Real estate prices crucial for economy
“As land prices are generally a significant component of house prices, reforms in this sector help in safety and stability of the financial system. After all, housing accounted for nearly 8 per cent of total banking credit or about 4 per cent of the GDP as of March 2012. And real estate prices are crucial for the economy as illustrated by the experience of the US”, say the authors.
Recently two important bills relating to real estate were cleared by the Union Cabinet. While the Real Estate Regulatory Bill, 2012, garnered much attention, the amendments to the Registration Act, 1908, (RA) have been barely mentioned. In fact, RA has important implications for the monetary policy, through improved price discovery for asset prices, and through higher collection of stamp duty and capital gains.
The objective of this amendment is to have better, more transparent, and highly digitized land market records which, according to earlier estimates by McKinsey (2001), could lead to an increase in India’s GDP by about 1.3 per cent. First, the present status, under which all transactions in immovable property in India have to be registered with the Department of Stamps and Registrations, and the registration deed is the only document indicating ownership rights.
The Registrar, on the sale of property, collects requisite stamp duty, but does not assess or certify whether the sellers were genuinely the owners. The current registration system is, therefore, not a registration of title, but a registration of deed, primarily for the purpose of revenue collection. In the present arrangements, even the state cannot be held liable for incorrect registration records. The onus of due diligence to ascertain title rests on the buyer.
Therefore, title is inferred from lack of contention rather than through a positive, documented identification of ownership. The current system of recordkeeping on immovable property is outof- date and unreliable, resulting in an opaque system prone to easy manipulation and festering corruption. In some cases, sale happens through the execution of power of attorney (POA) documents. Frauds abound, and a single property could be sold to multiple buyers in the absence of proper records.
To avoid high stamp duty, often as high as 5 to 9 per cent of property value, mortgages/leases are not always registered; sometimes documents are registered to reflect lower transaction values. Also, when property changes hands multiple times before final purchase, counter-parties enter into unregistered sale agreements rather than registering sale deeds, to save on stamp duty. As is well-known, land records are incomplete, and land surveys are outdated: in some states last land surveys were undertaken in the pre-Independence period.
The National Land Record Modernization program, 2008, has been rolled out to digitize all paperbased land records, but without any attempt to verify or update them. Land being a state subject, existing paper-based records follow a different pattern of maintenance and are in different languages which need to be standardized across the country. All these issues in registration make it impossible to ascertain the ownership of a property.
The lack of ownership data is acute in the urban areas and, therefore, urban planning and governance are directly impacted. A number of infrastructure projects are delayed because of disputes in land titling. Inadequate management of land records results in protracted litigation putting pressure on the judiciary, and over 70 per cent of the land-related litigation relates to ownership titles, according to some estimates. In the private sector, many industrial projects are held up due to litigation over titles and inability to ascertain the correct market value of land.
This implies both a loss of jobs and tax revenues. The government is mulling over the Land Titling Bill, 2011 (LTB), where titles to property will be guaranteed conclusively by the state, based on the Torren’s system. In the LTB land title guarantee would rest on the land register reflecting the complete rights and interest in a parcel of land, with an assured compensation by the government if errors are made by the Registrar of Titles.
A robust registration process is, therefore, a prerequisite for a complete, up-to-date ownership records which can then be used to guarantee title. To enable this, record-keeping on immovable properties needs to be technologyenabled, updated real-time, with online search retrieval facilities, and digitally stored with backups. The recent amendments to the Registration Act (RA), 1908, propose to do just that.
The current amendment to the RA allows for electronic registration of land sale deeds, making record-maintenance easier and increasing the transparency of land markets in the long term. The amendment has also expanded the categories of instruments for which registration is mandatory. States are also expected to frame rules for electronic presentation and registration of deeds. However, in some states, like Maharashtra, reforms on similar lines had been initiated earlier.
These changes to the RA are expected to provide a single-window view to all types of encumbrances pertaining to land records, be it sale, lease or mortgages. This takes us a step forward towards the objectives of the Act, where “all manner of agreements relating to land or property need to be registered if they are to be considered as evidence in a court of law”. But there are challenges to implementing the amendment and achieving the desired results.
Maintaining comprehensive land information is key and integrating land survey records with registration data using cadastral level mapping with unique property ID numbers would need to be considered. Reducing stamp duty at the same time as guaranteeing title will go a long way in encouraging the registration of land transactions. To stem the misuse of power of attorney (PoA) in transactions related to immovable property, a time limit on the currency of PoA agreements may have to be explored.
Further, there may be a need to amend laws related to transfer of property and implementation of contract. As land prices are generally a significant component of house prices, reforms in this sector help in safety and stability of the financial system. After all, housing accounted for nearly 8 per cent of total banking credit or about 4 per cent of the GDP as of March 2012. And real estate prices are crucial for the economy as illustrated by the experience of the US.