Policy
Institutional & Policy Framework
Rental Housing Institutional Framework
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​In the Indian context, housing can be rented by entering into a
(i) rent agreement,
(ii) leave and license contract, or
(iii) lease deed.
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Regulatory Frameworks​
Difference between Rent agreement, Lease agreement and Leave and License Contract
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In recent decades, leave and license agreements have been increasingly preferred by landlords as they ensure that there is no transfer of interest from the licensor (landlord) to the licensee (tenant) and therefore, no property rights are created. As neither ownership nor tenancy rights are available to the tenants, it also makes eviction and termination of the agreement easy. The shorter tenure of 11 months also affords both tenants and landlords more flexibility.​​
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Housing finance products and government policies have typically been tailored towards home ownership, thus neglecting the need for rental housing. Even in policies addressing rental housing, there are significant ambiguities and inconsistencies with regards to its implementation, maintenance and regulation.
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Historically, both government and private, industrialist landlords had provided housing with equal (if not more) importance being given to rental housing, in the form of chawls and apartments. However, with the advent of rent control and the subsequent inclusion of leave and licence housing within the rent control regime in the 1970s, the focus shifted towards home ownership. Introduction of housing finance mechanisms sealed the deal.
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Emphasis on Home Ownership
Timeline of housing policies ranging from the first Five Year Plan to NITI Ayog
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The timeline traces housing policies from late 1800s to the Five year plans and eventually to the NITI Aayog era post 2015 through the aspects of Home Ownership, Rental Housing, Finance & Fiscal Policy, and Informal Housing.
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Changing Government Role​​
Rental housing is an integral part of the housing tenure systems in cities, and is also integral to the stages of a migrant’s upward mobility from squatter settlement to ownership housing.
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However, it is unfortunate that governments over the years have done little to support the improvement of existing rental housing avenues or the expansion of affordable rental housing in new areas. There has been a distinct change in the role of the government with respect to housing, moving from one of a provider to that of a reluctant facilitator. The first Five Year Plans showed the direct involvement of the government in housing supply and slum eradication. However, post economic liberalisation, the government has taken a more laissez-faire approach and chosen facilitation over actual creation of housing. Rental housing especially has been put on the back burner, with the increased focus on housing for ownership and rental housing projects becoming rare.​
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Evolution of rental housing policy: a timeline
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Today in Greater Mumbai the absolute number of houses on rent is the same as it was in 1961. All new construction in the last nearly 70 years has been for ownership, with leave and licence letting for convenience, but virtually never as investment for earning rentals.
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Rent Control & Its Effects on the Housing Market​
In Maharashtra, the current rental housing policy in place is the Maharashtra Rent Control Act (MRCA) of 1999, With the view to unifying the three different rent control laws in the State, both the Legislative Assembly and the Legislative Council passed the MRC Bill 1999, with amendments and came into effect on 31st March 2000.
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The Maharashtra Rent Control Act of 1999 aimed to unify, consolidate and amend the law relating to the control of rent and repairs of certain premises and of eviction and for encouraging the construction of new houses by ensuring a fair return on the investment by landlords and to provide for the matters connected with the purposes aforesaid. The act highlights the following: ​​​​​
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​Increase in Rent, as allowed by the MRCA​
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As per section 11 of the MRCA, the landlord retains the right to decide the rent and is also entitled to ask for a raise in the rent at the rate of 4% per annum from the date of the commencing of the MRCA. The landlord can similarly increase the rent at the rate of 15% per annum for developments, modifications, and alterations if 70% of the tenants give written consent. The additional 25% per annum rise in rent is for particular structural maintenance and repairs specifically carried out under the MHADA Act.
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Further, under Section 12 of the MRCA, the landlord is also within his/her right to hike the annual rent if the government-imposed taxes increase in the course of the duration. In that event, the increase in rent cannot exceed the amount of the increase in tax.
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The rules of the MRCA are however also applicable in areas where excessive rent is charged by the landlord. Such an offense is punishable with imprisonment not exceeding 3 months, or fine not exceeding Rs. 5,000, or both.​​​​
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Conditions for Eviction​​​​​​​
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Section 16 of the MRCA, provides for the landlord to evict tenants if: (i) the landlords can provide a genuine cause for initiating eviction; (ii) the tenant, without the prior authorisation of the landlord, constructs any permanent structure on the rented premises; (iii) the tenant has been found guilty of behaviour that is a nuisance to neighbours; or (iv) the tenant has been found guilty of using the premises be used for unlawful/prohibited purposes. However, these clauses are often difficult to implement.
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While rent control laws provide for cheap housing for the poor and tenants have security against arbitrary increase in rents and evictions; opponents argue that Rent control kills incentive to invest in new rental housing, which reduces supply in the market, leading to scarcity of rental homes.
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Rent control laws have created a shortage of formal and affordable housing in Mumbai. This shortage mainly affects the lower middle class and the poor of the city giving rise to slums. The laws allow for a cap on the rent for protected properties, which is fixed at the time of letting with restricted annual increase, which is well below the rate of inflation.​
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Responsibility for Repair of Premises ​
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According to Section 14 of the MRCA, every landlord must preserve and maintain upkeep of the premises. If the landlord is careless in the maintenance of the premises, then the tenant can serve the landlord with a 15 days’ notice. If the landlord fails to abide by the notice, the tenant is authorised to make the repairs and carry out the maintenance themselves and deduct the expenditures paid on the upkeeps from the rental or recover the amount otherwise. ​
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Legalisation of Pagdi System​
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Pagdi has been legalised under section 56 of the MRCA as the consideration paid to the landlord in the form of rent, premium, or consideration. The pagdi system has provided a guarantee to the tenant, that despite price rises or other variations, their rents will be nominal.
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Transfer of Tenancy​
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In cities like Mumbai, for the transfer of tenancy, around 33% of the sum in the transaction is paid in cash to the landlord to influence the transfer of tenancy or assignment. Similarly, it is lawful for a landlord to take money for the grant or renewal of a lease of the premises, or to give his/her permission to transfer the lease to any other person, under Section 56(ii).​​
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Dispute Resolution​
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Section 33 of MRCA illuminates the jurisdiction of the courts. The court of Small Causes, Mumbai, and the court of the Civil Judge — Senior Division have jurisdiction over any disputes caused in rent-related cases.
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While rent control laws provide for cheap housing for the poor and tenants have security against arbitrary increase in rents and evictions; opponents argue that Rent control kills incentive to invest in new rental housing, which reduces supply in the market, leading to scarcity of rental homes.
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Rent control laws have created a shortage of formal and affordable housing in Mumbai. This shortage mainly affects the lower middle class and the poor of the city giving rise to slums.
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The laws allow for a cap on the rent for protected properties, which is fixed at the time of letting with restricted annual increase, which is well below the rate of inflation.
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Ward-wise, rent-controlled tenements across Mumbai
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​According to the latest data received from government departments , there are 3,05,350 rent controlled properties (divided as residential, commercial, Industrial and land) across Mumbai, albeit fewer in the northern suburbs. Rents for these properties are often 1/100th of the current market rates and the units are commonly located in dilapidated buildings due to the lack of funds for repairs and maintenance resulting from rent control.
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1 This data was gathered from the individual municipal wards through a series of RTIs filed by Plural.
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Cessed buildings in Mumbai
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Redevelopment of the dilapidated and cessed buildings under regulation 33(7) and 33 (7)(a) within the Development Control & Promotion Regulation (DCPR) puts an end to renting as tenants get free homes. This process truncates the supply of affordable housing in central areas within the city, especially the Island city, where property prices are even higher, thus making the housing prices within the city unequal.
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Recent Policy Developments​​
Regulations under the Development Control & Promotion Regulation (DCPR)​
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Regulations 33(11) and 33(20)(b) aim to increase private developer participation in the creation of affordable housing in Mumbai. Creating such affordable housing stock can not only allow lower income households to own housing but also provide a steady supply of permanent rental stock that can be accessed by those who cannot afford to buy these units.
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Regulation 33(11) of the DCPR governs the development of Permanent Transit Camps (PTC) by private developers. It incentivises developers to create PTCs for slum dwellers, to be handed over to the Slum Redevelopment Authority (SRA) free of cost, in exchange for increased FSI (up to 4.0). The units built are to have a minimum carpet area of 27.88 sq m (300 sq ft).​​
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Regulation 33(11) under the DCPR
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​​​Similarly, regulation 33(20)(b) of the DCPR governs the development of free Affordable Housing (AH) or Rehabilitation & Resettlement (R&R) tenements on private/non govt-owned plots in exchange for increased FSI (up to 4.0). It is enforced by the Brihanmumbai Municipal Corporation (BMC).
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A critical condition of this regulation is that tenements need to be handed over free of cost to the BMC with the occupation certificate for sale portions being issued post handover. This ensures that developers’ commercial interests align with the timely delivery of affordable housing.
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The modification specifies that no premium will be charged for fungible compensatory areas in PAP (Project Affected Persons) tenements. However, premiums will be applied to the saleable component as provided by the developer.​
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Regulation 33(20)(b) under the DCPR​​
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Dharavi Affordable Rental Housing Policy (ARHP)​
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Without rental housing, it is impossible to achieve the Central Government’s mission to provide ‘Housing for All’. The Dharavi Affordable Rental Housing Policy (ARHP) is an acknowledgement of the key role that rental housing plays in rehousing the needy by providing free housing. It is aimed at delivering rental housing to slum dwellers who do not qualify for free housing under the redevelopment programme. Two types of rental units are proposed — Affordable Rental Housing Units (ARHU) and Affordable Shared Rental Accommodation (ASRA). ARHU provides individual housing units for those living in Verified Slum Dwelling Structures (VSDS) with an identifiable head of household (HoH) while ASRA provides shared housing for those living in the mezzanine floors of a VSDS or without an identifiable head of household (HoH).
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The policy incentivises developers to participate in the programme by providing a higher Floor Space Index (FSI) of 1.33 for saleable components as per DCR 33(A). A Special Purpose Vehicle (SPV), Dharavi Redevelopment Project Pvt. Ltd. (DRP), facilitates construction and land acquisition. Units are to be handed over to the authorities for free and they are allocated on a first-come, first-serve basis.
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The ARHP also empowers the DRP/SRA to acquire the funding for management and further development of housing units by enabling them to establish their own REIT or partner with banks, funds, or investors (by securitising monthly license fees from ARHUs, ASRAs, and ARH buildings). Additional financing is provided through Corporate Social Responsibility (CSR) initiatives.
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Dharavi Affordable Rental Housing Policy
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​​Though the ARHP is well-intentioned, there are a few loopholes that need to be addressed. The complex policy is cloaked in ambiguities, allowing it to conceal the critical issue in the "availability" clause for Heads of Households living in Verified Slum Dwelling Structures (VSDS) post-2011. While rental units are allocated based on availability, the current approach prioritises saleable units over rental housing. It thereby risks displacing long-term residents without a clear relocation strategy. This clause forces slum dwellers to vacate their homes without guaranteed shelter or compensation during the transition. This aspect places undue stress on residents as they are required to leave their homes before their new accommodation becomes ready. With no temporary housing or rent compensation, this policy risks becoming a burden rather than a solution. Policymakers must revisit this issue to ensure that the ARHP delivers on its promise and does not fail due to a poorly framed clause that jeopardises the welfare of those it intends to help.
The policy incentivises developers to participate in the programme by providing a higher Floor Space Index (FSI) of 1.33 for saleable components as per DCR 33(A). A Special Purpose Vehicle (SPV), Dharavi Redevelopment Project Pvt. Ltd. (DRP), facilitates construction and land acquisition. Units are to be handed over to the authorities for free and they are allocated on a first-come, first-serve basis.
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The implications of this policy could extend beyond Dharavi, setting a crucial precedent for future urban housing models.
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