Adding a cor­rect name to prop­erty deal

In July this year both Houses of Par­lia­ment passed a com­pre­hen­sive Benami Trans­ac­tions (Pro­hi­bi­tion) Amend­ment Bill 2015, with the in­tent of bring­ing un­ac­counted money into the sys­tem, as well as seiz­ing benami prop­erty and pros­e­cut­ing those in­dulging in

Bureaucracy Today - - POLICY WATCH - ◆ By Anuj Puri (The au­thor is the Chair­man and Coun­try Head of a global real es­tate ser­vices firm, JLL In­dia.)

What does the pas­sage of the Benami Trans­ac­tions (Pro­hi­bi­tion) Amend­ment Bill 2015 by Par­lia­ment in July 2016 mean for the real es­tate in­dus­try, es­pe­cially res­i­den­tial mar­kets? As with other such reg­u­la­tions, viz the Real Es­tate (Reg­u­la­tion and De­vel­op­ment) Act and the Land Ac­qui­si­tion, Re­ha­bil­i­ta­tion and Re­set­tle­ment (Amend­ment) Bill 2015 which aim at in­creas­ing trans­parency and pro­fes­sion­al­ism in the in­dus­try, the Benami Trans­ac­tions Bill is a fur­ther step in the same di­rec­tion.

The prac­tice of adding the cor­rect name to the prop­erty trans­acted will bring trans­parency in the res­i­den­tial mar­kets. With in­creased trans­parency, ti­tle risks will be min­i­mized and buyer con­fi­dence dur­ing a res­i­den­tial prop­erty trans­ac­tion 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 the few gen­uinely un­eth­i­cal play­ers.

LENDER CON­FI­DENCE

Lender con­fi­dence (whether it be of a pri­vate eq­uity or of a bank) will also re­ceive a fil­lip. To­day when ti­tles are not clear, the lend­ing in­sti­tu­tion very of­ten con­ducts its own “ti­tle search” for prop­erty be­fore giv­ing its loan ap­proval.

With the risk of in­creas­ing bad debts, it is no sur­prise that banks un­der­take care­ful scru­tiny of the own­er­ship prior to giv­ing loans. Mul­ti­ple own­er­ships, false own­er­ships and un­known own­er­ships plague the res­i­den­tial sec­tor, es­pe­cially in the mini-met­ros and non-metro mar­kets.

LAND TRANS­AC­TIONS

Land trans­ac­tions will be smoother as the num­ber of benami deals is large in this sec­tor. Data on land trans­ac­tions is dif­fi­cult to come by but we ex­pect the le­gal amend­ment will have a greater im­pact here. It is a well-known fact that land trans­ac­tions in In­dia take an av­er­age of one to two years for their com­ple­tion. With the out­right pur­chase of land no longer vi­able for most devel­op­ers, the joint ven­ture route has been adopted. Post mul­ti­ple dis­cus­sions on a rev­enue share and com­pli­cated in­ter­pre­ta­tions of a per­mis­si­ble FSI, it is very of­ten con­cluded that the land ti­tle it­self is not clear. Sin­gle own­er­ship ti­tles and the clar­ity of ti­tles will hope­fully see the light of day with the im­ple­men­ta­tion of the new amend­ments. This will help devel­op­ers aim­ing for a quick and suc­cess­ful clo­sure of joint ven­ture trans­ac­tions in land and open up land parcels for res­i­den­tial de­vel­op­ment. Ex­its by funds par­tic­i­pat­ing in trans­ac­tions will be quicker.

IM­PACT ON SUP­PLY OF RES­I­DEN­TIAL APART­MENTS

The amended Bill seeks to es­tab­lish four au­thor­i­ties to con­duct in­quiries or in­ves­ti­ga­tions re­gard­ing benami trans­ac­tions. These are the Ini­ti­at­ing Of­fi­cer, the Ap­prov­ing Author­ity, the Ad­min­is­tra­tor and the Ad­ju­di­cat­ing Author­ity. It also states that if the Ini­ti­at­ing Of­fi­cer be­lieves that a per­son is a be­nami­dar, he may is­sue a no­tice to that per­son and he may hold the prop­erty for 90 days from the date of is­sue of the no­tice, sub­ject to per­mis­sion from the Ap­prov­ing Author­ity.

What this es­sen­tially means is that a lot of re­spon­si­bil­ity lies on the Ini­ti­at­ing Of­fi­cer for track­ing a be­nami­dar. Se­condly, a net­work of play­ers – the Ini­ti­at­ing Of­fi­cer, the Ap­prov­ing Author­ity, the Ad­min­is­tra­tor and the Ad­ju­di­cat­ing Author­ity – have to work in tan­dem to es­tab­lish the prop­erty as benami. Lesser mov­ing parts of the sys­tem will make the foul play eas­ier to track. More­over, once the prop­erty is in­deed con­fis­cated, it will ei­ther be auc­tioned or used by the Gov­ern­ment. Hence, the im­pact on over­all sup­ply in res­i­den­tial mar­kets will be min­i­mal.

RA­TIO­NAL­IZA­TION IN RES­I­DEN­TIAL PRIC­ING

Cash-rich in­vestors who wish to park their un­ac­counted for wealth usu­ally un­der­take the benami trans­ac­tions in real es­tate in or­der to dodge tax au­thor­i­ties as well as to earn a de­cent re­turn on in­vest­ments. Will this in­vestor be pushed out of the mar­ket with the im­ple­men­ta­tion of the amended Bill? Will this lead to a more end-user­driven mar­ket and hence a scal­ing down of prop­erty prices? We do not be­lieve that there will be any ma­jor im­pact on res­i­den­tial prop­erty prices on this ac­count. 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. Prop­erty 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. The ones who are likely to suf­fer are the smaller play­ers who re­ceive money from a few large in­vestors dur­ing prop­erty con­struc­tion, for there will in­deed be a fear among the cash-rich in­vestors of be­ing tracked down.

The ones who are likely to suf­fer are the smaller play­ers who re­ceive money from a few large in­vestors dur­ing prop­erty con­struc­tion, for there will in­deed be a fear among the cash-rich in­vestors of be­ing tracked down.

STRIN­GENT PUNI­TIVE MEA­SURES LAID DOWN

The Bill seeks to change the ear­lier pro­vi­sion of im­pos­ing penalty of one to three years’ jail on le­gal of­fend­ers to that of award­ing a rig­or­ous im­pris­on­ment of one year or up to seven 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. ■

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