Home / Opinion / Benami Act: finding real names behind nameless real estate

This month, the Benami Transactions (Prohibition) Amendment Act, 2016 was notified. It intends to route unaccounted money into the financial system, and seize benami properties while prosecuting those involved with such properties. Its objective are: amending the definition of benami transactions, establishing adjudicating authorities and setting up an appellate tribunal to deal with benami transactions, and specifying the penalties for entering into benami transactions.

What does the amended benami transactions Bill mean for the real estate industry, especially the residential markets? As with the Real Estate (Regulation and Development) Act, 2016 and the Land Acquisition Rehabilitation and Resettlement (Amendment) Bill, 2015, it too is aimed at increasing transparency and professionalism in the industry.

The practice of including the correct name in property transactions will bring transparency in the residential market. With increased transparency, title risks would be minimised and buyer confidence in residential property transactions will get a boost. A fresh breath of professionalism will be ushered in. The general tag of corruption and unaccounted wealth, which follows most developers, will hopefully be limited to a few unethical companies only.

Lender confidence

Lender confidence (whether private equity or bank) will also receive a fillip. Today when titles are not clear, the lending institutions often conduct their own ‘title search’ for properties before approving the loans. With the growing risk of bad debts, it is no surprise that banks undertake careful scrutiny of the ownership before lending. Multiple ownership, false ownership, and unknown ownership issues plague the residential sector, especially in mini-metros and non-metro markets.

Land transactions

There are a large number of benami dealings in land transactions. Data on such transactions is difficult to come by, and we expect the amendment to have an impact here. It is well-known that land transactions in India take an average of 1 to 2 years to complete. With outright purchase of land no longer viable for most developers, they adopt the joint-venture route. And sometimes, after prolonged discussions on revenue share and complicated interpretations of permissible floor space index (FSI), they find out that the land title was not clear. Clear ownership titles will hopefully see the light of day with the new amendments. These will help developers to quickly conclude joint venture transactions, which would open up land parcels for residential development. Exits by participating funds in these projects will also become quicker.

Impact on supply of residential apartments

The amended benami Bill seeks to establish four authorities to conduct inquiries or investigations regarding benami transactions: initiating officer, approving authority, administrator, and adjudicating authority. It also states that if an initiating officer believes that a person is a benamidar (person in whose name a benami property is transferred), she may issue a notice to the benamidar and she may hold the property for 90 days from the date of issue of the notice, subject to permission from the approving authority.

This essentially means that a lot of responsibility would now lie on the initiating officer for tracking the benamidar. Secondly, a network of authorities—the initiating officer, the approving authority, the administrator and the adjudicating authority—have to work together to establish a property as benami. Moreover, once the property is indeed confiscated, it will either be auctioned or used by the government. Hence, the benami Bill’s impact on overall supply in residential markets will be minimal.

Rationalisation of residential prices

Benami transactions are usually undertaken by cash-rich investors who want to park their unaccounted wealth in real estate, in order to dodge the tax authorities and also earn a good return on their unaccounted money.

Will such investors be pushed out of the market with the implementation of the amended Bill? Will this lead to a more end-user driven market and hence a scaling down of prices? We do not believe that the Bill will have any major impact on residential prices. End-user demand is already present in the market, and there has already been a reduction in the number of active investors in the sector. Prices have remained firm where buyers have met their price expectations, and we see this as a continuing trend. The sector has seen an increase in private-equity funding for well-established developers, and this trend is likely to continue too. The ones who are likely to suffer are the smaller developers, who receive money from unnamed investors during construction. The bill could instil the fear of law among such unnamed, cash-rich investors.

Stringent punitive measures

Before the amendments to the Bill, the penalty for entering into benami transactions was imprisonment of up to 3 years, plus a possible fine. Now such actions could invite rigorous imprisonment of 1 to 7 years, and a fine which may extend to 25% of the fair market value of the benami property. We will hopefully see a much-needed cleansing in the real estate sector. The success of the amended Bill will lie in its quick and strict implementation by the empowered authority. Else, the mystery of true ownership will remain unsolved.

Anuj Puri is chairman and country head, JLL India

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