Bio-metric identification details at the time of rent collection and
hence only the allottees are allowed to pay. A manual receipt is generated and the details of
payment are updated electronically immediately on receipt of rent.

Land that is left vacant once the slum dwellers shift to transit camps is secured for further city
development or returned to the legitimate landowners. For example, land released in Kumhar
Colony slum site was handed over to Punjab University- its legitimate owner. In other case, land
from Madrasi Colony slum site is diverted to the use of IT park and construction of houses for
general public.

Key concerns and issues. The Small Flat Scheme of Chandigarh for slum dwellers was
implemented seamlessly because of support of local leaders and political willingness of Chandigarh
Housing Board along with innovative practices during the time of application and allotment. More
importantly, the scheme ensures that it selects genuine people and holds no scope for any other
dweller to sneak into the system. This level of trust was achieved through systematic planning
including a robust screening of beneficiaries through socio economic profiling and biometric
identification. However, some level of convincing was required for the beneficiaries to pay and
participate in such scheme. The scheme is good start as rent-to-own model in India however may
require further detailing. Some of the key concerns notes were:

• The layout of the completed scheme is reasonably spacious and the blocks are interspersed
with green spaces. The common space areas allow a high level of circulation that is often
used by most residents as an extension to their houses. Some dwellers have used their own
sensibilities and finances in dividing the one room accommodation in two semi closed
spaces attaching features like lofts and drawers. However, they view it as an added cost of
living in such space. Even though the scheme layouts offer more open/semi-open space;
the size of the unit is often the bone of contention in such schemes and the beneficiary looks
for the maximum space negotiation especially if their household size is beyond the average
of five persons. It is also well researched that one size does not fits all. Considering this, and
after consulting with the beneficiaries, a mix of different size unit plans and appropriate rent
structure can be thought of.

12
• Similarly, such typology can also offer option for buying bigger flats after twenty years to
those families who have gentrified and improved in their financial position and capabilities
within the stay of twenty years.

• It is mentioned in the scheme that “the Competent Authority shall, as soon as is practicable,
prepare a separate scheme, creating the option for those licensees who have been in
continuous and lawful occupation of the flats for twenty years to purchase the flats at the
prices reflecting real value of the property”. This clause is vague in terms of Ownership
Transfer price and adjustment of license fee paid over twenty years period. Real value of the
property includes the cost of land and appreciates substantially over a period of time with full
occupation and development of surrounding area. Currently, the allottees are not sure as to
how much amount they have to pay after 20 years for full ownership rights and how the
monthly license fee paid by them over 20 years will be adjusted towards the final transfer
price.

13
C. International Practices and Models in Rental Housing

While India is still struggling to formulate policies towards formal affordable rental housing; many
countries worldwide are already addressing their housing shortage through formal and informal
rental housing successfully. This section will elucidate and highlight in detail some such case studies
that have successfully catered to affordable rental housing in other countries. These international
case studies are chosen to reflect as good practices, strategies or models for rental housing made
possible through successful partnerships and institutional linkages. One can also glean through
such case studies to seek possibilities of applying such models to the Indian context.

Asia-Pacific Rim: Some examples can be sought in the Asia-Pacific rim where rental housing is
encouraged at both local and central level. These include countries like Singapore, Hong Kong,
South Korea, China and Australia. Hong Kong executes its Public Rental Housing Scheme through
its Housing Authority, also known as the Housing Society. In Singapore and Hong Kong, direct
provision of subsidized public rental housing coupled with subsidized housing mortgage assistance
to low-income households during the early phase of housing interventions, which later moved on to
ownership public housing supplemented by private sector housing for higher-income households
has been very successful to address the housing needs of low-income households. The transition
from direct provision of subsidized public rental housing to credit-and-subsidy-supported, market-
based provision of affordable public housing followed in China is a variant of this model. In China,
before 1979, the rule of thumb was that a family should not spend more than three percent of its
income for housing. The rents charged by the government for housing were, therefore, so low that
they were not even enough to pay for housing maintenance. After economic and housing reforms
were launched in 1979, market-based housing was introduced and various credits and other
subsidies were extended to households to access housing. For households who could not afford
market housing, housing subsidies are provided by the government to avail of rental housing.

• In Singapore, rental housing units are managed by the Housing Development Board (HDB)
and the Town Councils. HDB works closely with other government agencies, family service
centres, voluntary welfare organisations and community development councils to tackle
homelessness in the long term. The HDB is observed as a statutory board within the Ministry
of National Housing with the mandate of providing low cost public housing primarily for low
income groups through its Public Rental Scheme. This scheme provides heavily subsidised
and limited number of rental flats to the poor and needy families. The eligibility, allocation
and determination of rents are supervised by the HDB. Monthly rents for both first time and
second time applicants are determined by factors like monthly gross income and household
type of the applicant and ranges from lowest of $26- $33 per month (for one room) to the
highest of $205- $275 per month category for 2 room set. Successful applicants are required
to pay a deposit of one month’s rent at the time of execution of tenancy agreement. To meet
the needs of housing shortage for the less privileged residents, HDB decreased the waiting
time for rental flats from 21 months to 7.5 months. Such accommodations have become a
viable solution for low income groups.

• Likewise, Australia launched its National Rental Affordability Scheme (NRAS) in 2008 that is
observed as a robust strategy and policy level intervention by the Central Government
towards the construction of 50,000 affordable and high quality rental dwellings across the
country. The scheme provides financial annual incentives for ten years to large scale
investors towards the purchase of new affordable housing dwelling units that must be rented
at a minimum of 20 percent below the market rent for ten years. The Department of Families,
Housing, Community Services and Indigenous Affairs in consultation with the Australian
Taxation Office implements and manages this Scheme. State and Local governments also
support this scheme and provides planning incentives at the NRAS approved dwelling sites.

14
 A mix of housing typologies like houses, apartments, flats and villas etc are promoted under
this scheme.

• South Korea government policy encourages rental housing development through legislative
measures and organisational support. Nearing 62 percent of the total affordable housing
supply constitutes of long term rental housing in the nation. The government oversees the
development and management of rental housing through its agency- Korea Land & Housing
Corporation (KLHC). In 2008, KLHC supplied 80,000 rental housing units for the urban poor.
For making these rental accommodations affordable for the urban poor, KLHC sets rental
rates that are discounted by 5 to 40 percent to the prevailing market prices. At the end of the
respective rental period, rental units are sold at lower than prevailing market prices. The
agency strongly promotes private sector partnership. Furthermore, the legal instruments
encourage rental housing as an option amongst home seekers and provide a formidable
development of private sector rental business. These include (i) the Tenant Protection Law
that reinforces tenant’s rights to adequate living accommodation, (ii) Apartment Management
Law that facilitates effective management of multifamily housing complexes and (iii) Rental
Housing Construction Promotion Law that promotes private sector led large scale rental
housing units including incentives to potential investors. The country also has a well
established Industrial Policy that mandates every Company towards obligatory function in
constructing hostels and sponsor accommodation to their workers so as to increase
productivity and reduce travel time for their workers.

• The People’s Republic of China under its Ministry of Construction encouraged social rental
housing for urban poor through its Lian Zu Fang Programme which literally means low rent
housing. Though launched in 1998, it was finally executed in 2006 due to lack of funds and
administrative difficulties. Affordable Rental units (Jing Ji Shi Yong Fang) developed under
this scheme were built on free government land and private developers were attracted
towards partnership through incentives like exemption fees. These units are controlled and
managed by the local governments through their local housing bureaus.

South Africa: This region showcases an active synergy between enablers within Rental Housing
including stock generation, development and management of rental units. These enabling agencies
are active at all levels – the centre, provincial and local. At the Centre, a Community Residential Unit
Programme (CRU) and a Social Housing scheme for LIG and MIG residents was launched within
the framework of the National Rental Housing Strategy. The CRU is the successor of the National
Hostel Redevelopment Programme that provides funds for development and refurbishment of public
housing stock. At the provincial level, Provincial Steering Committees are established with the
special objective of overseeing and coordinating all activities related to rental housing requirements.
Likewise, Municipalities at the local government level appoint Housing Associations (e.g. Own
Haven Housing Association at Knysna Local Municipality) that are allocated land parcels for
delivering rental housing units. City of Johannesburg is a noteworthy exemplar of collaborative effort
wherein the Johannesburg Social Housing Company is established as a municipal entity for the
provision of rental housing. Additionally, the Madulamoho Housing Association in the city is formed
to act as managers and rent collectors of the overall rental stock.

Europe: Some countries have well understood the interplay of city planning norms and reservations
towards the promotion and generation of rental stock. These countries introduced obligatory
regulations and incentives that can promote low rent housing especially in partnership with the
private sector. Netherland initiated the government regulated development of cheaper rental homes
more commonly known as Sociale Huurwoningen. The non-profit private housing foundations or
associations were appointed as the managers of such rental stock.

15
 • France exerts an obligatory reservation of atleast 20 percent of low rent housing in suburban
regions through its Habitation à Loyer Modéré (HLM) Programme which literally means
housing at moderate rents. This programme was made possible by a Deposits and
Consignment Fund that was created within government’s financial organisation and is
controlled by the Parliament. The progamme constitutes both land acquisition activities and a
bouquet of incentives for the private developers towards the creation of low rent apartments.
The HLM units constructed in 1960s and 70s were formed with the need for urbanisation and
planned communities as a priority of growth in suburban areas of the country. These
planned communities i.e. Priority Urbanisation Zones (ZUP) with high rise estates welcomed
residents from low income background and accommodated immigrants. In 2012, nearly
sixteen percent of all housing in France fell under the HLM category that housed an
estimated of nearly 10 million people.

• The United Kingdom has provisions for affordable rental and ownership based housing for
the low income groups. The programme First Steps in an intermediate housing programme
from the Mayor of London office that is established exclusively for low income Londoners to
buy or rent housing properties at modest prices. Similarly, UK has the Shared Ownership
Scheme for Council and Housing Association Tenants that is managed by the Housing
Associations across the country. The applicant- a first time buyer or someone who had a
home previously but can’t afford to purchase now, can buy a share of their prospective home
that equates to either 25 percent or 75 percent of their home value. The remaining share is
paid by rent.

• Finland encourages development and provision of rental housing stock through an active
participation of its real estate companies and corporate investors. The country has a refined
Rental Real Estate Investment Trust Scheme (REIT) that helps in routing corporate investors
for financing state subsidised housing stock. The SATO Corporation is one such leading
corporate investor in Finland that owns nearly 23,500 rentable homes especially around main
urban areas and centers. Its vision is to attain homes for 50,000 satisfied residents by 2020.

North America: The United States of America established various National, State, County and
Local Housing Trust Funds for the development of affordable housing including rental units. The
National Housing Trust Fund made possible by the Housing and Economic Recovery Act, is
governed by the Housing and Urban Development Department for building, preserving and
operating over 1.5 million units for low cost rental housing over next 10 years. However the Trust
fund is currently suspended and new ways of generating revenues are being explored. The Florida
Housing Assistance Loan Trust Fund which is funded through a document tax a County Housing
Fund made possible the construction of 15000 units of affordable rental housing in the Dade County.
Likewise, the Dade County Florida Homeless Trust Fund was established to fund transitional
housing, emergency beds, shelters and permanent units for homeless people. This trust is funded
by a mix of sources including- 1 percent restaurant tax of food and beverages, allocations from the
Housing and Urban Development department and other external private and public contributions.
Boston through its local government housing trust fund (Massachusetts Housing Trust Fund)
encourages rental housing. The city through its Linkage Program made possible the development of
affordable housing units including construction of rental, cooperative and homeownership units.
Linkage Program draws its funds from Neighborhood Housing Trust and through city’s linkage fee
which is levied on commercial construction projects of more than 100,000 feet for zoning relief. This
fund is also supporting development of abandoned properties or conversion of non residential
properties for residential usage that must remain affordable for 50 years for ownership housing and
rental housing. Additionally, Boston city is an exemplar of making use of dormitories in real estate
market towards rental accommodation. Similarly, Minnesota promotes Captive Housing under its
Grand Portage Rental Housing Project which is developed in collaboration with the employers to
promote multifamily rental housing units.
16
D. Summary of Conclusions and Key Recommendations

The three case studies that cover key models in provision of formal rental housing in India (Public,
Public-Private and Private) indicate that there are still some constraints in these models towards
successful implementation, wider acceptability and scalability to address overall housing shortage
for the urban poor. Formulating workable models for provision of rental housing will require enabling
legal, fiscal and institutional environment and Government has a large role to play in facilitating such
synergies. This note has identified four key areas which will required to be studied in further detail to
facilitate market based mass rental housing.

• Land/Unit Reservation. In the changing real estate scenario, land can be singled out as
most important component while developing any affordable rental housing project. Like
India, availability of land for affordable housing in locations accessible to work places of the
urban poor is a challenge in many countries. Hence developing an adequate supply of rental
housing will require mandatory inclusionary approach (serviced land/unit reservations) which
is to be padded by carefully thought incentives for private sector investment. Recent reforms
in housing sector have facilitated some land/unit reservations however these are required to
be taken up with overall land management, development of urban fringe areas and
infrastructure simultaneously. Green field development is required to be planned carefully
with adequate reservations for affordable housing; either ownership or rental.

Currently many buyers hold land for speculative use that result in high land prices. Vacant
land/house tax system could be important incitement for curbing land/house prices, making
more land available for development and subsequently developing affordable/rental
housing. Vacant land/house tax, higher than the property tax for self occupied house may be
introduced. This will also compensate the urban local bodies in off-setting their loss of
revenue for reducing property tax on rental houses (as proposed in fiscal environment in
subsequent sections). Additionally, government has already introduced Tax Deduction at
Source (TDS) at the rate of one percent w.e.f 1 April 2013 on the transfer value of the
immovable property (except agricultural land) where it exceeds Rs. 5 million. This will check
tax evasion on property transactions and indirectly discourage speculative buying.
Unprecedented rise in property value is a major cause for depressed rental market and if
kept under check; affordable housing can emerge as sustainable business proposition.
Computerized property records linked to PAN and Aadhar Card with bio-metric details will
also help track the speculative holdings. The Small Flat Scheme at Chandigarh is in the
process of linking bio-metric details of scheme beneficiaries with Aadhar Card details to
prevent such beneficiaries from again availing benefit under similar schemes elsewhere in
India. Such initiatives are a flicker of hope in this direction.

Given the lack of service land at well connected locations and lower prices for the
development of affordable rental housing projects, government is formulating schemes that
can make use of land owned by private developers. Recent state housing policies (including
MMRDA scheme) incentivize private developers with additional FSI and TDR to use private
land for affordable rental housing projects. However such approaches are creating pockets
of high density areas which are not in conjunction with prescribed standard planning norms,
overall land development, infrastructure and transport services. The role of government in
guiding the development of land for residential use through land consolidation/pooling and
provision of trunk infrastructure and services toward orderly urban expansion is hence
essential and should be at the forefront while planning for affordable rental housing. Land
(re)adjustments and planned development of trunk infrastructure, including public transit,

17
 and financial incentives for affordable housing have proved to be successful parameters in
the housing policies implemented in developed countries.

• Rental Housing Delivery Models. Affordable housing schemes have seen some success
when they are limited to slum redevelopment wherein the target population is known, land
is made available by the government, and subsidies/grants are accessible through
centrally/state funded programmes. However, to address overall housing needs of the
general poor the approach appears ad-hoc and focus is more on stock creation (supply
side) than meeting the needs of the urban poor (demand side). MMRDA scheme or similar
affordable housing schemes being developed under some state policies (such as Rajasthan
Affordable Housing Policy) are typical examples of such an approach. These schemes
proposes ambitious targets of affordable housing for the urban poor segments for stock
creation but without having system in place for its successful implementation, allotment and
management (that include different typology of units to suit varied household size, income
and needs of the people; proper registry and scrutiny of beneficiaries, allotment-wait list-
eviction policies, adequate institutional arrangements and sound business model for
management of stock etc.). Stock creation models by extending various incentives could be
simpler however; Indian models are still in nascent stage with regards to stock allotment and
management.

Applicability and scalability of CHB model in other cities (for the general urban poor
population) with suitable modifications is needed to develop different rental housing models
that suits different types of cities. Learning’s can be taken from some of the rental housing
models in other countries that mainly include provision of the land free of cost for social
housing, incentives to private developers to create stock and establishment of housing
association/management agency that deal with stock allotment and management. Private
sector participation in affordable rental housing provision can be facilitated by providing
various incentives to private developers while pegging on certain minimum area that is
suitable for the urban poor (say less than 400 sq. ft.)

Apart from rental housing that is targeted for families, rental housing for students or single
migrant workers is also a growing phenomenon in metropolitan and some Class-I cities that
requires special attention. Rental Housing delivery models must also address needs of the
formal private hostel providers with due consideration.

Legal Environment. Private landowners have apprehensions with the existing Rent Control
Acts (RCA) as eviction of tenants is difficult due to long and cumbersome legal processes
and rents being unfairly low that do not allow reasonable financial returns. The purpose of
RCA (which came in to being to manage the world war time housing emergencies) is to
ensure affordable accommodation by protecting tenants against unjust eviction and
unreasonable rent but not to stop eviction altogether. However existing RCA is considered as
main deterrent for active private sector participation in formal rental housing market.
Simplification of long and tiresome eviction procedures for a fast tract resolution of tenancy
disputes could be one of the most important aspect while addressing changes in current
legal environment. Currently, RCA is applicable to both residential and commercial
properties. Prioritizing reforms to Rent Control Acts only for residential properties in the first
phase could also be one option to accelerate private sector investment as the powerful
lobbies acting against these reforms are mostly concerned with commercial rental properties.

18
 Completely scrapping the RCA may not be justifiable18 in view of the acute housing
shortage in the affordable segment and steep rise in the property prices despite a
considerable addition to the housing stock during the last decade. Owning a house is
becoming more difficult not only for the EWS and LIG but also for the MIG. Such a situation
gives discriminatory privileges to the landlords. In the unregulated rental housing segment,
tenancy period is restricted to less than a year and hefty rent increases are forced every 11
months along with security deposit of 3 to 10 months’ rent. The rate of rent increase has
been much higher as compared to increase in average income level during the last decade.

RCAs serve the purpose of balancing the constitutional right to hold and dispose of property
and human right for housing. Limiting application of rent controls to only one segment
diverts the supply to unregulated segments; therefore, the regulation should cover all
segments of rental housing. To safeguard the interests of tenants, minimum tenure without
rent increase and issuing receipt for rent paid should also be made compulsory.

• Fiscal Environment. To create supportive monetary and fiscal environment for affordable
rental housing it is important to look at host of such incentives provided to overall housing
sector as they directly or indirectly influence rental housing market. The focus of the fiscal
and monetary incentives has largely been to promote ownership. These incentives have led
to creation of large quantity of ownership housing stock in the last decade. However, about
10 percent of the housing stock (11million) remains unutilized (vacant) as per MoHUPA -
Urban Housing Shortage Report. The steep increase in real estate prices coupled with slow
reforms in rent control regulations has reduced the availability of rental housing stock for
EWS/LIG segment. Rents have also soared up in line with the real estate prices thereby
making it difficult for EWS/LIG segment to even take a house on rent. With the speculative
steep increase in real-estate prices, the gains from appreciation in property value are much
higher than the rental income as a proportion of value of the property being very low. The
owners wait for the value of the property to appreciate instead of renting it out. Exemption
from capital gains tax coupled with tax exemption for repayment of loan has fuelled
investment in house property for tax free super profits. This has indirectly discouraged rental
housing. To promote rental housing, the existing incentives for the housing sector need to
be modified and additional innovative incentives need to be provided for large scale private
sector participation in rental housing specially for the EWS/LIG segment. Owners of the
residential house property would then like to rent out their residential property and additional
rental housing stock can be created:

a) Capital Gain Tax exemption for longer holding period: Capital Gain Tax exemption is
available under section 54 of Income Tax Act, 1961, if a person sells one residential
house property after holding it for a period of three years and purchases another
residential house property by investing the Capital Gain amount. Likewise, Capital Gain
tax is exempted under Section 54F if a non-residential property or any other capital
asset is sold and the entire sale consideration is invested in acquiring another residential
property.
18
But at the same time it has to be admitted that any form of price control is undesirable. Ideally, as most
economists agree, all rent controls should be abolished. But we are constrained in our action towards
complete deregulation by the other variables, which operate in any urban housing scenario. Thus, the idea
of immediate countrywide banishment of rent controls must be dropped. The questions that need to be
answered first are that will the pressing problems that exist in urban areas of this country go away with rent
control deregulation? Are there other factors that need to be addressed simultaneously for rent control
deregulation to really have the desired effects? From Rent Control Laws in India - A Critical Analysis,
National Institute of Urban Affairs, December 2006 NIUA WP 06-04)
19
 Section 54 may be amended to increase the qualifying period for complete exemption
from capital gains tax from three to 15-20 years to curb speculative holding for short
periods and keeping them vacant. Slab system for Tax Exemption can be introduced to
link it to number of years of holding ownership of the property. Amount of exemption for
a period of holding for less than 15-20 years may be reduced to say 30 percent after 5
years holding, 50 percent after 8 years holding19. This benefit available to individuals
and Hindu Undivided Family (HUF) may also be extended to corporate sector to promote
large investment in affordable rental housing. This incentive of Capital gains exemption
will compensate the low returns from rental income. Capital gain tax exemption after a
longer period of holding will arrest the speculative property price rise. Section 54F may
be amended so that one can invest not in more than one property for rental housing.

b) Accelerated Depreciation on Building Cost or Tax Holiday for Rental Income: Large
corporate employers can be encouraged to construct rental housing stock and utilize
them as rental estates for their employees/industrial workers. Incentive for deduction for
expenditure may be allowed as for affordable housing projects under Section 35AD (5)
(ad). Either accelerated depreciation for construction cost may be allowed or tax holiday
for a long period of 10 to 15 years may be allowed for lower rent for EWS/LIG segment
similar to tax holiday under Section 80 IB (10).

c) Property Tax: The Urban Local Bodies generally charge a higher rate of property tax on
rented houses, which discourages rental housing. Since property tax is a major source
of revenue for the ULBs complete exemption from property tax may not be feasible, but
nevertheless it should be at par with the self occupied houses. Property tax holiday may
be considered for new stock creation for EWS/LIG segment for a limited period of 5 to 7
years.

d) Stamp Duty on Rent Agreements: Ad valorem stamp duty for registering rent
agreements can be reduced to a token amount of Rs. 100/- to promote registration of
rent agreements and reduce litigation.

e) Service Tax Exemption for Agencies Managing Rental Housing Stock: Agencies not
owning the housing stock but hiring large housing property for rental housing service to
EWS/LIG segment may be exempted from paying Service tax to ensure affordable rents
for the end users.

f) Withdrawal of Tax benefit for repayment of Loan Principal Amount under Section 80 C of
Income Tax Act: To divert excessive flow of credit from MIG and HIG ownership
segments to EWS/LIG and to cool off the ownership segment, tax concessions for
repayment on home loan principal amount may be withdrawn. The tax benefits being
extended to MIG and HIG categories for repayment of loan and interest and capital
gains are very high.

19
In France, before the recent change, Capital Gain Tax rate applied to any capital gains made on property
would reduce by 10% annually after the fifth year of ownership until it was effectively a zero rate applied in
year 15.
20
 TA 7148-IND: Promoting Inclusive Urban Development in Indian Cities

TERMS OF REFERENCE FOR CONSULTANTS

Preparation of Sound Policies and Strategies for Rental Housing

Background: In India, national housing policies have shown little sign of departure from their
primary objective – the conferring of ownership rights. But there has been little success in
reaching out to the poor and addressing overall housing shortfall. In contrast, during their early
stage of development, many developed economies recognized the importance of rental housing
that was provided by private developers and still comprises up to 30 percent of their housing
stock.

With increased migration from rural areas to cities and within cities seeking employment,
education, etc. in urban India today also, rental housing is preferred among many households
over ownership housing. Rental housing is also a real alternative for households who cannot yet
afford to purchase a suitable house. A majority of urban poor households in India are migrants
and usually earn their livelihood from informal sector activities. Being transitory and with
irregular incomes, they also prefer rental accommodation over ownership housing as ownership
housing involves considerably high initial costs1 and cumbersome credential requirements. The
current rents in formal rental housing markets are often beyond affordable limits of the urban
poor. Therefore, urban poor households opt for informal rental units in slums, unorganized
settlements or where housing units are undergoing deterioration over a period of time. Though
rental markets are very strongly developed in India2, for the urban poor, it has always been a
great challenge to obtain formal rental housing, in particular when they first arrive in urban areas
so as to gradually link themselves with institutional/formal sources of credit to perhaps buy
ownership housing later. Additionally, like many other countries, the rental market in India is
also characterized by rent controls; harsh, tenant-favoring laws; and a restrictive regulatory
environment that restrains fluid functioning of the market and, thus, limits vibrant private sector
entry in the provision of more rental housing. Considering this, there is urgent requirement of
creating an enabling policy environment for the creation of more rental stock in the market (with
private sector participation) for the urban poor.

Scope of Work:

Policy, Legal and Institutional Review: Undertake review of existing situations of rental housing
and housing policies/acts including those for the provision of rental housing to understand its
limitations and scope for further strengthening to foster the growth of rental housing. Also,
review existing institutional linkages for financing, developing and management of rental
housing stock and possibilities of more vibrant private sector participation in the provision of
rental housing.

1
Ownership housing involves significant down payment, monthly installments, if loan is taken out, and
maintenance cost compared with rental deposits and monthly rents for rental housing.
2
As per Census 2001, 29 percent of the low-income group in urban areas is staying in rental
accommodation, most of which are presumably informal rental housing.
 Attachment 1

Client Profile and Typology of Existing Delivery Models: Identify demand for rental housing from
various groups (singles, families etc.) and study existing models currently in place that cater to
the demand of each of these groups. Engage with various stakeholders (government,
governmental organizations, non-governmental organizations, financiers, developers, architects,
management firms, etc.) through case studies in selected cities to understand the issues faced
by them in delivering rental housing in current policy environment. Engage with various
stakeholders again through case studies in selected cities to understand issues faced by
existing and prospective renters in securing rental housing in the current policy/product
environment. Assess existing models in terms of urban planning and land use control/regulation
contexts, design (location and connectivity to basic urban infrastructure and services, civic
amenities, unit plans, communities developed through these projects, etc.), operation and
maintenance, rentals charged, legal/contractual arrangements between the landlord and tenants,
etc.

Worldwide Scenario and Applicability of Suitable Models: Study social, institutional, financial,
management, urban planning, land use control/regulation, and unit and project/community
design aspects of rental housing schemes in various countries to examine applicability of
suitable models in India, either directly or with appropriate modifications. Select best suitable
cases from two countries and conduct International Exposure Visit of MoHUPA/other
government officials to get firsthand experience.

Rental Housing Policy, Models and Financing Options: Based on the above review, recommend
measures to strengthen current (rental) housing policy/acts to create enabling environment for
more vibrant rental housing development, 3 formulate rental housing models, operation and
institutional management mechanisms that deal with various private parties interested in rental
housing development, discuss inclusive and incremental approach to developing rental housing
and building cohesive communities, and suggest financing options to develop and manage
stock developed.

Team:

The proposed PPTA will be implemented over 12 months and will require following experts.

Position Positions Proposed

Man months
Urban Poverty and Housing Expert – Team Leader 01 12
Housing Finance Expert 01 08
Municipal Finance Expert / Economist 01 06
Institutional Development and Capacity Building Expert 01 06
Legal Expert 01 06
Urban Planning/Housing Experts (12 months each) 06 72
Knowledge Management Expert (12 months each) 02 24
Social/Community Development Experts (06 months each) 02 12
Municipal Engineers (08 months each) 02 16
Total 17 162

3
Including “grandfathering” of existing rental housing units that are subject to existing rent controls.