Will zero rental deposit catch on in Bengaluru?

A surge in rents and rental deposits is driving the need for properties with zero rental deposit, according to a survey by a Bengaluru-based brokerage-free proptech company. 

The NoBroker.com survey examined data from January to March 2024. It found that rental deposits continue to soar. The quarter saw a 20% surge. Some of the localities where rents have skyrocketed include Electronic City, Banashankari, Sarjapur Road, Whitefield, and Jayanagar.

The platform launched a zero deposit model towards the end of 2022, which has seen many takers. 

The scheme is most useful for 2/3/4 BHK properties as their rent is higher, leading to higher deposits, says Amit Kumar Agarwal, CEO and co-founder of the platform.

The zero deposit rental segment has seen a year-on-year growth of 400% compared to 2023, he adds. The survey states that tenants opting for zero deposit rentals are “typically working professionals between the ages of 25 and 40”. 

Big move

Despite three years of discussion, the Model Tenancy Act that was meant to reform rental laws, has not been notified in Karnataka yet. According to the Act, only two months of rental deposit can be collected from a tenant, says advocate Vinay Mishra, founder of city group Bengaluru Tenants Association. 

Tenants are open to novice concepts and ideas. Software professional Adityanath K G, who arrived in the city to work with an MNC during 2022, has “not been able to find a feasible place to stay since then”. “Unlike Delhi, where rental deposits are usually 2-3 months’ rent, landlords here ask for 6 to 10 months’ rent. Such zero deposit schemes will be helpful for many young professionals,” he adds. 

Sneha James, an HR professional who resides in BTM Layout, says that finding houses in Bengaluru with a reasonable rent and deposit “is challenging”. “I am house hunting and the deposits are exorbitant. The deposit for a 2BHK is in lakhs,” she adds. A lower rental deposit or no-deposit format might not work with Bengaluru house owners despite recent discussions, she adds. 

Many treat the deposit as savings, says Viveka, who lives in a rented house in J P Nagar. The owner puts the money aside as a fixed deposit to earn returns of 3-6% based on the time span. The tenant receives a certain amount of money when he or she vacates. “Deposits should be proportional to the monthly rent. Some owners demand 11 or 12 months of rent, and in other places, the owner and tenant strike a deal where the latter agrees to pay a higher deposit to reduce the monthly rent by Rs 1,000 to Rs 3,000.”

In Mumbai, most house owners ask for two months of rent as a deposit. “A deposit-free home will be a boon to those who come to work for a couple of years and return to their hometown later,” he adds. 

The other side 

The reason owners quote such high deposits is to cover up possible damage to their property. Horrifying stories of broken utilities are quite common, say owners and brokers. 

However, Karun K P (name changed), a real estate broker from Rajajinagar, agrees that rising rents and deposits are a concern. “Most house owners now only ask for six months of rent as a deposit,” he says. But, at a property that is already rented for Rs 30,000 to Rs 40,000, the deposit runs into lakhs, he adds. 

A broker from the Central Business District area, who didn’t want to be named, notes that house owners “will not encourage such a move”. “The deposits have come down to six months’ rent from eight to 10 months’ rent pre-pandemic. There is a lot of resistance from owners against bringing down their deposits — they are worried about the risks involved, such as damage to property and mishandling of utilities, and non-payment of monthly rent,” he adds.

How does it work? 

In the zero deposit rental scheme, you are expected to pay a 6% yearly premium amount on the probable deposit. For example: If the rent for a house is Rs 25,000, and the security deposit usually charged is Rs 2,50,000 (10 months of rent in advance), the premium that will have to be paid is Rs 15,000.