The recently notified Benami Transactions (Prohibition) Amendment Act 2016 aims to bring transparency in the real estate market and is expected to boost both, buyer and lender sentiment. Experts believe that a property price correction could be in the offing once the act is implemented.
With the notification of the Benami Transactions (Prohibition) Amendment Act, 2016, the central government has moved one step closer to bringing transparency within the Indian real estate sector. The act aims to reroute the unaccounted money looped in the transaction of ‘benami’ properties into the financial system. It will also establish separate authorities and an appellate tribunal to look into the crucial details regarding the matter.
One of the major benefits is that the act will reduce the risk involved in the land title to a great extent. Currently, majority of the dealings in land are unaccounted for, as the real owner of the property remains unknown. In some cases, the land parcel being old has no registered owner(s) but gets passed through many hands. “The practice of including the correct name in property transactions will bring transparency in the residential market. With increased transparency, title risks would be minimised and buyer confidence in residential property transactions will get a boost,” says Anuj Puri, Chairman and Country Head, JLL India.
“The Act is sure to minimise title risks, boost buyer and lender confidence, encourage transparency and accountability within the real estate sector. The market may observe a 3-5 per cent correction in the total number of real estate transactions across all real estate sectors in the coming months,” says Shrinivas Rao, CEO-APAC, Vestian.
According to Rao, the maximum impact would be seen in Tier-I cities and land transactions across the country. As of now, it takes nearly 1-2 years to complete a land transaction in India, majorly because the land title is not clear. With this, the developers are set to gain the most. In large land parcel deals involving several owners, developers face difficulty as the land ownership remains unclear. “Clear ownership titles will hopefully see the light of day with the new amendments. These will help developers to quickly conclude joint venture transactions, which would open up land parcels for residential development. Exits by participating funds in these projects will also become quicker,” says Puri.
The Act is also expected to boost the confidence of banks and financial institutions. Currently, they have to carry out their own title search before approving loans on properties. "Transparency issue is one of the negative factor which limits the private equity and NBFCs. In the short term it will lead to a reduction in transaction volumes. However, in the long term it will make India a more attractive investment destination, aligning transactions with ethical standards and will increase international institutional investors and financial institutions participation in this sector," says Surabhi Arora, Senior Associate Director (Research), Colliers International.
According to the Act, a benami transaction is a transaction where a property is held by or transferred to a person, but has been provided for or paid by another person. Those entering in the benami transactions may serve a jail term of six months to two years or will have to pay a fine of 25 per cent of the market value of the involved property or both. Four authorities including initiating officer, approving authority, administrator, and adjudicating authority will be created who will investigate the benami transactions.