The real estate sector is in a tizzy, trying to assess the implications of the Supreme Court verdict terming as “illegal” any sale of immoveable property through power of attorney (POA) unless the case is “genuine”.
Industry analysts argue it is tough to indicate the market size of POA transactions, but some rough estimates suggest this could constitute as much as 70 per cent of the total real estate deals in parts of northern India, especially Delhi. The apex court cited rampant use of general POA to transfer properties in the national capital, Punjab, Haryana and Uttar Pradesh, to put a stop to the practice and check generation of black money.
POA — a written authorisation to represent or act on another’s behalf in private affairs, business, or some other legal matter — has been in existence for a long time. In the real estate sector, though, POA has become rampant over the years to evade tax, thereby generating black money.
Experts say that besides northern states, slum re-development properties and housing boards in Maharashtra have also seen significant levels of POA transactions. True, property sale done via POA attracts stamp duty and other levies in Maharashtra (unlike in the northern states), but POA is the general route for a majority of sale and purchase of properties in slum re-development projects and housing board apartments in that western state, they add. POAs are used in cities like Mumbai to overcome lock-in by government prohibiting transfer of properties till a certain time period. In such cases, properties are transferred through blank POAs where names of buyers are filled in the document when the lock-in time is over.
While the way property deals are done may drastically change from now on in keeping with the court direction, the number of transactions is unlikely to be impacted, early assessment suggests. Even so, government revenue from property registrations is set to go up if the court verdict is followed in letter and in spirit, experts say.
Land and plot transactions under POA are much higher in number than that of flats and houses across the country, says Anshuman Magazine, chairman and managing director of C B Richard Ellis (South Asia). The practice of striking POA deals, however, is predominant in North India, he told Business Standard. “While the move may inconvenience some people, it may well be the first step to introduce transparency in the real estate sector, which is often termed chaotic,” Magazine adds.
Other industry representatives agreed that blocking POA transactions can clean up the realty sector to some extent. Sachin Sandhir, managing director, Royal Institute of Chartered Surveyors, South Asia, says real estate transactions are set to become “a lot more transparent” now.
With a large percentage of properties, specifically within the Delhi and NCR regions, he says resorting to sales through POAs, the mutation of property does not reflect in the municipal and revenue records. “Therefore, the ruling which clamps down on such sales will not only help curb evasion of duties, but also limit the amount of black money in the real estate sector. Most importantly, the ruling will help establish clear titles to property, thereby safeguarding and protecting the interests of consumers,” Sandhir points out.
Knight Frank India’s Pranay Vakil says it will bring good governance, transparency and a clear title for the buyers. “Temporarily there could be a impact on the property market, but once people fall in line, things will improve,” adds Vakil, chairman of the international property consultancy.
Real estate industry associations have also highlight the significance of the apex court verdict in trying to transform the sector. Lalit Jain, chairman, Confederation of Real Estate Developers’ Association of India (Credai), says the move will go “a long way” in redefining business transactions.
R R Singh, director general, National Real Estate Development Council, says that in the capital, where Delhi Development Authority is the owner of the land, the lessee transfers the land through the General POA. “In those cases, an alternative way of transaction needs to be found,” he adds.
The court wants the states to lower the stamp duty, but the impact on revenue will be seen only if states really follow the direction, according to Singh.
While pointing out that it was a positive move, P S N Rao, founder chairman of National Association of Realtors (India), says it will be a “challenge” to tell a genuine POA transaction from one which is not, thereby hinting at the possibility of people taking advantage of that “grey area” in the court verdict.
Leading advocate Vinod Sampat says the verdict can face a lot of issues in implementing it. “Sure, the intention is noble, but this is not practically possible. It is not possible for industrialists to go court and file agreements every day.”
Sanjay Sharma of Qubrex says it is “definitely a very good move, but still not a perfect one”, as it leaves room for corruption where “genuine cases” would be decided on a case to case basis. “The Number of transactions will not have a major impact as such, but the risk of legitimacy of ownership will be reduced to a great extent,” Sharma, managing director of the real estate consultancy firm.