Gaps to bridge
Gaps in Rental Housing​
Based on the studies conducted, the following gaps in rental housing have been identified:
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Gaps Identified in Rental Housing
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Legislation​
i. Absence of second-generation rent control policy; 33(7a) eliminates existing rental stock;
ii. Tenant-heavy policies detrimental in increasing bulk rental housing supply through build-to-rent or rent-to-own models;
iii. Lack of independent platforms for eviction of defaulters, dispute resolution and assessment of fair rents; and
iv. Capacity building for facility management in public rental housing.​
Finance
i. Formal rental market not sufficiently tailored towards LIG/EWS residents;
ii. Lack of loan programmes to encourage rental housing supply;
iii. No priority sector lending for land utilised for rental housing towards EWS;
iv. Low private and public investment due to no incentivised PPP models;
v. No substantial vacant housing tax/incentive to reduce/utilise inventory of unoccupied & unsold houses; and
vi. Need for new financing models that increase return on rental property.
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Recommendations​​
Having set out the local context and identified the key gaps in the approach to rental housing, a roundtable conference was held in Mumbai on 11th January, 2025. A number of stakeholders from the fields of finance, legislation and real estate were invited. Based on the discussions, the following key recommendations emerged.
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City-level
1. Modifications of regulations to create an inventory of dwelling units in possession to public agencies, for renting to EWS/LIG households through rental housing management agency
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a) Modification of DCPR 2034 regulation numbers 15, 33(10), 33(11) & 33(20b) to include a mandatory fixed percentage of rental housing units (RHU) and allotment provision of Rental Housing Management companies as follows:
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Modifications to regulations from DCPR ​
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Regulation 15: 50% of inclusionary housing area as rental housing units;
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Regulation 33(10): Rental housing units over and above free rehabilitation units to house ineligible slum dwellers; similar to the Affordable Rental Housing Policy (ARHP) for Dharavi;
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Provision of additional square footage at construction cost to rehabilitated units that can be rented out by individual SRA owners to avail income and pay for maintenance;
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Regulation 33(11): 100% PTC units to function as rental housing units;
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Regulation 33(20)(b): 100% of Affordable Housing and Rehabilitation and Resettlement units to function as rental housing; and
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Regulatory relaxations to be revoked to improve the quality of affordable housing and bridge the amenities gap
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Rental Housing Implementation Agency: Real Estate Developers against existing incentives of sale component
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Rental Housing Management Agency: Not-for-profit Section 8 companies allotted by MHADA/SRA/MMRDA/MCGM through a pre qualification tender bid process​
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State-level
1. Issuance of State level Rental Housing Policy to facilitate a comprehensive rental housing industry, allow various forms of private rental housing supply by market forces and incentivise start up management companies to take over their operations and management​
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a) 1999 Maharashtra Rent Control Act to be amended/Rental housing to be clearly defined and detailed in the Maharashtra Housing Policy of 2024 to facilitate supply of RHU by the market, independent of government supply and not dependent on DCPR modifications
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​​Tripartite agreement for leave and license agreements
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Lawyer inputs to be included while framing the policies;
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Tripartite agreement possibility to be explored in Leave & License agreements; and
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Eviction laws for defaulters to be framed.
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Implementation Agency: Maharashtra State Housing Department
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2. Formation of Rental Housing Federation to provide a platform for support and advocacy of policies and finance mechanisms by the stakeholders in favour of renting at par with home ownership
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a) Establishment of an independent advocacy platform in the form of a not-for-profit Section 8 company to connect and address all matters related to rental housing in the city
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​ Multi-stakeholder lead Section 8 Rental federation
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Multi-stakeholder representation of diverse players in rental housing to be mandated, including real estate developers, landlords, tenant association, financial institutions, start-ups, NGOs, govt. department etc.; and
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Draft document outlining the MoA for the federation to be drawn up. Ex-officio inputs to be included in its framing.
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Implementation Agency: Stakeholders from the housing industry
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3. State levied Vacant Residential Property Tax (VRPT) and Vacant Residential Land Tax (VRLT) to promote rental housing supply through multi home buyers by means of leave and licence
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a) Penalties to be introduced in the financial year budget to increase the supply of rental housing in the market
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Promoting rental housing supply through incentives
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In-depth study to be conducted to recommend the exact percentage of tax and its impact on the residential market; economic advisor required. For example, the tax is set at three times the local property tax in Dublin, in Vancouver, a 3% tax on the assessed value of homes that are vacant for more than six months a year, while in Paris, the tax rate is 12.5% of the property’s rental value in the first year and rises to 25% from the second year onward;
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Penalties to be imposed on individuals and investors for vacant properties and to developers for unsold inventory beyond 5 years (in case of OC received in spite of unsold inventory); and
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Exemptions for valid circumstances like renovation, minimum annual self stay duration etc. to be outlined.
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Implementation Agency: Property Tax department of MCGM​
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National-level
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Tax benefits to incentivise multiple home buying by individuals and corporations thus increasing rental housing supply and discourage property hoarding​​
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a) Expansion of Tax Benefits for Rental Housing
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Allowing 100% home loan interest deduction under Section 24(b) for three or more properties;
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Standard deduction to be increased to 50% tax exemption on rental income for individuals or institutions renting more than six properties, provided these fall under affordable or special housing categories like women’s hostels, LGBTQ+ safe housing, or elderly care facilities. Methods to define categories to be established; and
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Rental caps for affordable housing to be decided at the city level, based on local market dynamics, cost of living, and income levels, ensuring that the benefits are equitable and context-specific — rental RR to be categorised by locality for affordable, cessed and market rentals and published.
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b) Introduction of Flat Vacancy Penalty from the Third Property Onwards
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Modifying the deemed rental income tax to become a non-avoidable flat penalty slabs on vacant properties starting from the third property; and
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Justifications for vacancy (e.g., ongoing repairs, tenant disputes, or inherited properties under legal review) to be submitted and verified by authorities to claim exemptions.
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c) Encouraging Institutional Investment
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Providing tax holidays or reduced corporate tax rates for institutional investors building and managing rental housing, particularly for low-income groups, women or students hostels, or senior housing.
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Implementing Agencies
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Ministry of Finance CBDT (Central Board of Direct Taxes) to amend the Income Tax Act for tax benefits and vacancy penalties;
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Ministry of Housing and Urban Affairs (MoHUA) to create a framework for city-level rental caps and guidelines for institutional investments; and
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State Urban Development Authorities and Municipal Bodies, to (i) determine and enforce city-specific rental caps in affordable housing categories, (ii) digitise rental agreements/registration process, (iii) implement a centralised database to monitor housing stock and vacancy status using utility data (e.g., electricity and water usage), and (iv) enforce penalties through utility and property tax records.​​​
2. Lower GST Slab on Hostel Rents to facilitate lowering of the expenses and make rental housing in various forms profitable​​
GST recommendations for affordable rental housing​
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a) Reduction of GST Slab on Hostel Rents
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GST rate on rental income from hostels (currently at 18%) to be lowered to 5% for properties serving as affordable housing solutions for students, working women, blue collar workers, co-living, senior citizen, LGBTQ+; and
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Affordability benchmark to be established based on per-bed rent limits, which can be determined at the city level by local governments.
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b) Expansion of GST Exemption for Residential Housing
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Extending the GST exemption on residential properties to include hostels classified under affordable housing criteria especially for blue collar workers.
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c) Lowering GST slabs for Utilities
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Landlords to be offered residential rates for utilities at a lower GST slab.
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Implementing Agencies
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Ministry of Finance (GST Council) to revise GST slabs for hostels and include them in the affordable housing category;
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State Urban Development Authorities to define and monitor affordability benchmarks for hostels at the city level; and
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Local Municipal Corporations to verify compliance and issue certifications for properties availing reduced GST rates.
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3. Private Housing for Subsidised Rent Under PMAY-ARHC to increase affordable housing supply through the private market​​
Private housing under PMAY- ARHC to increase supply​
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a) Inclusion of Private Housing in PMAY-ARHC
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Private individuals to be allowed to own and operate more than five small homes under the Affordable Rental Housing Complexes (ARHC) scheme of Pradhan Mantri Awas Yojana (PMAY), provided these homes are rented at subsidised rates; and
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Rent caps to be decided at the city level to align with affordability standards based on income groups and cost of living.
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b) Supply-Side Incentives
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Provision of subsidised loans for fitouts (furnishing and basic infrastructure setup) of homes to ensure readiness for tenants; and
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Credit Linked Subsidy Scheme (CLSS) benefits to be offered for purchasing homes designated for subsidised rental use under the PMAY-ARHC framework.
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c) Tax Benefits
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Tax exemptions on rental income for properties registered under the scheme to be extended, subject to compliance with affordability and occupancy conditions.
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Implementing Agencies
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Ministry of Housing and Urban Affairs (MoHUA) to include private individual ownership of small homes under the PMAY-ARHC framework and define subsidy mechanisms;
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State Urban Development Authorities to monitor and enforce rental caps and occupancy conditions; and
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National Housing Bank (NHB) and other financial institutions to facilitate subsidised loans and CLSS benefits for eligible landlords.
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4. National-Level Subsidy Framework for Rental Housing in form of low interest loans or direct subsidy to make rental housing supply cheaper and ensure profitability to the rental housing industry​
Three-bucket subsidy framework for Rental housing finance​
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a) 3-Bucket Subsidy Framework
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Land Acquisition: Rental housing to be included under priority sector lending (PSL) for low-interest loans;
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Construction: Subsidised loans for building multi-unit rental housing complexes; and
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Operations: Provision of subsidised utilities (electricity, water, gas) during construction and post-completion for rental housing projects.
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b) Provision of Public Land
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Allocation of underutilised public land at concessional rates or via long-term leases for rental housing development.​
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Implementing Agencies
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Ministry of Housing and Urban Affairs (MoHUA) to oversee subsidy framework and public land allocation;
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National Housing Bank (NHB) as nodal agency for administering subsidised loans, monitor compliance, and providing financial guidance;
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Reserve Bank of India (RBI) to enable priority sector lending for land acquisition; and
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State-level Urban Development Authorities to enforce rental affordability and manage public land allocation.
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The Way Forward​
Within the rental market, it has been observed that the demand for housing is immense as it is also varied. However, it is unfortunate that governments over the years have done little to understand the needs of the Indian population, much less support the improvement of existing rental housing avenues or the expansion of rental housing in new areas.
Through this research project, we have tried to shine a spotlight on this important, yet often ignored facet component of housing and we hope to address this situation through a four-pronged approach as detailed below:
a) Direct Engagement with State Government: Development of feasibility report grant, establishment of a committee, conference to release 5 point Action Plan;
b) Collaboration with NHB and MoHUA: Strategies to be developed for national impact;
c) Partnering with Real Estate Developer Platforms: Working with MCHI-CREDAI, NAREDCO, PEATA for regulations, financial models, taxation, incentives, REITs; and
d) Pilot Projects: Pilot cases to be developed and implemented.
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 and to the growth of youth who try to make a living away from home. Rental housing must be an essential part of the government’s approach towards housing if it hopes to achieve its mission to provide ‘Housing for All’ and to eradicate slums within our major cities.
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