Real estate deals to get a reality check

Property transactions

While stamp duties and registration are known to be one of the largest sources of revenue for State governments,these duties more often than not have tended to impose high compliance costs on taxpayers. Consequently,these duties have been subject to considerable evasion. With a large percentage of properties,specifically with the Delhi and NCR regions,resorting to sales through power of attorneys – the mutation of property does not reflect in themunicipal and revenue records on account of rights,title or interest in the property not being passed on GPAs,which are primarily just sale agreements.

In recent years,a number of people have been transferring immovable property by executing “agreement to sale“. This agreement does not actually “transfer” the property nor does it create any rights in the immovable property but only gives a right to the intending buyer to sue the seller for the money. In other cases,people have sold immovable property by making agreements to sell and giving a power of attorney to the buyer to do all acts on behalf of the seller in connection with the property. In some cases,the seller even makes a Will leaving the property to the buyer. “Originally the GPA practice originated because of the ridiculously high transfer fees charged by the housing authorities such as DDA. The utilisation of black money for real estate transactions was only facilitated due to this practice,” says Harsh Roongta,CEO,Apnapaisa.

The Supreme Court observed that all these methodologies do not really constitute a transfer and are undertaken by people to evade stamp duty,registration fees or to park their unaccounted earnings. In many cases,land is provided by Authorities such as DDA in Delhi or CIDCO in Maharashtra for affordable housing. With a view to discouraging profiteering,these authorities place restrictions on resale or demand a percentage of the unearned premium upon sale by the allottee. In other cases,people have constructed “ground plus one” structures and sold off the first floor premises illegally to others.

With a view to effecting the so-called transfer,many people resort to documents such as agreement to sell,GPA or Wills as their registration is not possible.

According to the experts,builders too are defaulters here. For example,the Maharashtra Ownership Flats Act prohibits builders from accepting any money unless they execute and register the agreement for sale. “It is an open secret that hardly any builder,including the reputed corporate ones,follow this rule. The result? The hapless flat buyer ends up being shortchanged in many areas whether it is price,timely possession,or getting what they booked,” says Vinay Singh,a Mumbai-based real estate expert.

What this judgment means?

The Registration Act of 1908 makes it clear that all agreements for transfer of immovable property of the value of Rs 100 or more must be registered compulsorily. However,the number of properties actually registered are a fraction of total transactions that take place. The Court has clearly stated that “making declaration that GPA sales,SA and Will transfers are not legally valid modes of transfer is likely to create hardship to a large number of persons…they should be given sufficient time to regularise the transactions by obtaining deeds of conveyance. It is also submitted that this decision is made applicable prospectively to avoid hardship”.

“Going ahead all purchases and even lease of immovable property will have to be effected by a ‘deed of conveyance / assignment of lease’ respectively. Failure to do so will mean that the title will remain with the seller,” says Vinay Singh.

“While liquidity will be affected to some extent,the ruling will help establish clear titles to property,thereby safeguarding the interests of consumers,” opines Sachin Sandhir,MD,RICS – South Asia

No need to panic

Though the order is expected to have wider implications for the real estate industry,those that havealready executed property deals through GPA,SA and Wills must not panic. “Such people should take advantage of the regularisation offers made by the relevant authorities such as DDA. Prospective buyers should not enter into such transactions at all,” suggests Roongta.

The judgment may have impact on the prices in the unauthorised segment. “There are 1,500 unauthorised colonies in Delhi alone where clear transfer of title does not happen. There may be a pain in the short term,especially for the developers in the unauthorised segment. There might be suppression of prices in the secondary market for some time,” says MD,Eldeco,Pankaj Bajaj.

It would be prudent for the buyers to get the agreement registered by paying stamp duty as unregistered deed would not have a legal validity. Even in the case of under-construction property,one has to get the agreement/ deed registered without which the title would remain with the original owner,as court said “it will not treat such transactions as completed”. Remember that now it would be difficult to get relief from a court,by the buyer,if the transaction/exchange of money is based on unregistered agreement as the title would stay with the seller until it is transferred to the new owner.

The judgment is certain to bring more transparency in property deals,make title search an effective tool,stop evasion of stamp duty and proliferation of black money in real estate transactions. It will also do away with malpractices by the builders who cheat flat buyers by not executing and registering the agreements.

ritukant.ojha@expressindia.com