Tag Archives: Property fraud

Property re-sale procedure vague and prone to misuse

Posted on by Track2Realty

There is a nexus between builders and government authorities to harass the homebuyers.

Property Registration, Leasehold Property, Freehold Property, Property laws in India, Property fraud, Track2RealtyA homebuyer in Noida wished to sell his newly delivered apartment before the formal registry to the other party. As per the law, there is no transfer charge applicable since the said property has not been registered in the name of the first party itself and stamp duty is yet to be paid. However, he was taken by surprise when the builder asked for Rs. 2 lakh fee in the name of expenses with the Noida Authority.

The builders’ stand is that once the allotment letter is given to the buyers, he has to submit the list to the authority and henceforth there are expenses involved.

This is not just a one off case where the homebuyer is asked to either succumb to the demands that are not clearly defined by most of the developers and the authorities or go for a long legal battle that could affect his immediate need to sale or buy the apartment.

These ‘beyond paper-work expenses’, as the developers put it, make the property re-sale and transfer procedure vague and prone to be misused by the developers. The situation is all the more worse with leasehold property where the government authorities do not respond to even the media query on the subject.

As per the provisions of Indian Stamp Act 1899 and Transfer of Property Act 1882, any transfer in right, title, interest in an immovable property attracts stamp duty. In cases were transfer of property is being done prior to registry, there is no stamp duty applicable to the second buyer.

However, in reality the transfer of leasehold properties accounts involvement of extra hardships and both the first buyer and the second buyer have to succumb to many unofficial demands of the developers as well as the government authority. The tedium of submitting endless papers to concerned department further adds to woe.

The legal stand on the subject is that the leasehold properties can be legally transferred only through a tripartite agreement. Also, the original owner’s consent is required, as the person transferring the property may only be the first lessee; the terms of the agreement between him and the owner must be looked at if there is to be further sub-leasing or creation of sub-lease.

Requesting anonymity, some government officials maintain that the process may seem tedious, but this has been made so only to ensure that the buyer’s interest is fully protected. Unfortunately, more than safeguarding the interests, it is a tool in the hands of developers in connivance with the government authorities to arm-twist the homebuyers.

Rohan Sharma, Associate Director – Research & Real Estate Intelligence Service, JLL India maintains that registration of property ensures that ownership has been legally established, making a subsequent transfer easier. In some cities, registration of property is done after project completion, while in other cities it is done while the project is under construction.

“In places where registration is done subsequently, investors can still easily sell off their investments to secondary buyers. However, in such cases the due diligence has to be done through the buyer agreement with the developer, and enough checks have to be made with the developer to ensure that the party representing ownership of the property is the actual owner. This may create a slight issue, but in some cities even this is done on a big scale with lots of secondary market transactions evidencing to proper due diligence being done. In these cases, there is only transfer of property through the buyer agreement, as property has not been registered yet,” says Sharma.

Vineet Relia, Managing Director, SARE Homes points out that the property transfer laws in India are not that rigid, however the implementation process of doing registry has been made cumbersome by the mediators and certain officials at the office of the Registrar of Assurances. If anything is required to be done for the ease of the transfer or and transferee, it is suggested to have the registration process be made online.

“There is a need for transparency in the process and following the steps of conducting due diligence before transferring the property, the absence of which is likely to end in foul play and rendering the process inadequate. Transfer of leasehold property is comparatively difficult considering the approvals the prospective lessee needs to take from the government. It is cumbersome as the authorities take its due course to issue permission for transfer of leasehold rights. At times, such permission also contains certain restrictions on creation of third party rights including encumbrance,” says Relia.

In markets of leasehold properties therefore the trust level is pretty low as the homebuyers are prone to be arm-twisted. In many cases the developers restrict the transfer of property during certain period of booking. They claim this is to avoid speculators and to welcome the end user or actual investor who can hold the property for a satisfactory or return generating time period. On the other hand, certain developers make the transfer a challenge to enhance direct sales of their balance inventory rather than allowing the existing buyers to go to the resale market.

On the face value, the developers maintain that restricting the transfer of property for certain period, e.g. 9-12 months from the booking, helps them to release their inventory to actual user. However, the fact lies that even after this lock-in period the transfer formalities are not that simple and comfortable for the customers.

The government is also a party in this complex process and experts point out that they should take required measures to simplify the transfer process. After completion of the project the leasehold properties should be converted into freehold or keep the developers out of further sale process so that buyer do not have to undergo parallel processing at multiple points and he can get the property transferred directly from the government authority.

Simplification of the property transfer laws is indeed the need of the hour. Current process is very complex and time taking. Different states have different infelicitous procedures. In certain regions like the Delhi-NCR, laws are different among the state itself that creates lot of hassles and harassment for the common man.

By: Ravi Sinha 

Track2Realty Exclusive