FICCI-Grant Thornton-Escrowffrr Knowledge Report 'Improving Transparency in Secondary Real Estate Market'

In India, secondary real estate purchase is preferred over purchase from the primary market because it is cost and time effective and, most importantly, there are no delays in possession. In 2018, it has started showing signs of recovery from the time of demonetisation, and sales have started picking up in the last four quarters. Mostly, demand was witnessed in the affordable and mid-range housing segment. On the secondary luxury property side, demand has remained weak. Deal size has remained small, but there has been a positive momentum throughout the country. Another positive momentum was witnessed after the market got clarity on the applicability and accountability of RERA and GST.

However, Real estate transactions in India come with their own set of challenges. In the secondary market, the major challenges are on the payment side where a lump sum amount is blocked in the transaction process and the entire amount is at high risk. Cash transactions are another challenge, with sellers demanding payment in cash to avoid capital gains tax. Lastly, documentation or the legal vetting of property papers is a big challenge, with incomplete or unclear property chains.

The government's focus in recent times was more on the primary real estate market, where policy-level initiatives like RERA, Benami Act, GST and demonetisation were introduced to make the sector more organised, regulated and transparent. However, no policy level initiatives have been proposed for the secondary real estate market. Based on the survey analysis, the report makes following recommendations for the secondary market.

1) The government should focus on digitisation of property records (titles/chain), which will gradually decrease legal challenges and reduce the overall process time.

2) In the GST regime, the effective rate of tax has increased from the earlier 11% (1% VAT+ 4% Service Tax + 6% Stamp Duty) to 18% (12% GST + 6% Stamp Duty). There is a need to rationalise the tax structure by subsuming stamp duty as part of GST.

3) An effective escrow mechanism will protect all related parties. While the money belonging to buyers and sellers will be safe, broking fee of agents will be guaranteed.

4) The government should look at bringing in a single licence fee for real estate agents across the country to match the global standards.