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Unlocking, rental bonds help revival in demand for rental housing, co-living

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A Rental Bond is an institutional guarantee favoring the landlord protecting him in the event of a default by the tenant. The bonds are bought by the tenant with the landlord as the beneficiary and assure the landlord of the performance of the tenant’s obligations under the tenancy agreement.

Unlocking, rental bonds help revival in demand for rental housing, co-living
Covid had bought about one of the greatest disruptions to the way we worked - Work from home. Employees suddenly had the option of working remotely from any place of their choosing. There were mixed responses to WFH – some liked it while other longed to get back to the formal yet familiar setting of the office.
A few of the industries like the IT sector were the early adopters while others like hospitality found themselves navigating through choppy waters. Omicron notwithstanding, the worst seems to be behind us. India had administered over 100 crore doses of the vaccine. Jobs are back.
While Omicron has further delayed or interrupted the return to schools and offices, there is optimism that it’s imminent. This is because Omicron is largely viewed as being milder than Delta even though it may be more transmissible. The expectation of re-opening of offices and schools has led to a rise in demand for rental housing and co-living as well. This rise in demand is visible across all major cities without any exception.
However, despite the increase in demand for rental housing, the bottlenecks to the growth of rental housing unfortunately reman. Landlords don’t have the means to accurately assess the credibility of the tenant. Security deposits don’t really solve the problem of providing the landlord with credit verified tenants with an unblemished tenancy track record. Hence landlords opt to keep their properties vacant rather than let it out to troublesome tenants.
What are Rental Bonds and why is it important?
A Rental Bond is an institutional guarantee favoring the landlord protecting him in the event of a default by the tenant. The bonds are bought by the tenant with the landlord as the beneficiary and assure the landlord of the performance of the tenant’s obligations under the tenancy agreement. It covers default in the tenant’s obligations like unpaid rent, rent for the balance of the lock in period, utility bills and expenses for the damages to the property. Rental bonds provide the landlord with a credit verified and an assessed tenant and a superior cover than that of a security deposit.
Rental bond expedites the process of building trust between the landlord and the tenant thus encouraging more landlord to let out their property. Rental bonds like all guarantees are extremely flexible financial instruments and can be customized to suit all kinds of rental accommodation whether it be family homes or co-living apartments.
The benefits to the landlord are immense –
• The landlord gets good verified tenants which also means an end to tenancy related hassles
• Faster occupation of the property. The idea of zero deposit homes is catching up fast and makes the property far more attractive to a prospective tenant. Co living operators who have already adopted rental bonds are already witnessing a higher tenant traffic and about 95 percent of the tenants are opting for rental guarantees.
• The obligations of the tenant are backed by an institutional guarantee.
• Higher rental yield – We have already started witnessing early signs of tenants who are willing to pay a higher rent for good properties that are zero deposit homes
• While there may be limitations to the extent of the security deposit that a landlord may demand from the tenant, the landlord enjoys the flexibility of being able to specify the quantum of the guarantee due to the low costs involved.
Rental bonds are a win - win solution that works for the tenants as well. Rental bonds do away with the need for putting up lumpy security deposit. Once he has identified the property, it takes him barely a few minutes to buy and submit the bond with his landlord. It’s not a drain on his finances as well – the fee is a small fraction of the security deposit.
If the tenant happens to be shifting from one accommodation to another, rental bonds obviate the need for putting up additional deposits while he waits for the refund of the deposit from the previous landlord. Further, rental bonds also enable the tenant to carry forward the benefits of his good tenancy track record to his subsequent tenancies. This will help him get preferred terms while renting his next home which include better landlords, wider choice of homes and lower rents.
Overall, rental bonds are a far more efficient solution that will help bring about the desired behavioral change in the residential renting space. It also leads to better and a more cordial landlord-tenant relationships. The resultant certainty due to the assurance of the fulfillment of the tenants’ obligations will help attract investments in residential renting and promote concepts like that of Rent to Own. India has a high inventory of vacant residential housing units. Landlords can do well to use rental bonds to take advantage of the recent surge in the demand for residential housing and start earning rental revenue with complete peace of mind.
The author, Vikash Khandelwal, is CEO at Eqaro Guarantees. The views expressed are personal
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