don’t shy away from rent

don’t shy away from rent

it's tax season, time to get your paperwork in place, dot the i’s and cross the t’s. hopefully you have it all in order. for those who want to start planning for next year’s savings, one of the best ways to do it is via maximizing your House Rent Allowance (HRA). many employed folk in India fail to make the most of this tax deductible salary component due to a lack of formalised methods of renting at present.

the Model Tenancy Act that was passed by the Union cabinet in June looks to address many of the inefficiencies in the system. but there’s another way you can watch out for your interests while renting a property. it’s called a Rental Bond, which is now beginning to establish a foothold in India.

but before we get into the details, let’s take a look at the current situation.

how are things at present?

everyone is familiar with the ordeals involved in renting a property. the lack of trust between tenants and landlords is a difficult gap to bridge. there are a lot of moving parts in the picture. property owners’ concerns include upkeep and maintenance of their assets, timely payment of rent and utilities, and most importantly finding credible, trustworthy tenants. the legal system offers little help, and many landlords believe the current laws are in favour of renters. which is why they often charge heavy amounts upfront as ‘security deposits’, which are their best and pretty much only shield against potential mishaps.

on the flip side, tenants have to bear the burden of paying hefty amounts, often 6-10 months worth of rent up front. there’s also no guarantee that they will be paid back entirely, and are often wrongly penalised or overcharged for damages and maintenance costs. perhaps that’s why over 11 million urban homes were reportedly vacant in India as of end-June.

that doesn’t even take into account properties in tier 2+ cities which have seen a heavy influx due to reverse migration since the onset of the pandemic. the rental system there is still very informal, and often involves little official documentation. this might become a problem for many salaried folk who have chosen scenic options for their remote work while claiming their tax deductions.

how can Rental Bonds help?

a Rental Bond is a guarantee that protects a property owner’s interests in case the tenant defaults on their obligations under the tenancy agreement. it is offered by an institution which takes upon itself the liabilities that may arise. the tenants purchase these bonds and designate the landlords as beneficiaries to be paid out in case certain conditions aren’t met. they usually cover issues such as -

• unpaid Rent
• unpaid rent for the balance of the lock in period
• unpaid utility bills
• damages to the property

they can also be customised as per your needs on a case-to-case basis. furthermore, the surety company carries out comprehensive background checks and due diligence prior to the issuance of the bond. thus, landlords are assured of credit verified tenants

tenants also receive a lot of benefits. instead of paying a hefty security deposit, they only have to pay a small guarantee fee. there are even zero-deposit options popping up. this helps them retain the liquidity, and if invested wisely, to earn returns from an amount that would otherwise have been stuck as security deposit. 

further, if they’re moving houses, they don’t need to worry about whether the amount that will be returned to them is fair, as long as the terms of the bond are met. they also don’t have to wait to receive their deposit back from the previous house to pay it forward to their next landlord. 

renting can turn out to be a hassle, but just like rental bonds, a new feature by CRED also brings in some relief. recurring fees such as rent can now be paid using a credit card on CRED. CRED Max not only helps you get a credit line for 45 days, but also to earn reward points, and the chance to win jackpots like 100% of your rent back, an iPhone, or a staycation. 

coming back, Rental Bonds also serve as a means of keeping track of tenants’ as well as landlords’ behaviour. a good track record could help tenants lease better properties due to their credibility. similarly, it could help landlords maximise rental yields with tenants willing to pay more, safe in the knowledge that they will be treated well and not taken advantage of.

Rental Bonds also complement the provisions of the Model Tenancy Act, and will assist in institutionalising residential renting in India.