Pagdi System, simplified.
What is the Pagdi System in India?
Pagdi is a traditional tenancy rental model in India where the renter ( tenant ) is also somewhat the part-owner of the house. He/She enjoys nominal rental rates compared to the market and also has both subletting and selling rights of the property. The Pagdi System in Mumbai ensures the tenant that the rent for the property remains nominal despite the rise in inflation. For eg: Under the Pagdi System Law in Mumbai, tenants pay rent as low as ₹500 for a property that costs ₹10 Crores.
The practice was legalized in 1999 by Section 56 of the Rent Control Act, hence it gets very hard for the landlord to maintain such a building as the rent received is not enough to do so. The tenant can also sell the property after the consent of the landlord. Out of the sale proceeds, the landlord generally keeps 33% to 50%.