Though India's legal regulatory framework and transaction processes are in a process of evolution, there are some serious issues that are causes for concern. The legal system is fraught with loopholes. In property transactions, the shadow of ambiguity on ownership records as well as land titles loom large.
But it still makes for a compelling case to look at the real estate in the country from a more general perspective. Some of the legal issues in Real Estate India and solutions are discussed below:
Urban Land Ceiling Regulation Act (ULCRA):
The Central Government has repealed this archaic law in 1999/2000, realising its failure to appreciate the objectives it was created for. But the State Governments have been laidback. Some states like Punjab, UP, MP, Rajasthan, Gujarat and Haryana have repealed this Act. States like Maharashtra, Karnataka, Kerala and Orissa are yet to act upon it.
The complete repeal will create a host of positive situations, for instance, release more land into the market and lower the price of land, which accounts for about 50% of the price of the real estate property in India. Experts opine that repealing the ULCRA in all States will help the real estate business to grow at 14 per cent by 2011-12 and increase its contribution to national GDP by far. It will open avenues to the extent of creating an additional 4 million jobs.
- In a country like ours, where land accounts for about 50 per cent of the price of Real Estate property in India, the role of the Government is to present the right incentives for the most appropriate use of land and lay clear guidelines on how it should be used. Simply locking land can render it completely useless to everyone while releasing it will certainly lower its price.
Clear Title:
There are fundamental difficulties that result from unclear property titles: 90% of all the lands in India do not have clear titles rendering the land off the market and creating a scarcity of land. This is due to poor record keeping and complicated outdated processes.
On top of that distant relatives come to claim ownership on one’s property. To go around these problems, some people take recourse in appointing a third local party as a legal buyer, by means of complex techniques similar to a Trust. As a result the property becomes gets shared ownership and is put to different purposes, being used by one some months of the year and rented out by the other the rest of the time.
Legally speaking, the Real Estate market in India is not precocious enough for sophisticated western practices as there are chances of being swindled by self-proclaimed local "experts".
- To make life simpler, all updated records must be computerized to increase transparency in land ownership. Setting up Special Fast Track Courts to clear all legal land disputes in India in a short period of time, so that titles become clear for the buyers is the need of the hour. This will open up avenues for financing and investment for development and lower the overall cost of projects.
Stamp Duty and Registration:
The cost of transferring land titles must be closer to the prevailing rates in developed countries from rates of 10 plus % stamp duties to reasonable levels of 3 to 5 %. This will be a step in the right direction as sellers will be prompted to pay the lower stamp duties, instead of trying to wriggle their way out of the tangle of stamp and registration costs. The government will have a wider collection base which will generate greater revenue.
The high duties have encouraged unaccounted money being used in most real estate transactions in India. Further, the Registration Procedure should also be made transparent and much simpler, so that scope for changes/deletions and corruption are minimized.
- One can take heart from the fact that some States have realized that lower rates of Stamp Duties may translate into increased revenues from registration of land documents, and have gone ahead with their plans and acted accordingly.
Rental laws:
The Real Estate In India has outgrown the tenancy and rental control laws as they tend to keep a large part of the urban properties off the market. The rental laws must be revised to protect the owner and his/her property from the tenant. The most radical steps are needed for the termination of old tenancies and removing restrictions on increase of rentals.
- Owners should be empowered to reclaim their properties without having to seek remedy in court proceedings with long drawn out results. In fact the market should be allowed to determine the rental amounts while giving the owner full protection for his/her property. This will provide security to the landlord and reduce the prohibitive deposit amount in the lease agreements.
Full enactment and strict enforcement of the laws especially in the commercial sector will draw more investors into the real estate market who can utilize the rental fees as income. The tax laws if revised can make renting of properties a worthwhile and financially viable option.
The efforts made by states like Maharashtra, Goa, Bengal and Karnataka in making amendments to the Rent Act are commendable.