Tag: landlords | Vivek Kaul

In yesterday’s column, I had explained how only a minuscule portion of India’s population pays a bulk of the personal income tax collected by the government.

This conclusion was drawn based on the detailed income tax data for the assessment years 2013-2014 and 2014-2015, recently released by the government. The income tax returns for the income earned during the financial years 2012-2013 and 2013-2014 were filed during the assessment years 2013-2014 and 2014-2015, respectively.

In late April, earlier this year, the government had released income tax data for the assessment year 2012-2013. Based on this data some interesting observations can be made. In today’s piece, I will look at income from house property declared by Indian taxpayers.

Let’s look at Figure 1. It has details regarding individuals who declared a positive income from house property. Income from house property can also be negative.

Those declaring a negative income from house property would include individuals who have taken on a home loan. Interest paid on a home loan is allowed as a deduction against taxable income within a certain limit, on self-occupied property.

For the assessment years under consideration an interest of up to Rs. 1.5 lakh paid on a home loan could have been taken as a deduction against taxable income.

But that is not of importance in this piece. What we are considering here are taxpayers who are making some money from the homes that they own. These taxpayers are essentially landlords who own homes, rent them out and make money in the process.

Figure 1:

Assessment Year	Number of individuals	Total Income declared (in Rs. Crore)	Average Income (in Rs.)
2012-2013	19,95,739	33,277	1,66,740
2013-2014	21,87,017	39,498	1,80,602
2014-2015	23,66,527	45,899	1,93,951

Source: Author’s calculations based on data released by the Ministry of Finance.

As per the income tax records, in the assessment year 2014-2015, the total number of landlords in the country stood at around 23.66 lakh. Of course, this number included those showing a notional rent for tax purposes as well.

In the assessment year 2012-2013, the total number of landlords had stood at 19.95 lakh. This means a jump of 18.6 per cent over a two-year period. The average rent collected in assessment year 2014-2015, was at Rs. 1.94 lakh against Rs. 1.67 lakh in assessment year 2012-2013.

The average as usual hide the details. In the assessment year 2014-2015, more than 15.8 lakh individuals declared an average income of Rs. 66,000 from house property during the year. This works out to a monthly income of Rs. 5,500. Or this is the amount that these individuals made every month by renting out their homes.

In the assessment year 2012-2013, more than 14.55 lakh individuals had declared an average income of Rs. 60,000 per year. This works out to a monthly income of Rs. 5,000. Hence, it is safe to say that as per income tax records, the average landlord in the country earned a monthly income of Rs. 5,500 during the assessment year 2014-2015.

This figure seems to be low and out of place with the prevailing rents. People paying income tax primarily live in the big cities and such a low rent in a big city is practically unheard of.

Also, the total number of landlords in the assessment year 2014-2015 stood at 23.66 lakh. This is an extremely low number. As Arjun Kumar writes in a research paper titled India’s Residential Rental Housing: “More than one-tenth (11.1%) of the households in India lived in rented houses in 2011, and, in this respect, there was a heavy bias towards the urban sector. Almost four-fifths of the total households living in rented houses in India (27.4 million) were in urban sector (21.7 million). Overall, the proportion of households living in rented houses was 3.4% and 27.5% in rural and urban sectors, respectively.”

Hence, the total number of rented houses in the country as per the 2011 Census stood at 27.4 million or 274 lakh. In urban India, the number stood at 21.7 million or 217 lakh. Now compare this to the fact that only 23.7 lakh individuals in the assessment year 2014-2015 declared income from house property. This clearly tells us that many landlords are essentially not declaring the income that they earn from their homes.

It further means that rents are being paid in cash and in the process the total amount of black money in the country has gone up. What is also noteworthy is that Census 2011 numbers are now more than half a decade old. The total number of rental households would have only gone up since then.

In fact, as Kumar writes: “The number of households living in rented houses in India increased by 7.1 million (35.3%), from 20.2 million in 2001 to 27.4 million in 2011. The rate of growth in the number of rented households was higher than that of the growth rate of total number of households (28.5%) in India.” There is no reason for this trend to have changed since 2011.

To conclude, when we talk about the black money problem that prevails in the country we tend to talk about the buying and selling of real estate as being a major reason. Nevertheless, the data clearly suggests that rental income is also a major part of the black money problem.

The column originally appeared in Vivek Kaul’s Diary on November 3, 2016

Trying to rent a house is one of the most nerve wracking experiences one can go through. I have gone through it in three different cities (Mumbai, Pune and Hyderabad). The way the landlords look at you with pity, is a scene straight out of the movies. It’s like their way of telling you, what you haven’t even been able to buy a house? You loser, look at me.

Having found a house and then trying to handle the landlord on a regular basis takes your diplomatic skills to another level (I used to have a landlord once who used to land up every Saturday morning asking for stock tips and then spend a good three hours badgering me for them).

The entire system is built against anyone who wants to live in a rented accommodation or cannot afford to buy a home unless he moves so far away from the city (I am talking about the bigger metropolitan cities here) that the rest of his life is spent commuting to and from office.

The interesting thing is that the rental share of urban housing stock has gone down over the decades. As per the 1961 census it was at 54 per cent and by 2011 it had fallen to 27.5 per cent. This explains why finding a house on rent can be such a pain.

The proportion of homes on rent has fallen dramatically over the years. This, as urbanisation (or the number of people living in cities) has gone up. As per the 2011 census 31.2 per cent of the population lived in urban areas. This figure is expected to go up in the years to come.

Rental share of urban housing stock in India has progressively declined with urbanisationThe fall in rental housing stock is a worrying trend. A major reason for this has been the rent control acts which are in operation in various cities across India. As KPMG points out in a research note titled Decoding housing for all by 2022: “Rent control policies aimed at protecting tenants have had their consequences of deterring investments in rental housing in India, causing the share of rental stock to decline from 54 per cent in 1961 to 27.5 per cent in 2011 which drove EWS/LIG households into slums.” (EWS = economically weaker sections. LIG = lower income groups).

In fact, as the Tenth Five Year Plan Document (2002-2007) points out: “The Rent Control Act, in fact, is the single most important reason for the proliferation of slums in India by creating a serious shortage of affordable housing for the low income families. Low and middle-income families typically live in rented accommodation all over the world and the need for such accommodation in our cities will only increase as the economy modernises, labour mobility increases and urbanisation takes place.” Further, India’s urban rental housing stock is low as per global standard.

The rent control acts lead to a shortage in rental housing in various ways. As the Five Year Plan document points out, it leads to: “Negative effect on investment in housing for rental purposes. • Withdrawal of existing housing stock from the rental market. • Accelerated deterioration of the physical condition of the housing stock.”

Another impact of rent control is to give Indian cities a shabbier look in comparison to cities in other developing countries. With the tenants living under rent control, the landlord has no incentive in renovating the buildings. Just one walk around South and Central Mumbai tells us that very clearly.

In fact, Mumbai has had to bear the brunt of the rent control act. As Sahil Gandhi, Vaidehi Tandel, Shirish Patel, Abhay Pethe, Kabir Agarwal and Sirus J. Libeiro point out in a working paper titled Decline of Rental Housing in India: A Case Study of Mumbai: “There has been near universal consensus that rent controls of the kind seen in Mumbai, known as “first generation rent control”, have a devastating impact on rental markets and, in general, housing and land markets in cities…Rent control in Mumbai has been particularly damaging for the housing market, which is characterized by ownership dwellings constructed mainly for the upper middle class on the one hand and a high incidence of slums housing the majority of the population on the other.”

The point is that if the government’s mission of “Housing For All by 2022” has to become a reality then rental housing needs to pick up in a big way. What is needed first and foremost for this dream to become a reality is a new rental law which is balanced “in favour of both the tenant and the land-lord could be drafted by the central government.” As KPMG points out: “A balanced rental law could help with the development of a formal rental market in India, and to some extent improve occupancy of the unoccupied houses estimated at about two crore.”

A new rental law put out by the central government will be the starting point. It will then have to be adopted by the state governments. At least that way some of the locked and unoccupied homes will start hitting the market.

But will that lead to Housing for All by 2022? Only a little. The shortage in housing is at the lower end of the spectrum, as can be seen from the following table.

Housing Shortage in Urban IndiaThe unoccupied homes are more at the upper end.

Hence, for rental housing at the lower end to take off, the rental yield on homes needs to improve. This will only happen once prices come down to more realistic levels. Currently, the rental yield is around 2-3 per cent (the annual rent as a percentage of market price). Nobody in their right minds is going to build homes for rent with a rental yield like that. For rental yields to go up, the cost of constructing homes needs to fall. For this to happen, first and foremost, the cost of land in and around cities needs to fall.

For the cost of land to fall, the government needs to increase supply. This can be done by increasing the FSI allowed on buildings. Further, the government needs to increase supply of land by trying to sell some of the land that it owns in and around cities, land that it inherited from the British colonial administration.

These will be the first few steps towards Housing For All By 2022.

The column originally appeared in Vivek Kaul’s Diary on Equitymaster on August 31, 2016

Here is Another Good Joke: Latest Income Tax Data Suggests India Has Just 23.7 Lakh Landlords

India Needs a Formal Rental Market for “Housing For All By 2022” to Succeed