With the government reiterating its commitment to curb Benami properties, we look at what may be in store in the union budget for 2017-18 and how it may impact the real estate sector and property buyers.
The central government has repeatedly stated its intent to deal with Benami transactions. It is, hence, expected that several concrete steps and financial curbs on Benami transactions may be announced in the Union Budget 2017-18. However, the question that arises, is to what extent it will affect the business of Indian real estate.
With land records and transactions not digitized and up to date, it is a challenging job, to assess the extent of Benami properties in the country. Moreover, the real estate sector in the country remains largely unorganized. Nevertheless, developers within the organized segment of Indian real estate, are hopeful that there will be meaningful announcements, to curb benami properties.
Experts asserts that established developers will surely welcome concrete steps to curb Benami property transactions.
According to them, a crackdown on Benami properties can clean up the real estate sector, by improving transparency, reducing corruption and could even result in a correction in prices.
About one-third of the country’s population of 1.25 billion, lives in cities, with more people migrating to cities. The government’s ‘Housing for All by 2022’ plan, aims to create 20 million new urban homes and 30 million rural homes. Going after Benami properties, can help accelerate this plan.
Builders welcome government’s measures against Benami properties
Experts further agree that there have to be some stringent measures in the upcoming budget, to check Benami transactions. The Benami law was introduced to control black money in the real estate sector. If the laws against Benami transactions are implemented properly, the registration of property will be flawless and in the name of the actual owner. There can be control on the maximum number of property registrations under one name and land inventory can also be managed.
Experts also point out that the realty sector has lately witnessed a series of corrective measures by the government, aiming at making the sector more transparent, with the Benami Transaction Act being one of them.
The institutional framework of the realty sector has already been strengthened by the government, by amending the Benami Transactions Act, to make the law more stringent.
How prevention of Benami transactions can help the property market
When the titles are clear and transactions are transparent, the confidence of lenders will also increase and result in an uptick in lending to homebuyers. This will increase the supply of residential real estate. However, for this to happen, the government will have to come up with a well-defined roadmap. While the union budget may address the problem, in terms of financial penalties on Benami transactions and benami property holders, a mere fiscal roadmap may not enough. With most of the land records not yet digitised, structural reforms in the administration are also needed.
The government has tried to address this, by amending the original Benami Transactions Act 1988, to make the law more stringent. Under the Benami Transaction (Prohibition) Amendment Act, 2016 which came into effect on November 1, 2016, a transaction is named ‘benami’, if property is held by one person, but has been provided or paid for by another person. The act lays rules for recovery of the property and also makes Benami properties liable for confiscation by the government.
Nevertheless, the big challenge for the government is to create a mechanism where the fiscal transaction is not possible in the property market, for Benami property deals. It remains to be seen, whether the 2017 budget will address these concerns.
Ground realities of Benami transactions in Indian realty
- After demonetisation, the curb on Benami properties, is likely to be the next big goal of the government.
- There are more Benami transactions in the unorganised property markets and hence, they tend to remain concealed from the law.
- With land records and transactions not fully digitised, Benami transactions remain a challenge for the government.
- There is no clarity over what can be an ideal fiscal deterrence, to stop Benami deals.
- There are expectations that the union budget 2017-18 may give some answers, on how to curb Benami transactions in the property market.