Verdict on general power of attorney seen hitting property sales

NEW DELHI: Experts analyzing Tuesday's Supreme Court order barring the sale of properties through general power of attorney (GPA) and sale agreements (SA) said the ruling could reduce black money component in deals and bring down legal disputes. However, they added that it would hit liquidity in the real estate market, bringing down the number of transactions in the short term. Lawyers and property consultants said the judgment would cause hardship to owners who have bought dispute-free properties on GPA and SA simply because paperwork wasn't complete for a proper sale registration. Such owners will have problems selling these properties, senior lawyer Kumar Amit, who works for public sector banks that fund transactions through first power of attorney, said. The SC had ruled that, effective prospectively from October 11, registered sale deed will be the only valid instrument of transaction of property in the country. The verdict is likely to affect a large number of property owners. A senior lawyer who vets sale documents for a leading bank estimated that around 70% of property sales in Delhi take place through GPA and SA. Apartment owners in societies which have not got a completion certificate will find themselves on a sticky wicket because these flats cannot be converted into freehold. Until now, these properties could be sold through GPA and SA. The new ruling will effectively mean such apartments cannot be sold. Experts also say the verdict will raise the market value of freehold real estate while depressing the price of leasehold properties. Those holding properties on GPA and SA will have to get a sale deed registered if they wish to sell the property in future. But lawyers pointed out that many of the owners may face problems getting sale deeds because their properties do not have a clean title. They said city authorities must share part of the blame for the current state of affairs. "Take the erstwhile unauthorized colonies. Even after regularization, a large number of properties here are still owned through power of attorney because the authorities have never actively facilitated their conversion to freehold. With the SC ruling, these properties cannot be sold as the owners do not have property titles," a lawyer said. In 2004, the government had made registration of the sale agreement mandatory-requiring payment of 90% of stamp duty and corporation tax-for a property transaction to be deemed complete. Therefore, the government will not gain additional revenue following the SC order. The registrar's office also keeps track of sale agreements which show all transactions related to a particular property. So, a lawyer argued, a GPA and a registered SA were good enough for sale and purchase of property. As the GPA and SA will not be considered sale documents any more, bank loans will not be available for property transactions which, for some reason, take place through this route.