P rior to the State budget scheduled to be presented by Chief Minister Siddaramaiah soon, here is a wish list in the form of suggestions related to Bengaluru real estate and mortgage banking.
Rationalising stamp duty
Presently there is a uniform stamp duty of 5% on real estate transactions. In Bengaluru city (main areas), average ticket size of property is estimated to be Rs. 50 lakh and say for 100 properties, the revenue collection from stamp duty could be ₹ 5% of 50,00,000 X 100 = ₹250 lakh.
It is suggested to rationalise the stamp duty on the cost of property as follows, with a view to increase the revenue from stamp duty and provide significant relief to EWS, LIG and lower strata of MIG of people, who are desirous of buying property costing less than ₹ 50 lakh.
a) Properties up to Rs. 50 lakh
(Only residential properties to encourage affordable housing) : 4%
(Out of every 100 properties, on 60 properties of say ₹ 30 lakh, stamp duty collection) : ₹ 72 lakh
b) Properties over ₹ 50 lakh but less than ₹ 100 lakh : 5%
(On 35 properties of say ₹ 75 lakh, stamp duty collection) : ₹ 131.25 lakh
c) Properties of market value more than ₹ 100 lakh : 6%
(On 5 properties of say ₹ 150 lakh, stamp duty collection) : ₹ 45 lakh
Total stamp duty collection over 100 properties could be ₹ 248.25 lakh, similar to stamp duty collection as per present system.
Increasing stamp duty on all commercial properties to 6% will certainly increase the revenue collection.
Once stamp duty is reduced as suggested, it is most likely that the number of registrations will increase for higher revenue collections, a measure required to fulfil the objective of ‘Housing for all by 2022’ and encourage ‘Affordable Housing’ sector.
Making registration of ‘Deposit of Title Deeds’ mandatory
All banks, Home Finance Companies (HFCs) and other lenders while advancing home loans or loan against properties, obtain prime security in the form of ‘Deposit of Title Deeds (DTD)’ of the property to be funded.
Presently DTD attracts stamp duty, but registration of MODTD (Memorandum of Deposit of Title Deeds) is optional. Large majority of banks/HFCs create DTD, but do not register the mortgage, which means the mortgage is known to only lender and borrower. Hence mortgage entry will not be appearing in the Encumbrance Certificate issued by the office of Sub-Registrar or will not appear in any domain.
The facility offered by the government of not insisting for registration of the mortgage is often misused both by lenders and borrowers, leading to huge revenue loss to the government exchequer. While many lenders avoid stamp duty payment, a few criminal minded borrowers, without disclosing the mortgage created in favour of the bank/HFC, either sell their property to gullible buyers or have multiple funding on one property. Thus non-registration of DTD has lead to severe hardships to gullible purchasers of encumbered properties, has increased Non-Performing Assets (NPAs) for banks/HFCs and has made the government to lose enormous revenue.
Thus it is suggested to make registration of DTD mandatory by charging nominal registration fee. Presently stamp duty for DTD is fixed as 0.1% of loan amount for loans up to ₹ 10 lakh; 0.2% for loans more than ₹ 10 lakh. Registration fee can be fixed as ₹ 500 for loans up to ₹ 10 lakh and for loans above ₹ 10 lakh, it can be 0.1%, with a cap of say ₹ 10,000.
If registration of the MODTD is made mandatory, first, it will help buyers avoid encumbered property, as the mortgage entry will be displayed in the EC (Encumbrance Certificate). Secondly banks/HFCs will improve their NPAs and it will certainly increase the much needed revenue collection for the State Government.
Developing integrated townships
For the development of layouts for allotting to the public, the flagship activity of BDA in the past four decades has been a total failure where wrong affidavits are provided to a few corrupt authorities for getting sites allotted and the site used as speculative investment means. Largely the BDA layouts are under-developed, they are without basic amenities like roads, electricity, water and sewage connections for decades, so houses have not come up in such large layouts.
Hence it is suggested to stop layout formations by BDA/BMRDA or such authorities and initiate developing Integrated Satellite Townships under PPP (Public-Private Partnership) model, on the lines of Bidadi Township announced in 2006, which was shelved later.
The major reason for shelving the Bidadi Township is believed to be resistance from land owners due to displacement of settled families, losing income from farming lands and lesser prices offered. With the successful model of land pooling in neighbouring Andhra Pradesh or the model adopted in Gujarat, it is strongly suggested to revive Integrated Satellite Township projects.
Encouraging NRKs (Non-Resident Kannadigas) to invest
Millions of Kannadigas are residing overseas on employment and business. With many dreaming to return to the State, their interest in purchasing properties mainly in Bengaluru cannot be ruled out. It is estimated that more than 20,000 NRKs have already purchased properties here as investment. Many have had their real estate dealings leading to litigations, and lost capital with fly-by-night operators.
It is for the benefit of millions of NRKs that it is suggested to develop an ‘NRK City’ within a radius of 10 km from Kempegowda International Airport, on the lines of Integrated Satellite Township of around 10,000 acres with good infrastructure.
With the help of many influential NRIs, it could be easy to get the required FDI from developed nations in developing the ‘NRK City’.As real estate is the ‘growth engine’ of the economy, rationalising stamp duty, making registering the DTD mandatory, and developing Integrated Satellite Townships and ‘NRK City’ will certainly propel the growth by catalysing core sectors like steel, cement, power and transport and also generate millions of jobs.
The author is founder-Director of the Institute of Home Finance - deshpanderp2007@gmail.com
