SC Ruling On POA To Change Indian Realty For Good
“Transfer of immoveable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immoveable property can be transferred,” a Supreme Court ruling said.
The judgment is aimed at the method of general power of attorney (GPA) type of property sales, which has been used by buyers and sellers to not only avoid showing who the actual owner is, but also to evade stamp duties, which become payable if the property is registered. This method has also been used to avoid capital gains tax and as a means to convert unaccounted money into lawful income. The new judgment is seen as a landmark order which will go a long way in reforming the realty sector.
The Mis-use and Abuse of the GPA
The GPA has been around for a long time as a facilitator of transactions when one of the parties cannot be physically present and nominates a third person to execute transactions on their behalf. It has also been an excellent and efficient tool to allow land owners and promoters to build and sell properties.
How buyers were affected
The most blatant misuse of the GPA was of GPA holders selling the same property to multiple buyers. As there was no way of finding the correct ownership pattern in the absence of registered deeds, holders of GPA played truant with many an unsuspecting buyer.
How sellers were affected
IN several cases, individuals who are abroad or physically unavailable for transactions have entrusted their properties to “friends” or “brokers” by way of a GPA. However, these properties were sold by GPA holders without the actual owner being in the know.
How the government was affected
The most evident way in which the government and local bodies have been affected is by means of tax avoidance. The second aspect has been in selling off properties, which have a lock-in period defined by the government.
How unaccounted money has been routed?
Since the GPA sales process does not involve any kind of registration of transactions, it is easy for people to channelise their unaccounted income into real estate. They execute transactions using a GPA and get away without having to show the source of finance for such transactions, as neither the land authorities nor the tax department has any inkling on such transactions.
Impact of the judgment
On existing buyers
The most negative impact could be on people who have bought land/property from someone using a GPA. They will have to hurry and get their sale agreements regularised by showing the existing documents to the municipal/revenue/developmental authorities.
As of now, illegal operators will have to shut shop on the GPA mode for cheating gullible investors resulting in them losing their hard-earned money. It is not going to be possible to sell the same property to multiple buyers and to channelise unaccounted money into the realty segment.
The income from stamp duty and registrations is bound to see a sharp rise and all transactions will now be forced to go through the registered deed route. At the same time, existing buyers will now try to regularise their properties.
On builders and promoters
Since many medium and large builders do not use the POA for their transactions, the judgment's impact on them will be minimal. There could be positive connotations, as more buyers will now be motivated to buy from established players rather than take a risk with lesser-known players who tempt them with lower prices.