The draft Real Estate (Regulation and Development) Bill, 2011, is a step in the right direction. However, although it promises to make the primary market more transparent, it is mum on the secondary market, which attracts a significant number of transactions.
Primary market is where you buy a property directly from a builder or a developer, while in the secondary market, you buy a property on resale. “In an emerging and expanding city like Delhi-NCR transactions in the secondary market will constitute almost 50% of all the transactions. Mumbai, however, will have higher number of secondary market transactions,” says Gulam Zia, national adviser-research and advisory services, Knight Frank India, a property consultant firm.
If passed as a regulation, the proposals in the Bill will ensure that developers follow fair practices in transactions with homebuyers. But there is nothing for secondary market homebuyers in the Bill.
Illustration by Shyamal Banerjee/Mint
Though the situation is not completely bleak for the secondary market, a lot needs to be done. In the past one year, the government and the judiciary have been actively bringing amendments in policies governing the secondary market. Here are a couple of recent amendments and the challenges they come with.
Central registry to check loan frauds
Incidents where different people have taken different loans on the same property are not uncommon. It indicates the same property is sold to different buyers, leading to a dispute.
To prevent such frauds, the finance ministry’s department of financial services set up a Central Registry of Securitisation Asset Reconstruction and Security Interest of India in April. This registry is an electronic database of all properties against which there is a pending loan taken.
Going ahead, the registry will include earlier mortgage agreements, too. Says R.V. Verma, chairman and managing director, National Housing Bank, “To upload the subsisting mortgages is our prime agenda as of now.”
“Another important milestone will be where we start parking data which does not involve loan. This will include data from each state registry that mentions price of the property, location, address and area specifications. This way, one can simply look at the previous sale price and evaluate the present value of the property. This will require coordination between the state registrar offices and central body governing the registry,”adds Verma.
How do you benefit? The general public can access the registry at www.cersai.org.in. But there is a charge of Rs 50 per search. In the secondary market, buyers are often expected to give a lump sum even before the loan is sanctioned as earnest money. In such cases, individuals can run a check on their own before settling for the deal.
The challenge: Data collection is a huge roadblock. “The job will be a logistical nightmare for the agencies to collect the data. The biggest problem will be to collect and maintain the current and historical data. A lot of Indian cities do not have an electronic machinery in place, where manually entered data can be easily put on the registry. Also, a lot of property owners believe that privacy will be compromised once they share the data on the registry,” adds Zia.
Registered sale deed only valid document for sale
To put a stop to transactions through unaccounted money, the Supreme Court in October made the registered sale deed the only valid document for property transactions. A lot of properties, especially in Delhi-NCR, are sold on the basis of general power of attorney (PoA) instead.
Earlier in August, the government introduced the Benami Transactions (Prohibition) Bill, 2011, which will replace the old Benami Transactions (Prohibition) Act, 1988. Any property that is bought by an individual in the name of another person in order to evade tax is known as benami property. Here, one person pays the money, while the registration is done in another person’s name. Through such a transaction, a person becomes the virtual owner of a property, though legally the property is not reported as sold or bought. As a result, the stamp duty and registration charges are not paid to the government.
These two regulations will eventually reduce the use of PoA and sale deeds for property transactions.
How do you benefit? At your level, these orders ensure that properties will have clear titles and registrations are genuine. This will safeguard your investment in case you are buying in the resale market. The Bill empowers the government to confiscate any property that is declared benami.
Says Ashutosh Limaye, head (real estate intelligence service), Jones Lang LaSalle India, a property consultant firm, “This means that a lot more cases involving benami properties can now be proved in court. This Bill will result in more such properties being confiscated, either to be auctioned off or put to use by the government after the judgement.”
Through these auctions, new areas and land parcels for real estate development will open up. “Plots that are released for auction through the new Bill could actually translate into new supply in unexpected locations once judgement on them has been passed,” adds Limaye.
The challenge: The problem of regularisation of properties sold earlier through PoAs remains. Scrutinizing and bringing earlier transactions under the ambit of the law will be the new challenge.
“Though the use of PoA has been prohibited, Delhi and rural areas still have a huge number of properties where sale deeds are not yet registered. How will the government change the status of all these properties? Will there be any subsidy on the registration charges for those who now want to register their sale deeds or will it happen at current rates. Such questions remain,” says Pradeep Mishra, a New Delhi-based real estate consultant.
Only time will tell when the government will overcome the challenges and give a holistic solution to homebuyers.