A Housing Ministry Task Force has recommended that the money invested in building rental flats under 60 square metres (600 sq ft) be made part of the Corporate Social Responsibility spend mandated under the New Companies Act.

This move will allow a deduction of over 100 per cent of the capital expenditure incurred by corporates and significantly improve the viability of such projects.

Private companies will have an incentive to build homes for the millions who make up their workforce.

According to the Companies Act, 2013, which replaces the Companies Act of 1956, companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more in a financial year are mandated to spend 2 per cent of their profit towards CSR.

The Housing Ministry’s Task Force, led by Value and Budget Housing Corporation Chairman Jaithirth Rao, has been mandated to formulate a policy on rental housing.

Supply of rental housing, according to the Task Force, is limited and of low quality due to poor rental yields.

Moreover, restrictive and outdated laws deter landlords from renting out property. In addition to the risk of losing the property, the absence of intermediaries such as Rental Management Companies deters large institutional players from entering the segment.

Consequently, 10 per cent of the total housing stock of 110 million units remains locked up, according to the Task Force.

Massive shortage

The Housing Ministry’s 2012 estimate puts the housing shortage at around 18.78 million units for the 81.35 million households in cities.

To attract large institutional investors such as insurance companies into the rental housing market and increase the stock of quality homes, the Task Force has also suggested other incentives, including cheap finances and tax breaks. The hope is that this will have a cascading effect and increase rental yields, which, in turn, will bring more investment into rental housing.

The recommendations also include setting up of Rental Housing Tribunals for speedy resolution of disputes, simplification of eviction laws/procedures, and creation of enabling entities, such as Rental Management Companies with ‘eviction’ powers. Once the reforms are passed, the government hopes property owners will let out their property and the housing supply gap will be bridged.

The 19-member Task Force’s recommendations — part of the Housing Ministry’s latest effort to overhaul the archaic rental housing legislation and regulatory framework — have been put up for public scrutiny.

Action plan

After stakeholder consultations, a detailed action plan will be drawn up.

“Based on the detailed action plan we will be preparing a model at the Central government level comprising the new features of the Rent Control Act and giving it to the States for implementation,” said Union Housing Secretary Arun Kumar Misra.