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Housing minister Hardeep Singh Puri explains model tenancy act

Housing minister Hardeep Singh Puri explains model tenancy act The government of India on Wednesday approved the Model Tenancy Act, 2021 with a provision to set up district-wise rental courts, authorities and tribunals across the country. The Union Cabinet chaired by PM Modi approved the Act for circulation to all states and UTs for adaptation by way of enacting fresh legislation or amending existing rental laws. Minister of Housing and Urban Affairs Hardeep Singh Puri discussed the merits and challenges of the Model Tenancy Act for rental housing in India with ET Now's Nayantara Rai. Edited excerpts: Regarding the Model Tenancy Act, how will you change the psychology of people to follow this once the states follow suit? What will be the biggest challenge according to you? I would hardly describe myself as the Chief Architect of this Model Tenancy Act. The idea of a Model Tenancy Act has been around for a long time and I am a relative newcomer to the scene. I have only joined the council of ministers in September of 2017 and this idea was very much around. Let me tell you, there was a GoM Form sometime in 2019, but even before that when my friend Arun Jaitley was the Finance Minister, I recall attending meetings in his room regarding it. So, it has been going around for a long time. You are right in describing this as a model act because land is a state subject. If we were to enact legislation at the central government, the state would say you are intruding on our turf. So, it is a model act and the purpose is to provide a regulatory framework which is benign and results in the large stock of empty units, both residential and commercial in urban areas as well as rural areas, to become available. How will they become available? Because landlords will hopefully with this new dispensation coming have the confidence to be able to allow their properties to be rented out based on modern contractual conditions – which the states will provide through either the existing legislation or by enacting new legislation – and on terms and conditions to be agreed between the buyer and the seller of the service, which is a tenant who is getting the premises for a defined period of time on terms and conditions which the landlord will provide. It is a very important step and something that we have been waiting for. It will apply to all transactions prospectively and I think the greatest challenge always was how do you anchor this new dispensation in a dispute settlement resolution or a dispute resolution mechanism which takes it away from the cumbersome and often endless bureaucracy of the courts, etc. We have been able to do that and I think implementation will come quickly. Relief will also be seen both by the users and by the economy in general. According to the 2011 census, we had over 1 crore units which were lying unutilised. This is the 2011 figure, it may well be higher now when we get the next census figure. We will be sending this out to the state governments and the UTs. All the other things: how you implement it, how people get the confidence will follow very quickly. Mr Puri as you mention, this is going to be prospective. What is it going to do for the rent ceiling which is already in place or the pagdi system already in place? First off, every time you try to bring in any reform, you can start with the safe presumption that there will be challenges. Therefore, we have factored that in when we enacted RERA. I think it was sometime in 2016, there were attempts including in very powerful circles to somehow scuttle it because they thought ‘oh my god’. This is both the strength and the weakness. For 70 years of our existence as an independent country, we did not have a regulator in the construction area which is one of the largest contributors to employment and to the GDP, etc. When the law saw the light of day after a big struggle, people decided that they wanted to scuttle it. What happened? They mounted legal challenges. The challenges were taken up in the Mumbai High Court and I am delighted that those challenges were met. We were able to implement RERA throughout the length and breadth of the country, except one famous state which decided to enact its own legislation in the form of RERA, which is West Bengal. That legislation was challenged in the Supreme Court and on 4th May this year the Supreme Court squashed it. In this state, we looked at all that. First of all, the current problem is that a lot of residential and commercial units are lying vacant. Those which are under pagdi are already occupied whether the pagdi was paid 10 years ago or 50 years ago in some cases. They are informal arrangement. That is a different issue, but that system is in place. In this case, there is no system. Therefore, the landlord will not give the premises on rent to a prospective tenant. So, what we will do is that it applies to all prospective. I have no doubt personally that with the passage of time and when this Model Tenancy Act becomes entrenched in the law, rules, and regulations of the state governments and the union territories, all the other areas will also see some benefit. You know, people go to courts and the civil courts may tie them up in knots, etc. Then you already have a cumbersome traditional system of pagdi. We leave that aside for the moment. Now you will have a dispute settlement machinery which will be timebound through rent authority and adjudicating authority, etc. So, they will resolve these differences within 60 days. This will have a very positive demonstrative effect and all the others will begin to see reason, as we saw in the case of RERA where all kinds of problems came up. But as we started implementing RERA, we discovered that at the end, not only were the home buyers happy, but even the builders, etc., decided that they saw merit in utilising and practice it. I am not saying that all is hunky dory, but whenever you try to introduce reform, it takes time for things to fall in place. In the Model Act, the security deposit is two months in the case of residential property and six months for non-residential. Why should the government be fixing that at all? Should that not be a private negotiation? My understanding is this is only indicative, we are not prescribing any limits. At the end of the day, it is the states which have the primary jurisdiction for this, and the landlord and the tenant who will determine it. I mean it is entirely possible that you may own a property which you think requires a deposit which is higher, and if I am a prospective tenant, I may or may not agree. But whatever happens, we will register that property on the portal, then the terms and conditions which the tenant and the landlord have agreed to will also find mention there along with what are the responsibilities of the tenant and landlord, and two months for residential and six months for non-residential is a broad indicative template. It is entirely possible that states determine that based on their own local requirements, which may be more or less. Central government is only putting forward a template comprised of what could be regarded as best practice. You mentioned that as per the 2011 census information, there are 1.1 crore vacant houses that we have. What is the expectation? Would builders now look at maybe renting them out? Or will institutional investors/corporate take houses and lease them out to employees? Let me start by providing you a perspective of what my understanding is. You see, we have under Pradhan Mantri Awas Yojana urban – and the figure is much higher for Pradhan Mantri Awas Yojana Gramin – already envisaged 1.12 crore of residential dwelling. Now we are doing that and we are doing affordable rental housing complexes following our experiences with the pandemic; both in model 1 and 2. Some commercial entities will build new places for renting for their own staff. There are existing properties that we have put. In all these cases, there was always hesitation ‘ki ek baar aapne kiraye pe de diya’ you may kiss ever getting your property back goodbye because of the experiences of the past. Earlier there was a system like pagdi, there were other informal systems, I do not want to go into that. That is why some landlords did not want to give their homes to private tenants. They would only want to do company lease because that way you can at least move the registrar of companies. Now with this Model Tenancy Act coming into being, hopefully the landlords will get comfort for all categories. There is affordable housing being built by private people. Surely, no builder after constructing a massive complex wants those to be kept vacant. I mean they have borrowed money on the market, they are paying cost on the capital, and they would like to utilise them. Similarly, people who bought the places would want to either live in it themselves or give them out on rent. So, everybody gets a sense of confidence through this Model Tenancy Act and I expect that the impact will be visible in a short time frame. This is also going to be for commercial real estate? Yes, this is regulatory framework for residential and commercial, urban and rural. Do you think this will help reviving the real estate sector? How important is this going to be to revive the market and also to bring back confidence? Well first and foremost, I am a strong believer that people will want to own houses irrespective of whether there is a pandemic or not. In fact, we have seen some revival of the market taking place independently in certain metropolitan areas, etc., even before the second wave came. Of course, then there was a slowdown on account of the second wave. This will certainly be a positive contributing factor. But you know, the Model Tenancy Act has just been passed by the cabinet today, it is too early in the day to be able to quantify the benefit it will generate in the next two weeks. I have no doubt that all the properties that have been built have benefited from RERA because now builders can no longer divert the funds collected from unsuspecting home buyers. They have to employ 70% of those funds in an escrow account to be utilised on the project. That siphoning off is stopped and those projects where maybe the sales have not taken place, maybe some of them would want to put them out on rent. It is a very interesting situation. We have a lot of demand for housing and we have availability of housing. Why is it that when there is a demand and there is availability, things cannot be done because there were some gaps. Now the fourth quarter 2021 GDP figures have been released that show construction is in the positive trajectory. Last year the first quarter was bad. Why was it bad? Because on 25th March we went in for a complete total lockdown. Then we started opening towards the end of May, therefore we had virtually lost April and May totally. June when we opened up there was very small opening up. Now you had a 23% contraction in those three months. That contraction in the second quarter went to 7.5%, then a little more. By the time we reached the fourth quarter, the good news is that we had a 1.6% overall increase which put us in positive. So, my first submission to you Nayantara is validated, that construction by itself is there with the Model Tenancy Act coming into play. That will receive a further fillip of boost. To what extent? I am a careful person, I cannot quantify. If you have many more programmes of the kind you are doing now and use your medium to disseminate information on the Model Tenancy Act, which I have every intention of doing in the coming few days, it will instil confidence in the consumers, in the land owners or in the owners of building, owners of properties, residential or commercial. I think it is a very positive step. Follow and connect with us on Twitter, Facebook, Linkedin
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