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 Pandya     14 May 05

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. 

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