Low-Cost Rental Homes As CSR: Government To Invite Private Players To Invest

The Central government is planning to invite corporates for providing low-cost rental homes in various cities and towns across the country on a massive scale. The recommendation has come from a housing ministry task force saying that expenditure on rental flats with size under 600 sq.ft be made a part of the corporate social responsibility (CSR) under the New Companies Act.

New Companies Act

The new Companies Act of 2013 replaces the Companies Act of 1956. According to the new Act, for companies with a net worth of Rs. 500 crore or more and a turnover of Rs. 1,000 crore or more, or with a net profit of Rs. 5 crore or more in a financial year, it is mandatory to spend 2% of their profits towards corporate social responsibility.

The Value and Budget Housing Corporation that has led the housing ministry task force is formulating a policy on rental housing. The task force said that the supply of rental housing is limited and has poor quality due to low rental yields. Restrictive and outdated laws have detered land owners from renting out property. The risk of losing the property and the absence of intermediaries deter large institutional players from entering the segment. As a consequence, about 10% of the total housing stock, which accounts to approximately 110 million units, is locked up. According to the estimate made by the Housing Ministry in 2012, there are about 81.35 million households in cities and a housing shortage of 18.78 million units.

The recommendation, if implemented, will allow a deduction of over 100 per cent of what a company incurs as capital expenditure. It will also significantly improve the viability of such low cost rental projects.

Recommendations

The task force’s recommendations include providing incentives to corporates such as tax breaks and cheap finances. The idea is to attract large institutional investors into the rental housing market while increase the stock of quality homes. The government is hoping that this move will lead to a cascading effect and increase rental yields. This, in turn, will bring more investment into rental housing.

Other recommendations include setting up of Rental Housing Tribunals for fast resolution of disputes, simplifying the eviction laws and procedures, and creation of enabling entities with eviction powers. The government hopes that with these reforms, more property owners will release their properties for rent and the gap will be bridged.

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