Theme: Using Your Property Effectively

What are the laws being discussed?

This explainer deals with the purchase and sale of immovable property in India and various modes of acquisition of property. The same is governed by the Transfer of Property Act, 1882 (“TP Act”); the Foreign Exchange Management Act,1999 (“FEMA”) and FDI Master Circular issued by the Reserve Bank of India on the subject matter. The explainer also aims to discuss foreclosed properties (property, which was kept as collateral for a home loan or mortgage but acquired by the money lender due to non-payment of three or more Equated Monthly Installments (EMIs)), the purchase of which is governed by the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (“SARFAESI Act”).

What are the different types of immovable property?

Under Indian laws, immovable property includes land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth, or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass.(( Section 2 (6) of the Registration Act, 1908)) Due to the fact that land is a state subject under Schedule VII of the Indian constitution, the laws governing immovable property vary from state to state.

Why is registration of an immovable property so important?

The purpose of registering transfer of immovable property is to record the signing of the document. The ownership and transfer become legal only after registration, i.e. the ownership of the property is rightfully transferred only upon registration before the sub-registrar. Another significant benefit of paying registration fees and stamp duty is that the same are eligible for tax exemption under Section 80C of the Income Tax Act, 1961.

What is the process for registering the transfer of an immovable property?

Property or land registration in India involves(( Section 17 of the Registration Act, 1908)):

  • paying stamp duty and the registration fee for sale deed, and
  • having the documents legally recorded with the sub-registrar of the area where the property is located. At the time of registration, the authorised signatories of the seller and the purchaser have to be present along with two witnesses.

Stamp duty varies depending on the area where the property is located. For eg: In Mumbai, the stamp duty is 5% of the total property value, which includes 1% metro cess(( https://housing.com/news/maharashtra-stamp-act-an-overview-on-stamp-duty-on-immovable-property/)). Usually, the seller is responsible for registration of the transfer of immovable property, and the purchaser is responsible for the payment of stamp duty.

Today, most states have their own web portals for property registration and the payment of stamp and registration fee. It does however require the buyer to physically visit the office of the sub-registrar with the documents, once the online process is completed.  Also, the user-friendliness and the number of services one can seek from these portals varies from state to state. For eg: the Delhi government has multiple portals that an individual would have to go through to complete the registration process, but there are plans to introduce a single window portal soon(( https://housing.com/news/property-registration-online-in-delhi/)).

Is it more beneficial to register an immovable property on a woman’s name?

Yes, it is more beneficial to register an immovable property on a woman’s name, as many states and banks have introduced financial benefits for women buying property. As a result, buying property in a woman’s name can bring many advantages such as:

How can I transfer property to an unborn person?

In order to transfer property to an unborn person, you must first transfer the property to a living person, which is usually done through the creation of a trust, until the unborn person comes into existence. This creates a vested interest in favour of the unborn person.(( Section 13 of the Transfer of Property Act, 1882.)) For instance, if A is pregnant with a child, a trust can be created in the interest of the child and this trust will hold the property until the birth of the child. The trustee will essentially act as the unborn child’s proxy until the child is born. To put it simply, the property sits with someone untouched until the birth of the person to whom it was transferred. The trust simply holds the property till that time.

How is gifting an immovable property different from sale or purchase of a property?

A gift is a transfer of  movable or immovable property without consideration, i.e., without money. When a transfer of immovable property happens without any payment made while receiving such property, it is considered to be a gift. In such cases, the parties who give and receive property are known as Donor and Donee.  For a gift of immovable property to be valid under the law, the transfer must be:

  • Done through a registered legal instrument signed by or on behalf of the donor
  • Attested by at least two witnesses(( Section 123 of the TP Act.)).

Once it is signed and registered as per the due process of law, a gift deed cannot be revoked or taken back, except if the Donor and Donee agree beforehand that such revocation shall happen in certain conditions.

Who do you complain to if there has been an issue related to buying or selling property?

You can approach the court to raise disputes over land and property for various reasons including claim on ownership, contestation over land acquisition, disagreement / disputes over real estate transactions, conflict over property inheritance, and misuse of rented property among others. There are different laws and procedures which explain how an individual can seek redressal on these issues, depending on the particular circumstances under which the dispute arises.  Such issues are better dealt with through lawyers specializing in land disputes. However, it is best to conduct your due diligence beforehand to make sure that your property is not stuck in a court dispute. Please talk to a lawyer or ask us any questions through the Ask Nyaaya Helpline.

What should I consider when I am selling a house or land?

If you are planning to sell a property, one of the most critical factors you must consider during the sale is the process of registering the transaction.

Registering the Sale

Registering the transaction or sale is beneficial for both parties since it means that the government recognizes the transfer of property from the seller to the buyer. In India, all individuals must register((  The Registration Act, 1908.)) the sale of an immovable property for which the transaction costs exceed Rs.100. Since the cost of land or a house is much higher, this effectively implies that sale of such a property must be registered. Furthermore, all transactions involving gift of an immovable property, as well as lease for a period exceeding 12 months also need to be registered.

Disclosure of Information

As a seller, it is important to ensure that the transaction is carried out with absolute honesty and in full agreement with the buyer. This is necessary to ensure that there is no conflict or dispute that arises over the transaction in the future. When the buyer shows an interest in the land or house you wish to sell, you, as the seller, must:

  • Disclose to the buyer any material defect in the property of which you are aware but of which the buyer is not aware, and which the buyer cannot ordinarily discover.
  • Make available all the relevant documents to the buyer for examination, including all documents of title relating to the property.

Who can sell property?

Under the law, any person that is competent to enter into a contract i.e., who is 18 years old or above and is of sound mind, can sell an immovable property.(( Section 7 of the Transfer of Property Act, 1882.)) There are specific rules for sale of property by NRIs and PIOs in India. However, for the sale of property to be legal, various aspects come into consideration, such as:

  • Whether you have the right to sell, i.e., whether you are the owner
  • Whether you have the authority to sell the property. For example, seeing if you have a power of attorney or have been authorized by the owner to sell.

How can NRIs and PIOs sell property?

NRIs and PIOs can sell property in India in accordance with the Master Circular.(( RBI’s Master Circular on Acquisition and Transfer of Immovable Property in India by NRIs/PIOs/Foreign Nationals of Non-Indian Origin, 2013)) An NRI can sell property in India to a person resident in India or an NRI or a PIO. A PIO can sell property in India to a person resident in India, an NRI or a PIO – with the prior approval of RBI. NRIs and PIOs are permitted to sell agricultural land /plantation property/farm houses only to a person resident in India who is a citizen of India.

What should I consider when I am buying a house or land?

One of the most critical aspects to consider when buying a land or house, is knowing whether:

The price of the property is fair 

Since land and property fall under State subjects as per the Constitution of India, laws and transactional rules vary depending on the state where the property is located. Depending on where the property is located and the nature of construction (if applicable), different states have introduced a system of determining a minimum base price for the property, called ‘circle rate’, or ‘ready reckoner rate’. These circle rates are speculative and vary greatly even within the same city- from one area to another- and are frequently updated and notified. In addition to the location-based circle rates, the value of a property is also affected by the services it has access to, and the builder/ housing society. However, these circle rates only serve as guides, and the actual price may vary based on the market value of the property, called fair market value.

The ownership of the property is free of disputes

There are various ways in which you can find out if the ownership of the property you want to purchase is disputed. The simplest way is to check the title deeds of the property in question. You can also enquire with the local tehsildar’s office or that of the village officer where the property is located. Other documents such as e-record of rights, property tax receipts, and survey documents are also used to establish ownership.

Who can buy and/or receive immovable property?

Any citizen of India aged 18+ is eligible to buy property in the country. However, certain states such as Maharashtra, Gujarat, Himachal Pradesh, Karnataka, North-eastern states like Assam, Nagaland, Sikkim, among a few others, restrict non-farmers from purchasing agricultural land. Under Indian law, an unborn person can also receive immovable property((  Section 13 of the  Transfer of Property Act, 1882.)).

If you’re a Non-Resident Indian (NRI) or Person of Indian Origin (PIO), you cannot purchase agricultural land/plantation property or a farmhouse anywhere in India, but there’s no such restriction when it comes to residential properties. However, you can inherit such land from a resident Indian or other NRIs/PIOs upon receiving special permission from the Reserve Bank of India.(( RBI Master Circular on “Acquisition and Transfer of Immovable Property in India by NRIs/PIOs/Foreign Nationals of Non-Indian Origin”,Accessed at: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/04MCNIP010713.pdf))

Individuals and companies can also acquire immovable property and this is governed by the Foreign Exchange Management Act, 1999 and various circulars notified by the RBI from time to time.

How can I find the circle rates for a property?

To find the circle rates for a property, you can go to the respective state government’s website (usually the Department of Registration and Stamps). For example, in order to find circle rates in Delhi, you can visit https://eval.delhigovt.nic.in/ where you must select the area where your property is located, the type of deed, the type of property, built-up area and then  calculate the circle rates.

To find out the market value of a property, one approach could be to contact a government registered property valuer or a chartered property valuer. Property rates tend to vary greatly due to the changing nature of the real estate market. Parameters like circle rates and fair market value can be a reliable way to determine fair price for a property.

What is the importance of home insurance?

Property insurance, in general, is of various kinds, depending on the property in question and the specifics of the insurance policy. Since it is a very vast category of General Insurance, the type of cover that you need depends upon the type of property you are seeking to cover. You should get a home insurance policy to protect yourself from future losses caused by any damage to the property. Different kinds of policies are available in the market such as fire insurance, burglary insurance etc((

Consumer Education Website Insurance Regulatory and Development Authority of India. Accessed at: https://www.policyholder.gov.in/Why_Buy_Property_Insurance.aspx )).

It is important to thoroughly check the specific terms of the insurance policy and inquire about the same in the market, before finalizing it(( List of IRDA approved Non-Life Insurers can be found here: https://www.policyholder.gov.in/registered_insurers_non_life.aspx )).

How can immovable property be used to raise bank loans?

Land and housing are valuable assets, and as an owner, you can choose to seek a bank loan by using the property as a collateral. A ‘collateral’ is a valuable asset that a borrower offers as an assurance against which they can secure a loan. If you are unable to repay the money, you may lose ownership over the asset which you have offered as a collateral to the lender. For the lender, the collateral acts as a safety net.

When seeking a bank loan (business, education etc), especially when it is for a higher amount, banks require individuals to offer some asset as collateral for security. For this purpose, you can offer either self-occupied residential or commercial property. You will be required to provide proof of ownership in the form of title deeds at the time of registering for a loan. The banks decide the credibility and the value of the land / house being offered as a collateral against the requested amount for the loan. Generally, the chances of approval are high when using a land or housing property as collateral.

Can I get a bank loan to buy a property using the same property as the collateral?

Yes. You can get a loan from the bank to purchase an immovable property by using the same property as the collateral/security. This practice is widespread when people buy residential properties in India. Home loans are generally approved on the basis that the prospective home is the collateral. Such loans fall under the definition of mortgage loans(( Section 58 of the  Transfer of Property Act, 1882.)). Commonly, when someone seeks a mortgage from a bank, they bind themselves to pay the loan, without delivering the possession of the mortgaged property, and agree that if they fail to repay the amount, the bank has the right to claim the mortgaged property and use it to settle the loan. Such mortgaged properties claimed by the creditors are often sold off in auctions as  ‘foreclosed’(( Foreclosure of property is dealt with under Section 67 of the TP Act and also the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002)) or ‘distressed’ properties under the SARFAESI Act.

Can I purchase a foreclosed property?

When the mortgage borrower is unable or unwilling to pay their equated monthly instalments (EMIs) under the terms of the loan three times consecutively, the lender has a right to acquire that property and either sell or lease it out(( https://www.livemint.com/Money/eGRMvQiYkQJbdaz5RG22vK/You-can-buy-foreclosed-property-online.html)). Such foreclosed properties are auctioned off by the lenders and a ‘reserve price’ is set i.e., the minimum amount the lender will accept as a winning bid for the property during an auction. Foreclosed properties are generally expected to be auctioned off at rates lower than their true market values. However, there are often concerns about the quality of such properties as the defaulters are often financially weakened, which would mean that the due repairs and general maintenance of the property are not undertaken regularly. While this is not the standard, it is important to conduct the requisite due diligence about the location, encumbrances and conditions of such property before investing.

Auctions of foreclosed properties can take place through offline or online modes, depending upon the Bank (lender). For an offline auction, prospective buyers should submit their bids with the requisite documents to the Bank before the date of the auction; and for the online mode, the buyers are expected to submit the requisite documents along with the bids online on the day of the auction itself(( https://tealindia.in/insights/how-to-make-a-secure-foreclosed-property-purchase-in-thane-with-teal-check/)).