Property laws in India are comparable to many developed countries with some flexibility for community specific needs. A Government agency, usually a Registrar Office, acts as an intermediary for property registration and transfer of rights.

While Property registration process has evolved over recent years, especially with digitization of property registration process in many states, implementation of these laws have left a lot to be desired.

The biggest challenge in property registration is the valuation of the property itself. Currently, this is governed with a set of boundary policies like guideline value for a location. However, these policies usually lag the market significantly both in terms of time to effect and valuation itself. Quite often they are not efficient market indicators.

Grey economy in Property market

The gap in property valuation allows a serious misappropriation which result in huge revenue loss to the government. In addition, this also generates black money that fuels grey economy.

A person selling property misusing these laws would accumulate black money and it can only be used against another such transaction that requires it. We can imagine how this has led to a huge grey market economy in India. We also know that this grey market is both inefficient in use of resources and also harmful to the society. It is inefficient because the money, when not deployed, usually stays in the form of cash which has least efficient economic utility. It is harmful since this cash may be deployed in socially unacceptable opportunities.

Reforms to address gaps in governance

The main issue in property regulations is RIGHT valuation of the property. This will not only generate more income to the government, but also decreases the motives for grey market transactions.

Immediate question that arise is ‘can valuations be market driven as in stocks?’ Stock market regulations have evolved significantly and there is little, if not none, doubt about valuation of a stock.

This begs the question. Can we solve property valuation issue by making property an instrument similar to a stock?

While idea of making property similar to a stock is noble, at least for now, it is farfetched. However, we can take strings from stock market governance and apply the same to property market. One such thought is presented here.

Financial Intermediary as a property regulator

We introduce the concept of intermediary for a property. All properties must be associated with an intermediary. This is similar to demat account for stocks.

According to the new process:

(a)  A property is always associated with an intermediary. It can be banks or such financial institutions that have the expertise to valuate properties. For example, banks those offer property loans.

(b)  Transaction begins with Seller (who is also the current owner or an entity authorized by the owner) initiating the process. Seller has to intimate the intermediary about the possible deal along with requisite details like buyer identity, sale price, etc.

(c)  Intermediary would then apply a fair valuation on the property. In this process, intermediary attempts to define a fair market value for the property based on current market conditions.

(d)  If the fair value significantly differs from the deal value, intermediary informs the seller of the same and requests authorization with reasons.

(e)  Seller may discard the transaction if fair price is significantly above deal price. Seller may also choose to go ahead with the deal in spite of difference in value by providing reasons for the same.

(f)  Seller can choose to go ahead with the transaction by surrendering original titles to intermediary along with payment of transaction fees.

(g)  Intermediary would then process the change at their end and also inform the government agencies about old title and buyer information.

(h)  The government agency would then send new title records to the intermediary.

(i)   Intermediary sends the title to the new buyer after collecting transaction fees.

(j)   Transaction fees are periodically deposited to the government agencies by the intermediary after deducting their share in these transactions.

Market value is governed by many factors and it is understood that the actual transactional value might depend on these and many others that influence it. In any case, this process change will significantly reduce misuse of property valuations.

One important assumption in this approach is that the financial intermediary will be honest in identifying fair market value and hence act as a guard against misuse. It can also be noted that it is relatively easy to enforce strict laws of compliance against an institution than an individual.

Further reforms can be evolved over a period. For example, we could restrict transactions that significantly differ in valuation. This can be achieved by allowing seller to borrow money on the property instead of selling for lower price. Alternately, intermediary can auction the property to fetch a better market price. However, property rights laws will need amendments to allow such possibilities.

Additional benefits of suggested approach

Apart from the valuation itself, there are other benefits from this process:

(a)  Every property is associated with an intermediary. The same intermediary would continue for the life time of the property or till such a time the intermediary chose to transfer accounts to another intermediary. This ensures better accountability.

(b)  Because intermediaries are competent with knowledge of the market, tax collections can be automated. For example, intermediary pays tax on time to the government by debiting the property account which is then settled by the owner with a payment. This is similar to a normal utility credit transaction.

(c)  Revenue collection on properties can be streamlined with innovative reforms. For example, property tax collected can follow a standard indexation (to account for inflation) for five years followed by a market valuation. Another option would be to apply a percentage on current market value.

(d)  Data accuracy of ownership enables fair distribution of social expenses to each property. This can be assigned as a variable cost to a property – just like utility bills – which is then collected as part of regular tax cycle. For example, maintenance cost of local parks can be distributed in proportion to property owned in that location.

(e)  Over a period of time, this system can evolve as property stocks that can also be traded online thereby discovering true market price for every transaction.

(f)  Existing properties and ownership would be identified and recorded by the intermediary. This establishes a clear asset ownership data that helps in reduction of property ownership disputes.

(g)  Financial Intermediary can extend loans and other such credits against the property account. For example, taxes and other debits can be accumulated against the property and collected annually. If owner wishes to do so, these debits can be carried as mortgage loans for an extended period. This reduces overhead of continues cash flow requirements for the owner apart from reducing the number of such transactions.

Challenges in implementation of suggested approach

There are few challenges in the implementation of proposed approach.

(a)  First and foremost in the cost of intermediary itself. Since this change is expected to increase government revenue substantially, intermediaries can be compensated from the government revenues.

(b)  Processing time may increase due to additional layer. However, this can be addressed by aligning additional incentives for speedy processing.

(c)  Resistance to change from government agencies might be a huge challenge to deal with. This has to be addressed by arranging public knowledge sessions to highlight the benefit of this change to the entire society.

(d)  Disagreement on property valuation between intermediary and seller can obscure the data collected. However, aligning intermediary benefits to accuracy of this data can help reduce such calls.

(e)  Intermediary has to maintain and process transactions for many sellers and buyers. This imposes additional data maintenance burden on the intermediary. However, this can evolve into a repository of one or two regulators (like BSE / NSE) thereby reducing the associated cost. One such option is to just use PAN numbers for identity of sellers and buyers.

(f)  Digitizing existing records is a huge challenge. Existing data is very huge. Initial stages of data upload and subsequent maintenance will have few challenges. In addition to this, some of these records may be in various local languages and hence requires additional effort to translate, store images of original documents, etc.

(g)  Property transfers for reasons other than an outright sale, such as inherited property, is complex and involves legal overheads. Role of intermediary in such cases should be clearly defined. For example, when property ownership is under dispute, property can be put on a hold status and intermediary takes responsibility of maintaining financial health of the property (like payment of taxes, etc.) till a clear ownership is established by a legal entity.

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Help answer the question about property

How can a person or persons be removed from a property deed in the state of Florida?
If someone who owns a property added multiple people within the family to the deed to a property and due to a family fued, wants them off the deed & they refuse (of course) to sign quit claim deeds does a person have any legal options to have them removed? For instance they do not pay property taxes, they don't live there and have never contributed to the upkeep of the property which includes multiple houses.
this is an elderly relative whose younger relatives talked them into adding them to the deed. The lawyer who did the paperwork and advised in this matter was the father of the fiance of one of the people being added. Couldn't this be a conflict of interest?These are bad people!