Maharashtra Govt's Decision To Dilute Rights Of Tenants May Not Benefit Developers

For decades, norms governing rental housing in Indian cities have favoured tenants while policy makers assume that tenants are always at the mercy of landlords. So, government policies have always made it difficult for landlords to evict tenants. Landlords also find it difficult to raise rents, because according to the law, they can raise it only by a certain percentage, every year. As inflation is high in India, landlords are at the losing end, not just because the real value of money is declining, but also because existing laws do not allow raising rents beyond a point.

Rental yield is low in Indian cities, when compared to cities in the developed countries including the United States. In fact, the single biggest barrier to greater real estate development in India is the low rental yield. Property price appreciation in India is high when compared to many other parts of the world, but low rental yields deter investors.

Buildings in the Island City of Mumbai are hurt most by rent control regulations because these are very expensive properties. Rent control regulations were imposed in Mumbai in late 1940s and floor area restrictions were imposed in 1964. The floor area ratio in much of Island City is 1.33. Most buildings in that Island City are much taller than floor area restrictions would permit. So, redeveloping these buildings is difficult, even if rent control regulations were not there because landlords do not like losing floor space while redeveloping buildings. Rent controls make this problem worse because landlords do not earn anything much from these buildings. So, they do not have any incentive to redevelop buildings because their earnings would be negative.

The Maharashtra Housing And Development Authority (Mhada) wants to limit the power of tenants while developing old cessed buildings in the Island City. This has led to much political opposition. Former Congress MP Milind Deora says that the government is trying to dilute the power of tenants. In South Mumbai, there are about 16,000 cessed buildings. Deora said, "By reducing the tenant consent clause from 70 per cent to 51 per cent, Mhada is clearly batting for landlords and property redevelopers. This is the third such attempt in less than two years of the BJP-Shiv Sena government. We will take to the streets in conjunction with all tenants' groups and ensure that this proposal does not see the light of day."

According to Mhada's proposal, if two or more buildings are up for redevelopment, landlords need only 51 per cent of the tenants to consent to redevelopment. Earlier, 70 per cent of the tenants had to consent to redevelopment. This makes redevelopment  more likely, even if tenants disagree with it.

Does this mean that Mhada is favouring developers? No. Landlords have been suffering for so many decades. Rents were frozen for so many decades. Tenants pay Rs 100 or Rs 300 for flats which are very expensive. In some parts of Mumbai, the rent is as low as 1/1,000th of the price of property. Landlords are not allowed to raise rents or rent it out to others because these properties are under rent control. This does not mean that tenants benefit from this. Only a small minority of the tenants benefit from rent controls, and they are often upper middle-class tenants. Even tenants themselves find it difficult to move to other parts of the city because they benefit from low rents. Buildings are also often at the verge of collapse, and the risk of death due to the collapse of rent-controlled buildings is high. It is good for everybody is tenants in the Island City give up their privileges.