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Friday, 14 October 2011 00:00
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Easing rules for freehold vital to clean up land deals


In the complicated maze of property deals, the Supreme Court judgement of Wednesday to make resale of property executed through a power of attorney illegal is something to cheer. The use of power of attorney is one of the principal conduits through which black money has been poured into the real estate market. For a major economy like India, where not just residents but non-residents too are now entering the real estate markets in a big way, the perception of India as a corruption-prone country begins here. It is rather surprising that the power of attorney has enjoyed so much of salience in the market despite its highly dubious status as a valid legal instrument. At its core, the instrument is just a mechanism authorising some one to act on behalf of a person or estate. To be valid, it has to be registered on non-judicial stamp paper. In Delhi, for instance, fresh registration of this instrument for property transactions was made invalid several years ago, but restarted in the case of cooperative flats following demands from several quarters. Even now, since the stamp duty payable for a sale of property is seen to be high, applicants get around by typing out a general power of attorney, which costs far less.

By that logic, the sale of flats/farms/lands based on this instrument are all dubious. The reason why no one questions it is because literally millions have their hand in the till. To be valid, a property must be sold through a sale or a conveyance deed, as the Court has said. But, in Delhi, the percentage of property sold through power of attorney far exceeds the sales registered correctly through the deeds. It is the institution of unregistered property brokers which keeps this system alive. The instrument is particularly useful when the property is a leasehold—leasehold property can be sold only when it is made freehold. The difficulties involved in getting a leasehold transferred to a freehold from the state land departments like the DDA makes even the strongest baulk and opt for the easy way out. The loser is the state as its forgoes revenue and, more significantly, the individual as she contributes to a fresh injection of black money into the system. Just as the one-time road tax on vehicles and long-term driving licence fees cleaned up the act for motor vehicles departments, elimination of the leasehold system for residential property and slashing of stamp duties by state governments across the country will remove the ogre from real estate deals. Otherwise, despite the court judgement, interested people will again develop a via media.



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