Vikash Khandelwal, CEO at Eqaro Guarantees spoke to Team Estrade about rental bonds in the Indian Real Estate market. Following are the excerpts of this interview,
A home owner invests his life’s savings in buying a house and lets it out so that he can earn a regular income in the form of rentals. Unfortunately, the Indian residential rental market is by and large an unstructured one. The landlord doesn’t have any tools at his disposal to assess the credibility of the tenant. He doesn’t have any visibility on the past tenancy track record of the prospective tenant also. The regulatory environment governing the residential real estate rental transaction isn’t very conducive either. The Rent Control Act which governs the residential real estate rental transactions are viewed by the landlords as being pro tenant. Hence, Landlords have traditionally resorted to taking security deposits from the tenants to protect them selves from loss due to errant tenant behavior. But given the numerous instances of strife between the landlords and the tenants, security deposits don’t seem to be working as well. As such the landlords are wary of letting out their house to unverified tenants. This is reflected in the over 18 million houses that are lying vacant in the country.
The current process of tenancy is hard on the tenants as well. He has to fork out a large security deposit before he is able to rent out a house. The amount of the deposit varies from city to city in India and can range from 2 months in Delhi NCR to 9 months in Bengaluru. Further at the end of tenancy, then tenant is usually at the mercy of the landlord for the refund of his security deposit. On many occasions, the tenants have been subject to unjustified deductions from his security deposit as well. In case he wants to move from one property to another, the tenant has to put up the security deposit for the new property even before he gets the previous one back which can strain his finances.
A rental bond is a guarantee that is issued in favor of the landlord assuring the landlord of the performance of the tenant’s financial obligations under the tenancy agreement in the event of a default by the tenant. The rental bond covers default in payment of rent and utility bills, breach of lock in period and damages to the property.
Benefits of Eqaro Rental Bonds for the landlords of family homes as well as co-living spaces.
There are numerous benefits for the landlords as well as the tenants.
- Only good tenants are eligible for a rental bond. The tenants are required to undergo a rigorous underwriting and assessment process thus ensuring dependability and reducing the risk of defaults. As such the landlord is assured of a good credit verified and an assessed tenant.
- Comprehensive Coverage for defaults in rent payment, utility bills, breach of lock-in & notice period and damages to the property.
- Faster Occupancy due to rental bonds that act as a replacement for security deposits, making the prospect of a zero-deposit home more appealing to tenants.
- Increased Rental Yields via rental payments by tenants opting for zero-deposit facilities, boosting profitability for both, landlords and co-living operators.
- Since the tenants backed by a rental bond are good tenants, there is certainty with respect to the cash flows. Co living operators can also avail the facility of advance against rent or collateral free loans backed by a surety guarantee at preferred terms which can be used to meet short-term working capital requirements or pursue growth aspirations.
For the tenant, it’s a no brainer! By virtue of the rental bond, the tenant is relieved of the burden of hefty cash deposits to the landlord. This makes the aspirational home accessible to the tenant. A rental bond also renders shifting from one property to another easier, as it does not lock-in incremental funds for the tenant. A rental bond also functions as a record of tenancy behaviors, enabling tenants to leverage a good tenancy track record to access preferred tenancy terms in the future.
What is the current significance of rental bonds in the Indian real estate market, and what potential future outcomes do they hold?
At present, approximately 34% of Indians live on rent. However, given the cost of buying a house which is quite exorbitant at 9-12 times of the annual income and the rapid urbanization, we expect about 40% of the population to be staying in rented accommodation by year 2030. At the same time, there are over 18 million houses lying vacant as the landlords remain wary of letting out their house to unverified tenants. This is despite the massive housing shortage in the country.
Rental bonds can provide a comprehensive solution by addressing the inefficiencies of the Indian residential estate markets. Since the rental bonds provides the landlord with a credit verified and an assessed tenant, it will bring in additional rental inventory to be let out thus helping address some part of housing shortage. For the landlord, it will help make the asset economically productive.
Overall, rental bonds create a seamless experience for landlords and tenants, leading to faster occupancy, better rental yields, and a transparent and fair rental ecosystem.
How Eqaro is aiming to solve the trust issues with tenants and landlords through their guarantee and surety?
The key challenge for India’s rental market is the trust deficit and the lack of transparency between landlords and tenants. The landlords are wary of letting out their house because he is unable to verify the credibility of the prospective tenant and the archaic regulatory structure governing residential rental transactions. Rental bonds address this issue which lies at the core and can potentially revolutionize the Indian residential rental landscape. Since the Rental Bond have a long tail impact on the credibility of the defaulting tenant, it will help in bringing about a paradigm shift in the renting behavior in the country.
A rental bond is a guarantee – Vikash Khandelwal, Eqaro Guarantees