Covid19 and The Real Estate Rentals
By Alok Gupta, Mumbai based Real Estate consultant in practice for over two decades. He is the President of the prestigious The Estate Agents Association of India, Central Zone One. The world can be divided in two halves when it comes to dealing with a calamity like Corona virus. One, those who want to take advantage of the situation. Two, those who want to give to the society irrespective of the strength of means available to them. The Lockdown is not even half over and the tenants who belong to the first half have already started asking about the waiver of their rents. Is it justified ? Not at all … In this country whenever any rule is to be made for the real estate sector, it is comfortably assumed that the Landlords are the Richie Richs of the country and they can sustain and survive whatever tax, law or rule is imposed against them and their earnings out of their investments into the Real Estate. The central lawmakers and the state governments ignore or sometimes just like to ignore that a major chunk of Landlords are the ones who run their households out of the rentals they receive from the properties they have purchased through the hard-earned savings of their lifetime. One of the political stalwarts was seen on the television requesting the landlords to waive at least one month’s rent or at least defer the same by a month. As long as it is just the deferment, it is still acceptable but, the moment we start even hinting about the waiver, we are inviting a lot of other economic problems and the cascading effect it may lead to. Majorly, there are two kinds of tenants. Residential tenants and Commercial tenants. The residential tenants are the ones who have rented in a residential premise for themselves and the commercial tenants are the ones who have rented in a commercial premise or an office space for their business. In this time of the pandemic, it would not be an exaggeration if we say that financially, the residential tenants have not suffered at all. They are usually the salaried class who would not face even one day’s cut in their salaries. So, there is no question of them asking about the rent waiver. In fact, it is they who would be saving more money during the Lockdown as their monthly expenditure would be much less than the normal. They would save on conveyance, family outings, entertainment etc. There is a small class of residential tenants who are running their businesses which can also be further classified into those who are running a company and the ones who are self-employed professionals. Those who are running own businesses are the directors of their companies and when it comes to their financial capabilities, they are quite well comparable to the Landlords and are not so vulnerable that the payment of rents during the Lockdown will jeopardise their businesses. They would be paying the salaries of their staff and would also be making all other mandatory payments towards the duties and taxes pertaining to their respective businesses, why not the rents then ? The self-employed class usually consists of professionals like Chartered Accountants, Lawyers, Doctors etc. who too would have no negative effect of the lockdown in their respective professions. Most of them would also be able to work from home and carry on their professions as usual. The only set back they may face would be a deferment of some of their assignments which may lead to the delay in getting their professional fees which, as such, will not make them any poorer any day. So, there is no question of rent waivers to them too. Talking about the commercial tenants, we need to understand that these companies generally operate from such rented premises to keep their capitals at ease and to take advantage of the location of such premises rather than due to any financial compulsion. These tenants are the business houses and the companies who have their set objectives, their long-term plans and also a well-defined financial plan. A payment or a waiver of rent shouldn’t affect their business plans. If it does, they as it is, are not suitable to continue their businesses and if it doesn’t, they wouldn’t need any kind of waiver of the rentals etc. to survive a month of lockdown. The landlord who is neither a partner nor a stakeholder in the profits of such companies, can’t be expected to waive any rent of such companies and become the stakeholder only of the expenses of such tenants. Moreover, the owners of such premises are usually the investors who have either taken term loan or broken off their capital to buy such premises before renting them out. Needless to say that these owners are not getting any waiver of loans or the EMIs or even of the interest on the same. It would be a matter of further discussion and analysis that the banks and the financial companies themselves are stressed out already and any expectation of waiver from them may put the entire banking industry into an altogether different spin. It would be very relevant to state that all the landlords, irrespective of the kind of tenants they have, have to pay the mandatory society maintenance charges, property taxes and all other related duties and taxes. If they waive a month’s rent, where will they get the money to pay off such dues ??? Will the income tax department be able to exempt from tax one month’s income of all the taxpayers ?? Will any state government be able to waive the electricity bill of all its users for a month ? Can the government allow free rail travel for a month ? Questions are many but, if the answer to all these questions is NO, it can hence be unambiguously concluded that asking for or even hinting of any rent waiver in this time of difficulty would not only set an extremely wrong precedent but also be highly counterproductive to the economy.
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