Ruling On GPA, New Way to Bring Transparency In Property Deals

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The Supreme Court has declared the sale of immoveable property in Delhi through the use of a power of attorney (PoA) as illegal, with retrospective effect from October 2011. This judgment is having a profound effect on the residential real estate market of the national capital.
The judgment reads, “It is reiterated that immovable property can be legally and lawfully transferred only by a registered deed of conveyance (sale deed)… ‘GPA sales’ (general power of attorney) of ‘SA (sale agreement)/GPA/will transfer’ do not convey title and do not amount to transfer, nor can they be recognized as valid mode of transfer of immovable property. The court will not treat such transactions as completed…”
PoA is a popular instrument for property transactions where the ownership changes without payment of stamp duty to the state government. Whereas, when a person converts it into a freehold property, one is required to pay a stamp duty based on the notified rate to the state government.
From the buyers’ perspective, it is the best thing that could have happened, claim legal experts, as this judgment will ensure that there are clear titles of properties from now.
So far, legal experts were telling their clients that it is ‘advisable’ to verify the title papers of the property prior to buying it. The buyer should ’emphasize’ upon the execution of sale deed if the property is lease hold, it should first be converted into free hold and then it should
be transferred via sale deed. But now this has become mandatory. In a bid to encourage property registration and freehold ownership, the government is disallowing sale of property or land on the basis of power of attorney (PoA).
Sanjay K Chadha of BSK Legal, a real estate legal expert, lists the benefits of this ruling: “With this kind of measures, there will be many benefits: the transactions will be cleaner, the government revenue will increase, it will lead to a decrease in black money and will also reduce the growth of land mafia and the criminalization of civil disputes. It will certainly curb evasion of income tax, wealth tax, stamp duty and registration fee. It will make verification of title documents very easy.”
He says that GPA never transfers the ownership or title; it is just an instrument authorizing the GPA holder to act on behalf of the owner of the property. Chadha says: “GPA is a very sound and valuable instrument in genuine transactions. For example, a person may give a power of attorney to his spouse, son, daughter, brother, sister or a relative to manage his affairs or to execute a deed of conveyance. It never gives ownership rights.”
From the buyers’ perspective, it is a big headache off his mind. “The benefit accruing from this ruling for the buyer is increased transparency in the sale transaction and clear title to the property,” Anshul Jain, the chief executive officer of DTZ India, says. “The ruling forbids the seller to sell property on which he does not enjoy clear title. Hence, to sell his property, a seller would first have to get all documentation in place in order to prove that he is the owner of the property and only then enter into a transaction with a buyer.”
On the flip side, the ruling is likely to make free-hold property in short supply in the short to medium term. This will have an adverse impact on the prices of the free-hold properties, which will go up. Also, the seller will have to budget for more time and money during the process of selling his property. The GPA has to be converted to a conveyance deed, which involves spending money and takes up to six months to convert. During conversion from leasehold to freehold, the new hiked circle rates will have to be factored in for all new transactions. This will make the conversion expensive, besides being time consuming.
The property sales that have taken place after October 2011 on GPA are in trouble now, because, legally the property remains in the seller’s name. Both parties will now have to initiate the process of transfer of property through clear sale deed. There are many cooperative societies that do not have a completion certificate because the builder did not follow rules during construction. A flat owner in such a society, who may be in possession of the property for decades, will not be able to sell it.
Consultants predict that this will lead to price rise in medium-budget properties. Shveta Jain, director (residential) at Cushman & Wakefield India, says: “The mid segment properties in certain pockets of Delhi will be affected the most and will see a notable increase in prices in the short term owing to reduced availability of transferable properties. Certain pockets like Rohini, Patparganj, Dwarka and Mayur Vihar will observe a decline in transactions as most of the developments in such locations are corporative group-housing societies, which are typically leasehold. However, the government may need to suggest an alternate solution for the owners of leasehold property in the future, which will help bridge the demand supply gap.”

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