Why are security deposits so high?

The security deposit in Bangalore for renting an apartment/house is 10-months’ rent. This is primarily to insure the owner against damage to the property, non-payment of rent, etc. In Paying Guest (PG) accommodation, you can get away with a two-month or three-month deposit, but for renting a place, you pay the full price.

I get that you need a security deposit; what I don’t get is why the amount has to be so high. Consider a person paying a rent of Rs. 8000 for living in a two-bedroom place. Security deposit is Rs. 80,000, which is definitely not a small amount to cough up. Why 10 months and not 5 or even 3? I don’t know. Market forces maybe?

Also, consider the scenario where the owner puts this amount (Rs. 80000) in a Fixed Deposit (9% interest) for a year. The interest that the owner would pocket would be Rs. 7200, essentially a month’s rent. This interest is not returned to the renter when the person leaves the apartment, so that’s money he or she will never see. Okay, let’s write that off.

Let’s look at security deposits for other services. You pay something for your mobile phone connection, your gas connection, your telephone connection, etc., but none are in the range of the amount you pay for renting a house. That’s because the magic number in house rentals is 10; 10 times the monthly rent.

I have no idea of the security deposits in most other cities but I do know that in Hyderabad it was 3-months’ rent till recently. Huge gap huh?

What do you think of the security deposit situation?

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4 thoughts on “Why are security deposits so high?

  1. You don’t get the entire 80K when you leave the house – they deduct maintenance charges – charges for whitewashing, repairs etc from the advance and give you the balance.

  2. @Balu: Yeah, I wonder where we can find out about the law governing this, if there is a law.

    @jnarin: Yeah, I do realise that they deduct some money, though my understanding is that they can only do that if they have specified it in the agreement, which you have co-signed.

  3. There is a law. It’s called the Model Tenancy Act 2011 under where landlords cannot take more than 3 months rent as deposit.

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