Two days ago, property consultant Knight Frank termed NCR (the National Capital Region of Delhi) as the largest residential market in India, with around 5 lakh houses under construction that are slated to be ready for possession by next year.
But there is a dark side to the Delhi property market, and this will become apparent with the Delhi government passing an order this week that no further transfer of property should be allowed through general power of attorney (GPA), where the buyer gets a GPA from the seller not only for his own use of the property, but for further 'sale' to someone else if he so desires.
A Times of India article on Friday said "the revenue department has made all realty sales through transfer of general power of attorney null and void with retrospective effect from October last year."
Those holding properties on GPA and SA (Special Attorney) will have to get a sale deed registered if they wish to sell the property in future. Many may face problems getting sale deeds because their properties do not have a clean title.
Realty experts told Firstpost the order will help curb evasion of duties, flow of black money into real estate and also save people from being cheated by unscrupulous owners selling the same property to several people.
The move to ban general power of attorney as a mode of property transfer is sure to impact the entire realty market in the region, and will finally regularise property transactions. In the absence of a clear procedure for converting leasehold property into freehold, the real estate market became highly speculative and GPAs were being used as a trading tool as and when the price of a property would appreciate.
The order passed by Supreme Court in October 2011 states that no sales deed will be registered if it is through transfer on GPA. This means that transactions carried out since October on GPA transfers will have to be registered afresh with complete documents.
Even though realty players have opposed the order, saying it will reduce the number of saleable properties in the capital, the truth is the ban will finally allow the real estate market to cater to real, genuine end-users and not just traders, who are looking to make a quick buck.
Pankaj Kapoor, MD of property consulting firm Liases Foras, told Firstpost that GPAs are the main reason why large private real estate developers like DLF and Unitech are reeling under massive debt despite claims of selling the entire stock The truth is property remains unsold but is floated in the market through a piece of paper, which makes NCR realty an even bigger scam than Mumbai realty. " There is no real consumption here, NCR is a bubble market," Kapoor said.
A builder can easily sell flats to investors at a token price of Rs 5 lakh for a Rs 1 crore property before the construction of a project begins. While the allotment of the flat would be in the name of the investor, the GPA ensures that the name of the buyer remains blank in the document, thus allowing the investor to sell the property further when the property appreciates in the next couple of months. Hence, what happens is that the buyer will book his profits, sell the property at a 10-15 percent mark-up, and make his money without even registering the house! So an investor who spends only Rs 5 lakh for a Rs 1 crore property, will end up with Rs 10 lakh in just three months.
" The power of attorney gets circulated within investors, making real estate tradable like equity", explains Kapoor. So although the stock gets sold from the builder's point of view, it remains unsold and traded in the market, which is why the gestation period for construction of properties is so long in Delhi.
Another realty expert told Firstpost on condition of anonymity that GPAs are a one-way ticket to black money in realty. One of the leading realty groups —Sahara— in Nagpur offered to sell 100 flats for Rs 3 crore with the promise of no construction for the next three years. Result? The price is sure to appreciate and the buyer can easily trade the flats with a 20-40 percent gain, without owning a single flat.
The Economic Times cited Mahesh Gupta of Mukul Consultants Group as welcoming the ban too. "Deals made via power of attorney involve black money. If someone sells his property for Rs 100 crore, he may show just Rs 2 crore in the sale deed. But in freehold property, they have to show at least the circle rate, which may be Rs 50 crore," he told the newspaper.
And what's worse is that banks were earlier at a massive risk since the documents would get registered only after the competition of the project. But now that property will have no value under GPAs, banks too will be relieved. But realtors won't give up with a fight as GPA deals are their bread and butter.