Govt's plan to link realty to Aadhaar may impact secondary market

Smaller real estate developers who deal in high-ticket properties say acquiring properties and developing them for sale would become extremely difficult

Prime Minister Narendra Modi’s recent comments on cracking down on benami properties by linking real estate properties to Aadhaar have put many people in a sweat.

Amrit Sharma (name changed), a 53-year-old government employee, owns four properties in posh localities South and West Delhi. Bought under the names of his mother-in-law, a distant cousin, a friend, and a property dealer, the four residential properties provided Sharma not only rent but also a lump sum, which he got by selling a floor at one of the properties when he needed to get his daughter admitted to a private medical college.

Sharma, who believes that Modi would execute his plan, does not know how he would be able to save his pickings he has amassed over 25 years.

In Panipat, Joginder Mann (name changed), a property dealer, is finding it hard to sell a 2.5-acre plot he had bought three years ago for Rs 87 lakh. While in the past he had been able to sell without hindrance even properties whose ownership was questionable, an Aadhaar linkage would make his task next to impossible. He now wants to get rid of the property and maybe, if he is lucky, recover his losses.

After demonetisation, the creation of the Real Estate Regulatory Authority (RERA), and the introduction of the goods and services tax (GST), the real estate sector is on the verge of facing another major disruption. Experts say the brunt would be borne by the secondary sales market, which deals mostly in cash.

Smaller real estate developers who deal in high-ticket properties in the National Capital Region, Mumbai and Bengaluru, among other cities, say that acquiring properties and developing them for sale would become extremely difficult, making their business almost unviable. However, primary market developers are of the view that this would not have much impact on them although for a short period it would act as another disruptor, just like demonetisation and RERA.

What is a benami property?

A property bought by a person under someone else’s name is a benami property. It includes properties held in the name of spouse or offspring and which have been paid for out of known sources of income. A joint property with brother, sister or other relatives and is paid for out of known sources of income also falls under benami property.

According to industry experts, the government might make Aadhaar mandatory at the time of registration. “We believe, for new properties, it would be at the time of registration. The government might also come up with rules like it did with linking Aadhaar to bank accounts and announce that every property owner has to do the same. For us it is just adding another step to the process,” said Manoj Gaur, vice-president, Confederation of Real Estate Developers Association of India (National).

Jolt to secondary market

Secondary sales of properties, mostly consisting of high-ticket transactions, have a major cash component in them. While demonetisation slowed this market to almost a standstill, this move might be the death knell for this particular real estate segment.

“We will see a significant dip in big-ticket secondary market sales. They have been down since demonetisation. Rampant land buying under false names would end. However, the primary market, in which almost 80 per cent of the money comes from bank loans, is not going to be affected,” said Parveen Jain, chairman and managing director, Tulip Infratech, and vice-chairman, National Real Estate Development Council.

An expected disruption

Industry experts say the industry has been ready for Aadhaar linkage since demonetisation. “This disruption has been well-accepted by the sector. This, among other measures, would bring confidence back. Aadhaar linkage would make the whole process transparent and put a face and other details to the name on the property deed. Real estate developers are ready for this change. They were anyway taking PAN-card details, now they will take Aadhaar details as well,” said Samantak Das, chief economist and national director (research), Knight Frank India.

The organised real estate sector says the sector is not only ready but has been asking for Aadhaar linkage for some time now. “This is what we have been asking for. We want the process of property buying to be more transparent. This is not even disruption for us. Yes, there are other issues such as a few policies and tax rules that affect the sector but Aadhaar linkage is not one of them," said Rajeev Talwar, chief executive officer, DLF Ltd.