| Abolishing the Rent Control Act
could resolve the existing property tax calculation imbroglio as well
as several other problems plaguing the housing industry, says Vijay
Sometimes, it's easy to miss the obvious. The Maharashtra State Government
and the Brihanmumbai Municipal Corporation have been trying desperately
to resolve the property tax imbroglio for quite some time now. To
resolve the inequity of the existing rateable value system, the authorities
even went to the extent of devising a new capital value-based system,
based on an extensive study conducted by Tata Institute of Social
Sciences and the University of Mumbai.
However, the proposed system has been facing flak from day one, since
the Stamp Duty Ready Reckoner rates it uses as the basis for calculation
do not always reflect the true market value. The process of changing
systems has itself been held up for several years due to political
compulsions and protests from various quarters.
All this delay, effort and aggravation could have been avoided by
abolishing the Rent Control Act. It would have resolved the property
tax inequity prevailing in Mumbai at one stroke.
It would no longer be necessary to multiply the frozen rents by a
few hundred per cent in varying combinations and run the figure through
a complex matrix (which nobody except the BMC seems to be able to
figure out) for arriving at the property tax amount. The rents frozen
at 1965 levels would have been corrected and brought in line with
the current market lease rates. The BMC could then assess the value
property based on these realistic rates and set a certain percentage
of the amount as property tax. As simple as that!
After all,Tata Institute of Social Science (TISS),which conducted
the study and recommended a change over to the capital value based
model had rationalised this by stating that reassessment of the market
value at regular intervals is important. According to the study, the
lack of buoyancy in property tax is due to the fact that the changes
in market rent of the property do not get reflected in the rateable
value. Clearly, the actual rents prevailing in the market definitely
win hands down over the Ready Reckoner rates on all these parameters.
There are several other arguments in favour of abolishing the Rent
Control Act as well. Rescinding the Rent Control Act and bringing
rents to realistic levels would also provide landlords with the necessary
funds to maintain tenanted properties.
At present, since rents are frozen at ridiculously low levels,landlords
cannot afford to maintain the buildings from the monthly receipts.Due
to this,the buildings deteriorate until they are either declared unsafe
for habitation or redeveloped.
Even industry bodies have taken up the issue of rental housing and
appealed to the government to repeal the Rent Control Act.
Mofatraj Munot,President,Maharashtra Chamber of Housing Industry (MCHI),says,"Rental
housing needs to be promoted in a big way as there is a definite void
that is being felt in this area.The IT boom has created job opportunities
in not just the metros but second level cities as well. Today, with
the nuclear family being the norm, people move around the country
for better job prospects and are not in a position to make outright
purchase due to budget constraints. Rental housing is a better alternative.”
According to the Chamber,the recent levy of 10.2% service tax on construction
of residential complexes will increase prices of flats and houses
further, making purchase of new homes more difficult. Therefore, the
government should on priority consider making rental housing remunerative
by modifying the Rent Act and Income Tax Act to allow deduction upto
50% rental income from the existing 30%.
Vimal Shah, Hon. Secretary, MCHI, points out that in the USA one third
of housing is rental housing. "The scope in India for rental housing
in metros and second level cities is enormous and needs to be well
supported. There is a huge working force that requires economical
housing and government needs to modify the existing Rent Act.
“Laws need to be enacted
to encourage rental housing that will bring forth owners or developers
to start constructing and developing properties for rental housing
which will assure regular returns," he emphasises.