What does the Model Tenancy Act mean for NRIs?
Earlier this month the Union Cabinet of India approved the Model Tenancy Act which will replace The Rent Control Act of 1948. This was yet another reform in the series that will help boost investment in the Indian real estate sector. The sector is the second largest employment generator, and needs the governments attention and hand-holding for a demand boost.The Model Tenancy Act will be a state subject and will be applicable once the states adopt its version with tribunals making the transaction and dealing with regard to rental activity much more transparent, formal, and enforceable. Indian real estate has long been of interest to the NRIs. Residing overseas this community looks to have a house/residential property back in their home country which can be used to settle down once they decide to move back or even to invest in an asset class that has delivered superior returns in the long term.The NRIs/HNIs expect investor-friendly laws for investment in any asset class with well-defined norms. The Model Tenancy Act once implemented by the states can help in the following ways.One of the biggest pain points in leasing out the properties was the fear in the mind of the NRIs, overseas investors, or even people who stay outstation that the tenant may not vacate the property post the lease tenure. There is a clause of penalty on the tenant in the event of failure to vacate the premise post the lease period. The Act safeguards the rights of the landlord as well as the tenants. The Act aims to do away with the concept of a hefty security deposit, the step will boost rental activities.A high number of residential units were purchased and kept vacant due to the uncertainties related to the tenant vacating the property post the tenure of the lease. The act clears the air, will instill confidence in the minds of the investors to lease out the properties and unlock gains in the form of regular monthly rentals.The Act aims to formalize the renting & leasing activity of real estate properties in the country. The clarity on leasing laws will help boost institutional investment in residential real estate properties. Till now the HNI/NRI investment was largely seen in commercial properties due to the sheer scale, size, and high rental yields vs the residential properties. The new Act will boost confidence and institutional investment in residential real estate too. Developers can now work on projects that are built to lease which will reduce their cost substantially.Investor-friendly laws will help attract global investment into the Indian real estate industry. We have already seen a stellar response to several REITs IPO in India. The new act has the potential to attract similar investment in the residential real estate segment and institutionalize the renting business in India.After the clearance from the Union government, the Model Tenancy Act on the lines of RERA will be implemented by states, early adoption by the states will boost investors confidence and attract investments.