REAL ESTATE IS STILL PREFERRED AS A GOOD INVESTMENT OPTION

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The real estate sector plays a significant role in India's economy. Almost 5% of the country's gross domestic product (GDP) is contributed by the housing sector. Real estate in India has been characterized by an increasing presence of a large number of public companies, along with the opening up of this sector to foreign direct investment (FDI) and private equity firms. This has increased the discipline and accountability of businesses houses undertaking large-scale real estate developments. Indians have an innate propensity to own homes. This, with rising income levels following India's rapid growth, has resulted in a phenomenal increase in the demand for homes.

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The country has started viewing property as a preferred investment option, given that returns are pegged between 11 % and 15%, compared with bank deposits, which seldom offer returns over 10% a year. Prices of homes, therefore, have increased at a steady pace in the past decade.

According to Dun and Bradstreet Corp.,a provider of credit information on businesses and corporations, the total value of real estate development in India was estimated to be around Rs.67,480/- crores, growing at an annual pace of 30%. This growth is fuelled by the growth in realty development in organized retail, followed by housing and information technology and information technology-enabled services.

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In recent times, real estate has been seeing a plunge in demand with retail shying away from exorbitantly priced spaces or paying high rentals. Reduced consumer spending has also translated into a retail slowdown. Many firms have also decided to relocate from high to lower cost locations, leading to vacancies going up in retail and office space.

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Interestingly, a careful look at the performance of the sector reveals that the pace of activity has been shifting to smaller cities. Several reasons could cause this shift. First, speculative investments in real estate, which have been largely confined to the metros, resulted in greater price volatility in these cities.

Secondly, the high price of real estate in large cities has caused a number of offshore companies setting up operations in India to expand into smaller cities, resulting in a substantial increase in demand.

Thirdly, builders and developers have mainly focused on high-end housing projects in large cities. The recent economic slowdown has meant large stock of unsold inventory. They have, therefore, shifted focus on developing projects aimed at medium-income, middle-class households. Lastly, the special economic zone policy has also resulted in a shift of activity from large to smaller cities.

So, where are we heading? The advent of the private sector in real estate and the government's proposal to offer fiscal concessions and creating an enabling environment for housing development have led to rapid growth in private investment in housing, with the emergence of developers mainly in metropolitan centers and other fast-growing towns.

The growth has been fuelled by rising business opportunities in new and emerging enterprises, increasing income levels, low interest rates, employment generation and demographic changes.

The real estate market has also been boosted by a proposal to permit 100% FDI in the sector. Also, a significant factor that drove the growth of the housing market was easy availability of bank finance at affordable interest rates.

Finally, it is important for policymakers to be vigilant and track the pace and economics driving the evolution of the sector. There should be adequate supervision to prevent reckless credit growth to fund its expansion.

India's favorable demography, low mortgage penetration, falling interest rates and ongoing infrastructure demand will keep the retail real estate downturn from being protracted. The fundamentals of the sector are good and its growth should continue in the foreseeable future.

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OWNERSHIP OF IMMOVABLE PROPERTY

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The ownership of immovable property is recognised under various laws. Before dwelling upon the rights and interest in immovable property, we shall understand what is immovable property. The Transfer of Property Act 1982 does not define the word immovable property in detail, what mentions it as “immovable property does not include standing timber, growing crops or grass”

General clauses Act defines immovable property, “which includes land, benefits which arise out of the land and things attached to the earth.  The words “attached to the earth” has been elaborately described in Transfer of Property Act which include following;

1. Rooted in the earth as in case of trees and shrubs;
2. Imbedded in the earth as in case of walls or buildings or
3. Attached to what is so imbedded for permanent beneficial enjoyment of that to which it is attached.

However, we must remember that it does not include standing timber, growing crops or grass.

The Karnataka Stamp Act defines immovable property as “includes land, buildings, right of ways, air rights, development rights, whether transferable or not, benefits to arise out of land and things attached to the earth or permanently fastened to any thing attached to the earth. But in common parlance immovable property means land, buildings, things permanently attached to the land.

Rights

The word right has a wide meaning. It is which gives powers to the person said to have rights to do something, act, or not to do such thing, act, in relation to his property which may be immovable or movable. The right are of different types.

The most important is “Right in Rem”.  This right is available against the whole world.  Next is “Right in Personam”, which is available against a specified person, or group or group of persons.  But this is not available, enforceable against the whole world.  The owner of any property has legal right, which is recognised by the laws of the land and protected under such laws.

Interest

The other most frequently used word in property transaction is “interest”.  It is a right available against the entire world, when it is related to some property, land, building, immovable and movable.  It is transferable under modes recognised by law and also is inheritable.  Such interest is recognised and protected under law.

The interest may be vested, contingent or absolute.Vested interest is an interest in property enforceable by a person at present or in future date linked to happening of certain specified event.  Such vested interest is inheritable and transferable.

Where as contingent interest is an interest available only on future date and not at present, which is subject to happening of some uncertain event.  In vested interest the happening of the event is certain, where as in contingent interest it is uncertain, hence contingent.  As the interest is contingent, it is not transferable or inheritable.  But on happening of such uncertain event, the contingent interest becomes vested interest, when it is transferable and inheritable.

Title

The word title which a owner has over the property is a legal right and interest in the property. The title has to be established and evidenced.  The title is also transferable and inheritable.

Ownership

The ownership is an amalgam of rights, interest and title which is recognised and protected bylaw. In simple words it is right available against the entire world. Such right has no riders, restrictions as to the point of user and point of duration. The word absolute ownership is a bundle of rights connected to some specified property. It consists of following rights.

The list is only illustrative and not exhaustive;

1.   Possession and occupation.

2.   Use and enjoy.

3.   Alienation by modes recognised by law in favour of any person/s without any restrictions.

4.   Alteration of the property, structure, consume, destroy, repair, reconstruct, hypothecate, mortgage, lease and to use the property as security to borrow funds.

5.   Gift, transfer by Will, creation of trust.

6.   The right is a right in rem available against the whole world.

7.   The right is unrestricted in duration of time and use.

However, these rights are subject to various laws like Land Reforms Act, Land Revenue Act, Town Planning Act, and other local laws.

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Other types of ownerships

Apart from absolute ownership, there are other types of ownerships which are restrictive in nature.In restrictive ownership, certain rights detailed under absolute ownership are restricted or not available for certain specified time.

Co-ownership

More than one person may jointly own the same property.Both the persons have equal or certain percentage of rights to possess and enjoy the property.One important ingredient of co-ownership is undivided share.  Though all the owners own equal or a part of the whole property their respective shares are not physically ascertainable with definitive boundaries.  The shares are undivided.  In case four persons own a property of 1200 sft, each persons share is 300 sft.This 300 sft is any part of the building property and is not confined to specific area.This is called undivided share in the property.

Share of the co-owners in the property need not necessarily be equal.  It depends on their share, investment in the property as detailed in purchase document.  In the absence of any such details as to the share of investments made for acquisition of property in purchase document, it is presumed in law, that all the co-owners have equal undivided share of interest, right and title in the property as per section 45 of Transfer of Property Act.

It is always advisable to clearly mention the share of investment of each co-owner in the property and their undivided share in right, interest, title in the property for the purpose of alienation, inheritance and taxation.

The Co-owners share in the property is inheritable, transferable.  The concept of this co-ownership is often termed as “Tenants in common” in legal parlance.

Joint Tenancy 

This is different from Tenants in Common or Co-ownership.  In Co-ownership, the legal heirs succeed to the right and title of the deceased co-owner.

In Joint tenancy, the other Joint owners succeed to the right of the deceased joint owner and not his legal heirs.  This concept is not in practice in India, unless specifically made certain in documents.  In the absence of any such specific reference the court presumes the ownership as ‘Tenants in common’, and legal heirs succeed to the share of the deceased joint owner.

Dual ownership of land and building

Many owners of land, lease the land property to others for long lease.  The terms of lease also gives right to the lessee to construct buildings and enjoy the benefits of such buildings on leased lands.  This practice has led to dual ownership of land and building. The land is owned by one person and the structures thereon is owned by other person. The terms of lease also stipulate, whether the ownership of the building will get transferred to the lesser, owner of the land, free of cost on expiration of the lease period or has to pay for acquisition of such structures.  The Income Tax Act recognises the dual ownership concept and the owner of the building is taxed for the income received from the property.

Ownership by part performance

In sale and purchase of immovable property, the parties generally enters into a sale agreement detailing the terms of contract;  the registration of sale deed is done later on completion of performance of duties by the parties as detailed in sale agreement.  At times the seller receives major portion of consideration, and hands over the vacant possession of the property to the purchaser pending registration of sale deed.  This is called part performance.  The purchaser / transferee who is in possession of property gets, equitable title over the property.  This is recognised under section 53 A of the Transfer of Property Act.  Even in the absence of registered sale deed, and though legal title is not conferred on purchaser / transferee, the rightsof the purchaser / transferee is secured against the seller or any person claiming through the seller.  The only remedy available to the seller is to file a suit for payment of balance sale consideration.  The requirements of part performance as detailed in Section 53A are as follows;

1.   There must be a contract like sale agreement, etc., in writing containing the details of contract including the handing over the vacant possession of the property to the purchaser, signed by the seller.

2.   The contract shall be for transfer of immovable property for consideration.

3.   After the contract is entered the seller has put the purchaser in possession of the property and the purchaser has taken the possession of the property in part performance as per the terms of contract.

4.   The purchaser has done something in pursuance of the contract like payment of consideration or has performed or willing to perform his part of contract.

However, this equitable right derived from part performance is available only against seller or anybody claiming under or through him. But the provisions of this section does not affect the rights of person, who purchased the property for consideration, who has no notice of contract or part performance.Equitable rights of transfer by part performance are recognised by the Income Tax Act 1961, and also for Capital Gains and part performance constitutes transfer as defined in Income Tax Act. 

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CHECK HISTORY OF SAFEGUARD FEATURE

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The Initial steps towards property purchase are the scrutiny of title deeds of the property, and this is the first and foremost exercise the purchaser’s advocate has to undertake before entering into an agreement with the seller.

A clean and marketable title, free from all doubts and encumbrances vested with physical possession, is very important. The ownership of the titleholder can be traced from the title deeds and revenue records.

It is the duty and responsibility of the purchaser’s advocate to safeguard the interest of his client. The advocate shall thoroughly scrutinize the marketable title of the property and genuineness of the documents. The advocate should also amount of risk involved in the transaction and guide them on the mode of payment to be adopted.

Origin of the Property:

The origin of the property is very important to trace the title of the property. It is otherwise called “Root of Title”. It is the safest way to determine the origin of the property and trace its marketable title. Documents covering a minimum period of 43 years of Adverse Possession against individuals or Conflicting Claims (other than mortgage) against individuals, documents covering a minimum period of 30 years must be checked. If a person is enjoying the property for more than 30 years, he will get title by adverse interest against the government as per the Limitation Act. Also as per Section 90 of the Indian Evidence Act 1872, a document executed 30 years fore is presumed to be valid.

Subsequent Transferors:

After ascertaining the origin of the property, it should be followed up by methodical examination of events and further transaction, if any, in an uninterrupted and sequential manner, involving the previous owners and the present owner of the property. Here, the purchaser’s advocate has to very carefully look into all aspects from various legal angles as to how the property was transferred from the previous owners to the present owner. Such a transfer may be by possession, inheritance, settlement, will, sale, mortgage, release, gift etc., involving such intermediate parties. For supporting such a transaction, the advocate has to carefully examine the title deeds and other supporting documents like revenue documents and other records. Also verification of identities of the names of parties and their family connection, wherever they are relevant, and proceeding if any, involving the parties before any Court of Law, other legal forums and authorities including revenue authorities, must be done.

Statutory Clearance:

The nature of various statutory clearances obtained from the relevant authorities like revenue, land reforms, income tax, etc., equipped for completing the transaction must be informed to the parties. In case of purchase of agricultural land, various clearances must be obtained before executing the Deed of Conveyance.

Present Status:

The “Present status” of the property is the most important point to be examined. The advocate has to fined out who is the present owner, origin of the property, what title deeds and supporting documents he is holding, is it his ancestral property or self acquired property and who are his legal heirs, if the legalheirs are majors in age, the vendor must ensure their presence while executing the Deed of Conveyance. If they are minors in age, the vendor has to get the permission from the court before executing the Deed of Conveyance. In some cases the vendor may conceal the fact of legal heirs. To find out the truth, the advocate must ask the vendor to produce either the succession certificate or the family genealogical tree issued by the revenue authority. If necessary he must see the family ration card for further clarification.

The advocate must find out in whose name the Khata stands, whether the khathedar possesses up-to-date tax paid receipt in his name and up-to-date Encumbrance Certificate to establish his right, title and interest in the property. The advocate has to check the Encumbrance Certificate covering a relevant period, generally above 12 years upto 43 years from which it would be known what kind of charge has been created on the property and whether such an encumbrance is subsisting or not. Municipal and other revenue authorities too maintain records as to who is in possession of the property, what is the amount of tax payable on the property and upto what period tax has been paid. All this can be learnt from these records. “Present Status” is an important factor to establish property’s present ownership.

Genuineness of documents:

After thoroughly scrutinizing the documents, the purchaser or his advocate has to check up all documents for legality with the concerned departments just to ensure that the documents are genuine; that they originated from the departments and that they are not fake ones. In addition the advocate has to find out from the department whether there is any attestation, notification or proceedings against the present owner. In case of buildings it must be ensured that it has not been served with a demolition notice.

Identity of the property:

The identity of the property must be checked on the spot. Measurements mentioned in the documents must tally with actual physical measurement of the land available on the property. It must also be ensured that there is no encroachment on the property. In case of encroachment, the measurement of the available land must be recorded and this must be mentioned in the Deed of Conveyance. The boundaries in the schedule surrounding the property must be checked physically. Also, the purchaser may make enquiries tactfully with the adjacent property owners about the ownership of the property he is proposing to buy.

Paper Notification:

Though paper notification is optional, it is always advisable to notify in a leading local newspaper about the buyer’s intention to purchase the property. This is done to safeguard the interest of the purchaser. Even after examining the various documents, the Advocate may not be able to find out whether the property is truly free from any claim or not. A paper notification will beget response from a genuine claimant. Therefore, paper notification is the best way to avoid legal problems for the purchaser at a later date.

Physical Possession : In case of a vacant site, the purchaser may, with the permission of the vendor fence the property with barbed wire or he may construct a compound wall and put a signboard, if necessary, to intimate the ownership of the property.

Verification of title is very important. It is not merely tracing the title on the record but also examination of the genuineness of the records, identification of the property, notification in a newspaper and physical possession of the title of the property.

Even after entering into an “Agreement to Sell”, the purchaser continues to make enquiries about the title. A doubtful title cannot be forced upon the purchaser. Purchaser is not bound to complete the sale if there are defects in the property, material or latent, which are not discernible in ordinary course. A mere suspicion of fraud that cannot be made out will not make the title doubtful and the purchaser cannot reject the title.

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‘A’ KHATA PROBLEMS OF BANGALORE PROPERTIES

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Property owners under the limits of  Bruhat Bangalore Mahanagara Palike (BBMP) are facing lot of confusion and hurdles in obtaining khatas from the BBMP. Khata basically is an important property identification document issued by the local civic body to recognize the ownership of a property in their limits. Khata contains the details of property like name of the owner, dimension of the plot or size of the building, location of the property and other details which helps properly owners to file property tax. Apart from this khata is required for applying for building licence, for trade licence, for loan from any banks or financial institutions etc.,

In 2007 seven city municipal councils (CMC) Kengeri Town Municipal Council (TMC) and 110 villages, were brought under the administration of Bangalore Mahanagar Palike (BMP). Thus, nearly 2/3rd area was added to the existing 1/3rd area under BBMP. Only properties which were approved by the town planning authorities and some other properties strictly conforming to the bye laws of the BBMP have been issued ‘A’ Khata. For the remaining  properties in the newly added areas the owners can pay tax to BBMP and get the ‘B’ khata form. According to BBMP there is nothing like ‘B’ khata, but it is only an extract of the B register maintained by the civic authorities to make entries of the taxes collected on the properties.

‘A’ Khata is required to be obtained from the BBMP to recognize the ownership of a property which makes the owners eligible to receive civic amenities extended to them. But, most of the properties in the old CMC areas now coming under  BBMP have many disadvantages in getting ‘A’ khata as many irregularities pertaining to land conversion, building bye law violations etc., are rampant in these properties. To obtain ‘A’ Khata the land should be DC converted, owners should have paid up to date tax and also paid betterment charges to the BBMP pertaining to converted lands. All political parties promises the public about ‘Akrama – Sakrama’ scheme for regularizing unauthorized/building violation constructions. But, nothing is happening in this regard till date.

The Government must take concrete steps to mitigate the problems of property owners in Bangalore city either by implementing the previously conceived scheme of ‘AKRAMA – SAKRAMA’ or other scheme, to regularize the property ownerships by collecting one time penalty / fees, enabling the citizens to apply and obtain ‘A’ Khata for their properties. 

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BUILDING CONTRACT AGREEMENTS

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An agreement which is entered into by a owner of a site with a contractor for construction of a building is known as building contract agreement. Generally an owner of a site look out for a reputed and reliable builder for construction of building over his property and after finalizing one enters into an building contract agreements

Building contract agreements are defined as agreements between the contractor and a another person called the owner or the employer for construction of buildings and other structural work proposed to be constructed, which fall within the category of ordinary contracts and are governed by the provisions of Indian Contract Act including the basic rules as envisaged under the said Act such as, competency of the parties to the contract, consent, existence of consideration to the agreement and not against the public policy.

Modes of entering Building contracts

There are two methods which are generally used by the owners and the contractors as detailed below:

Contract entered after inviting tenders: In this method tenders are invited by the owner of the site for 3 or more contractors by advertising or issuing the tender. Thereafter the best tender is choosen and the tender amount is accepted with other terms and conditions. Acceptance by the owner of the property constitutes a valid contract. The agreement should contain all the necessary and mandatory terms and conditions, particulars of the work required to be done and the schedule of quantities and rates in order to constitute a valid contract. This method of agreement is generally followed by the Government, Local authorities, Architects and other public corporations and trusts.

Contract by directly executing agreement: Under this method the agreement is directly entered into by the contractor and the owner. They straight away negotiate and enter into a construction agreement and averments pertaining to the tenders cannot be looked into for evidence unless some ambiguity in the interpretation of recitals in the agreement exists. This method is generally adopted by commercial firms or individuals.

Format of the agreement: The architect will also have a construction agreement which will be in the printed form wherein blanks are filled in by hand or some provisions are altered by hand, if necessary. While doing so it must be kept in mind that that there should be no discrepancies between the written words or those in printed. In case of any inconsistencies or discrepancies the written words will prevail over the printed words as the the words filled in the blanks will express the intention of the parties.

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Appointment of an Architect: An architect is immediately appointed who has to be duly qualified after the search for the contractor is over or after the contractor is finalized. The mode of entering into an agreement depends upon the architect and the contractor. The architect prepares preliminary drawings and estimates and then prepares working drawings and specifications and bills of quantities and other documents relevant for the contract. In order to carry out the day to day supervision of the work, a clerk of works or resident engineer is appointed and also to see that the instructions of the Architect and structural engineer are complied with by the contractor.

Types of Building Contracts:

Building contracts are generally of four types as listed below

Lump sum contract: Under this type of contract, a mutual negotiation is arrived in between the parties whereby the contractor agrees to carry out the work for a fixed amount irrespective of anything else. This method is not advisable as it may lead to a lot of confusion.

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Items rate contract: In this type of contract work is divided into several items of work and the contractor quotes price of each item including the remuneration that will be paid in accordance with the work carried out at the rates agreed upon, which can be assessed with the help of a qualified Architect or a Civil Engineer.

Percentage contract: In this type of contract a percentage of amounts on the total actual cost of the building is paid to the contractor as agreed earlier.

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Cost plus percentage contract: In this category, the contractor gets the actual cost of work as well as certain percentage over and above the said cost which is accepted by the owner.

General conditions of a building contract

Apart from the above, the Architect also has to decide on any dispute if arises regarding the construction work and give his decision by issuing a certificate to that effect. Further he also has to administer and keep an check on the daily construction work.

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Appointment of Sub-Contractor

A sub contractor can be appointed by a contractor for carrying out either for the whole work or part of the work, with or without the consent of the owner. Privity of contract does not arise between the owner and the sub contractor in cases where the consent of the owner is not obtained and the contractor alone will be liable for all the acts done by the Sub-Contractor. Similarly the Sub-Contractor does not derive any right to raise claim against the owner pertaining to the construction contract. It is advisable to enter into a construction agreement after complying with all the necessary formalities as provided in the statute and the same must be reduced in writing to manifest the specific duties and obligations vested on all the necessary parties as many construction projects are left incomplete due to high construction cost and to lack of co-ordination between the owner, contractor and the architect. It is very important to incorporate all the terms and conditions of the contract clearly to avoid unnecessary dispute and successful completion of the project.

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