Rent and Lease Laws of India Need Immediate Change!

I have been hearing and reading the opinions of many economists and legal experts regarding the need for having progressive property laws and rules in India that enable letting out of properties for residential and commercial activities beneficial and hassle free for both the property owners and the tenants. Unfortunately neither the union government of India nor the state governments in India seem to act in this regard.

Real estate business can flourish and would be beneficial to both the builders and the owners only when there are laws in place that facilitate all concerned in an equitable basis.

In countries like the USA, Australia, UK etc, getting a furnished accommodation on rent from property rental companies who not only build buildings but also furnish and maintain them properly for the purpose of letting them out is not difficult. They have the laws and rules that  permit such an economic activity. In India, such a thing has not yet happened.

Even after six decades of existence as a Sovereign Socialist Secular Democratic Republic, the democratically elected leaders and the officials of India who have been governing India under the authority provided by the written Constitution of India, could neither bring about socialism nor secularism in the manner that the Constitution stipulated.

Having failed in these and having observed failure of administered socialism and secularism in several other nations, the Indian leadership has evolved a system which does not honor socialism or secularism in the right sense as the Constitution envisaged.

Indian laws and the Indian jurisprudence is a legacy of the colonial era. Though India got independence from its colonial rulers, it has never achieved independence from the colonial era laws and legal systems partly because the Indian leaders finding the colonial systems too enchanting and beneficial for their own self satisfaction at the expense of the people at large. The incompetence of the elected legislators and the laziness of the permanent bureaucratic members responsible for drafting the laws for the elected legislators have also contributed to make the legal system of India to degrade and become too complicated preventing justifiable justice a distant dream to all. 

The Indian law practitioners got a gold mine of opportunities to enhance their practices and incomes because of the ever increasing complexities beyond the common understanding of the people of independent India. Contradictory and opposing judgments from the various levels of judiciary became a common thing in independent India as a result of all these. Ambiguities in the statutes provide enough scope for interpretation of the laws differently by different people!

Unfortunately, every halfhearted and incomplete approach to make corrections in the system causes and enhancement of ambiguities. As a result, the existing rule of law and justice in India is perhaps worse than what existed during the colonial days! Essentially what India has achieved by independence is a transfer of power from a group of colonial foreigners to a group of Indians with colonial mindset!

What the colonialists practiced was the control of land and property that belonged to the native Indians by adopting various rules and laws many of which had been for the purpose of governance as applicable more than a century ago. 

Unfortunately the same laws governing property, its use and control exist in India more or less in the same fashion as during the colonial days. Only cosmetic changes here and there were done by the state and the central governments of India after independence in this context. The absence of cohesiveness on a pan India basis is very obvious to any one who have tried to get to the details for any reasons.

Laws and rules regarding land ownership, sale, lease, use, distribution, partition, etc are not in accordance with the current requirements of the people of India. The Indian law makers seem too lazy and unconcerned to do the necessary work in this regard. As a result land reforms is an area of great disappointment for all in India. [You may read my earlier blog on this here!]

The rules regarding leasing and renting of immovable properties like residential houses, flats, apartments and commercial properties remain an  area of extreme concern which cause immense problems to the people, both the owners and the users. The present laws are too much biased in favor of one party than having a balanced approach. When such biased laws exist, no one can expect proper justice to the people. 

Let me explain this with a few examples. Suppose that you are an owner of one house at one location and you need to move to another location or city to live there for a few years in connection with your profession or job. What you immediately need is a residential accommodation on rent for a period of say 3-4 years till such time that you are in that location. You are now an owner of a property who wants to vacate your own home some where and move to another property owned by another person in some other location. Perhaps the other person too might be in a similar situation as you. 

But you would face much difficulty in getting a rented accommodation because of the present laws which are too impractical. The present laws are biased and made some decades ago when the situations were different from now. The laws also do not permit business men to build, maintain or let out properties following fair business ethics.

Indian real estate business for the time being is only concerned with building and selling of properties. The boom has created a big surplus of flats in all major cities and towns. In Mumbai alone, it is reported that there are over 130000 flats remain unsold.  Imagine the total money invested and the numbers lying unused all over India! At the same time the builders are not facilitated to give out these properties on rent, because the laws are not conducive for that. It is indeed a great opportunity lost for a country where millions are without shelter and housing!

The overall charges incurred by the sellers of properties are extremely high on account of high stamp duties, registration fees, lawyer fees, commissions to agents, etc. Just one transaction of a property would make it dearer by nearly 15 %. A property that has changed ownership a couple of times would naturally be with a much higher cost price than similar properties that did not encounter such ownership changes. Naturally, this situation artificially jacks up property prices in India causing much imbalances and unfairness in determining the fair price valuation of properties. This in turn causes a high degree of black economy trade in India.

Any progressive government who is determined to provide good governance for the betterment of the nation could never sit as a passive spectator to such things. Unfortunately passive governance has been the situation for several years!

I hope the Narendra Modi government would do some thing positive in this regard in the days to come. What I look forward in this context are:

1. New rent control laws as applicable to the whole country which is simple and beneficial to both the owners and the tenants. The law should also allow property companies not only to build and sell, but also to own, maintain and rent properties easily to clients on rentals that are fair and justifiable. It is reported that the government is already mulling on a  New law for regulating rental housing . But this law should also address issues like long term professional upkeep of apartment and commercial buildings on chargeable basis by estate management companies including facilities for existing owners societies to outsource such services to such companies.

2. New property transfer laws that enable owners to incur less costs while selling or transferring them there by reducing the possibility of artificial jack up of property costs. Governmental agencies should provide better and reliable property registration, record keeping and documentation facilities including creation of digital property identities and data. Government may stipulate different stamp duties for properties sold at different intervals of time. The national law should be the benchmark of guidelines for all state and local authority laws for all issues concerning development of properties, sale, lease, maintenance, taxation, fire safety, lift safety, water and electricity use, responsibilities of residents, etc.

3. Government may set up national institutes which train people in various aspects of land and property surveys, evaluation, record keeping, assessment, designs, documentation, etc. Degrees and diplomas from these institutes should be made mandatory for all appointments to offices responsible for activities pertaining to land and property assessment and management.

I would like the readers to respond with their views on these.

Land Reforms: Some thing Most Important for India to Progress!

Some time ago, I wrote a blog article about the poor land owners' agitation in Odisha State of India against an ambitious private integrated steel plant (ISP) project promoted by the South Korean steel major POSCO with the active support of the state government. 

Post liberalization, the only state which might have implemented large scale private industrial projects in record time perhaps is Gujarat under the chief minister-ship of Shri Narendra Modi who is shortly to take the mantle of Indian government as the new Prime Minister. World renowned companies such as Reliance Industries or Adani Group  would not have become a reality without enough land to set up their large industrial manufacturing and service facilities.

Unfortunately, Asian countries such as India with their below average human development indices, have been markedly behind in effecting land reforms. This Wikipedia article gives an overview of land reforms in major continents in the recent past. 

In India, land reforms have not been in the agenda of the national government since its independence. Land reforms have been left voluntarily to the state governments. Only two states, West Bengal and Kerala, tried to do some thing regarding it during their initial years of existence. Later on, no political party got enough strength and wisdom to do some thing in this connection for the general good of all people. 

Just before its exit from power, the outgoing central government of India in 2013 enacted a law which is known as  The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013  [Get the pdf copy of the Act Here!] This law has now replaced the previous Land Acquisition Act of 1894 which has been a bone of contention between the land owners, the governments and the industry for many years in the recent years due to the manner in which the government authorities operated it. 

While the old law has given too much power to the government officials and had been considered as anti landowner,  the new law is believed to be anti industry. The new law perhaps burdens the private industry with too high costs towards land procurement. The new law apparently provides for high compensation for the land owners. However, it does not ensure future protection of a land owner who becomes landless when his land has been taken over for some industry or development project.

When a land owner's land is taken over for any project, he should not only get a fair compensation, but also get fair protection to live with dignity. All land owners whose houses have been taken over together with the land should be provided with decent housing before his property is physically taken possession by the project authority for whom the land is acquired. They should also be ensured of reasonable and steady future incomes as a compensation for disturbance of their traditional living.

On the other hand, it should also be necessary to protect the industry from incurring heavy initial costs on investment towards acquisition of land. With heavy land costs, many projects might become techno economically non-viable. On the other hand, large projects enhance overall economic activities in its vicinity. Many times it has been seen that when large projects come up and stabilize, the land costs in and around the project go up due to higher commercial opportunities.

This creates a peculiar situation of disadvantage for the people whose lands have been taken over at prevailing market rates. For example, in the rural areas of India where there is no activity other than rural agriculture, the land costs are low to the tune of say, Rs.10 per sq.ft. In the near vicinity of a large commercial project, the cost could be around Rs.200 per sq.ft or even as high as Rs.1000 per sq ft or more. 

Thus, the person whose land is acquired would feel as cheated even when he gets a price of 3 to 5 times more than the market rates due to the probability of the land prices shooting up many times more in the vicinity of any large project once the project becomes commercially operational. Such a situation often causes some people becoming reluctant to part with their land even when they are offered much higher price than the current market rates.

In the previous law, the government forcefully captured the land for any project declared as 'public interest' and paying the affected people prices as decided by them to be paid at the whims and fancies of the officials concerned. The new law is made to help the land owners, but its efficacy is yet to be seen. On the other hand many private entrepreneurs are not so happy about the new provisions of the land acquisition law.

Another problem that arises for any commercial or infrastructural project requiring land is the complex and vague rules that have emerged under the environmental protection acts and rules. Vague laws and rules give enough room for whims and fancies of some authorized persons to play havoc and unending litigation. No business man would like to land in to such complications under normal circumstances! A typical example of this type of a problem is the environmental definitions that are applied to the sloping lands of the western ghats of Kerala while similar situations in states like Himachal Pradesh are dealt with different yardsticks! Obviously, the definitions and yardsticks change from person to person!

The question is how India tackles such problems? As the PM designate Mr Narendra Modi keep telling: "Less government, more (better) governance" The idea is great, but the vast lot of people with high ambitions for getting a slot in some 'offices of profits' would not allow such a thing to happen. It can happen when people become honestly interested in doing good for the people and not for themselves!

So, land reforms in India is not difficult to be achieved, provided the people of India, high and low, are willing to keep the nation in front than their own individual priorities. 

Again the first principle to be remembered for all land acquisition is this: The individual land owner's willingness to part with his land possession is to be respected. The land owner should be treated with dignity. The government has to ensure that the land owner does not become landless and homeless when his or her land is taken over. Not only they are paid reasonably well for their lands, a portion of the land acquired should be utilized for creating a well planned and well designed housing colony for the displaced land owners. This should be in addition to the monetary remuneration paid.

All government officials involved with land acquisition should be sensitized by proper training so that they do their work efficiently in a time bound manner with out antagonizing the people. Concerned laws need to be amended if required. While laws are drafted, the government should also check the clauses with regard to their compatibility for good governance. The practice of passing laws for the sake of it should stop.

These are not difficult for any government if the people of the government are great visionaries and true leaders!

In any case, land reforms in the positive manner on an urgent manner is what India needs now for progress and development. The latter again should be for ensuring enhanced employment to the Indian youths and not for unjustified accumulation of wealth in the hands of a few.

What do you think?