Real Estate Laws : Recent developments — Part II

2. ULCRA repeal :

2.1 A few months ago, the State Government of Maharashtra
finally repealed the dreaded Urban Land Ceiling & Regulation Act (ULCRA).
Estimates say that this would release as much as 30,000 acres of land in Mumbai
alone. Several large land owning trusts are expected to benefit. Several lands
owned by mills such as NTC are expected to benefit.

2.2 The Government was under pressure to repeal ULCRA, since
the Centre had set a deadline of March 2008 to do so or else it could not access
over Rs.17,600 crore of funds under the Jawaharlal Nehru National Urban Renewal
Mission.

2.3 The Government is now toying with the idea of replacing
ULCRA with a vacant property tax. One can only hope such legislations do not see
the light of the day.

3. Increase in FSI in suburbs :

3.1 The State’s Finance Minister has in his budget speech
announced that the base FSI in the Mumbai suburban district would be increased
from 1 to 1.33 and brought on par with the FSI permissible in the island city.
The additional 0.33 FSI would have to be purchased as per the ready reckoner
rate for the area. Thus, instead of a developer constructing a building in the
suburbs by using 1.00 FSI and loading another FSI of 1.00 by buying Transfer of
Development Rights (TDR) from the market, as per the new proposal, the builder
would buy lesser TDR by 0.33%. Thus, builder can now purchase 1.33% from the
Government as FSI and only the balance 0.67% as TDR. This means more funds to
the Government. The maximum cap of FSI 2 for projects in the suburbs still
remains.

3.2 From a developer’s perspective, the cost advantage is
negligible, since the FSI rates are more or less comparable with TDR rates.
Further, the overall cap of 2.00 does not increase the overall supply of land,
it only substitutes one source (TDR) for another (FSI).

4. NOC for rented flats

4.1 The Supreme Court’s decision in the case of Mont Blanc
Co-operative Housing Society Ltd. has upheld the constitutional validity of the
State Government’s Notification dated 1st August 2001 that Non-Occupancy Charges
(NOC) levied by a society cannot exceed 10% of the service charges. Thus, a
housing society cannot charge more than 10% of the service charges in case of a
flat which has been rented out by its member. This was a vexed issue with
societies levying NOCs based on their own whims and fancies. In several areas
such as South Mumbai, the societies collected exorbitant amounts for flats
rented to consulates and corporates. For instance, in some case if the monthly
rent was Rs.10,000 and the maintenance charges were Rs.1,000, the Society
demanded 20% of that or Rs.2,000 as NOC. This was even higher than the
maintenance charges levied by the society.

4.2 The Supreme Court has granted temporary
relief to the Mont Blanc Society, allowing them to col-lect non-occupancy
charges at the rate of 10% of gross earnings of members till the final disposal
of the petition. All other societies in Maharashtra will have to adhere to the
Notification, and charge not more than 10% of the service charges, excluding BMC
taxes. The Notification had been issued u/s. 79A of the Maharashtra Co-operative
Societies Act, 1960.

5. Stamp Duty proposals :

5.1 The Maharashtra Government has once again decided to milk
its favourite cash cow, the Stamp Act. As per the revised estimates for 2007-08,
the Government is expected to net Rs.8,000 cr. from stamp duties alone and this
figure is estimated to cross Rs.9,600 crores for the year 2008-09.

5.2 Currently, development agreements and power of attorney
for development attract Stamp Duty @1% of the fair market value of the property
involved. Now Stamp Duty on these documents would be levied on rates as
applicable on a conveyance, i.e., @ 5%. Thus, the Government is equating
development agreements with conveyance deeds. It is submitted that this is not a
welcome amendment, since a DA cannot be equated with a conveyance.

5.3 Earlier, any power of attorney authorising the holder to
sell immovable property, if not given for a consideration, was chargeable with
Stamp Duty only at Rs.100. Now any power of attorney authorising the holder to
sell immovable property, whether or not given for a consideration, is
chargeable with Stamp Duty @ 5% of the market value of the property. A rebate of
this duty paid would be given while calculating the Stamp Duty on a conveyance
executed pursuant to the power of attorney between the donor and the holder of
the power.

An exception has been made for a power of attorney given to
close relatives, such as parents, spouse, children, grand children, siblings,
etc., authorising them to sell immovable property. In such cases, the duty would
be restricted to Rs.500. Hence, consider a situation where the owner of a
property is a non-resident in London. He has no family members in Mumbai and
wants to sell his property and hence, gives a power of attorney to his friend in
Mumbai. Obviously, this would be without consideration. This would now attract
duty @ 5% of the market value of the property. Is this fair ?

5.4 Presently, if after purchasing a flat from a developer it
is resold within 3 years of the date of agreement then while paying the duty on
the second agreement, credit is given of the duty paid on the first agreement.
Now this concessional period has been reduced to one year. Hence, now, if after
purchasing a flat from a developer it is resold within a period of one year of
the date of agreement, only then while paying the duty on the second agreement,
credit would be given of the Stamp Duty paid on the first agreement.

5.5 As a consequential amendment to the deemed conveyance amendment (see para 5.2 above), it is proposed to introduce an amnesty scheme in order to provide for concessional Stamp Duty on the conveyance of the underlying land, since if the building has been purchased some time back, then it would be unjust to collect Stamp Duty at present rates. Details of this amnesty scheme would be notified soon.

5.6 Like in other taxes, e-payment would soon be possible for Stamp Duty also. An e-Payment Gateway would be made available to the taxpayers. This will enable them to pay taxes conveniently at any time and from anywhere through Internet. The amendments which are required to be made to the rules under different tax laws, will be carried out in this year.

6. Sale of stilt  parkings:

6.1 The Bombay High Court recently in the case of Panchali Cooperative Housing Society Ltd. at Dahisar held that the builder, NL Builders Pvt. Ltd., had no right to sell stilt parking areas in the society to outsiders. The Court dismissed the builders’ petition claiming that his right in the property developed by him is absolute. The builder had claimed that he had a right to sell that portion of the property that remained unsold, i.e., some of the stilt parking slots.

The Court held that as per the Maharashtra Ownership Flats Act, 1963, once the builder conveys the property to the society, and it is registered, the property belongs to the society.

6.2 This judgment settles an important principle regarding the rights of a society and a builder.

7. MOFA:    Sale on carpet area basis:

7.1 The latest amendment in the real estate laws is a change to the Maharashtra Ownership Flats Act, 1963 (MOFA). Builders would now no longer be able to sell flats to buyers on the basis of the super built-up area. The amendment provides that builders must sell flats on the basis of the carpet area.

7.2 Builders normally sell flats on the basis of super built-up area or built-up area. The differences between the three types of areas are as follows:

Carpet Area : It is the internal area of a flat. It is the wall-to-wall area of the flat.

Built-up Area: It covers  walls  and balcony  also.

Super Built-up Area: It includes the lobby, passage, elevators, fire fighting area along with the total utility. In other words, it covers common areas too. Sometimes, even the garden is included.

In some cases, the built-up area is 20% of the carpet area and the super built-up area is as high as 40% of the carpet area. However, these figures are subjective and vary from builder to builder and in some cases even building to building. Thus, there is a great deal of confusion in the flat purchasers’ minds who are often unable to understand the exact difference between carpet area, built-up area and super built-up area of a flat. The amendment would remove all such ambiguities. Any violation of this act can mean a 3-year imprisonment for the builder/promoter, proposed as per S. 13(A) of the Act.

7.3 While the amendment provides that developers can “sell the flat on the basis of the carpet area only”, they may separately charge for the common areas and facilities in proportion to the carpet area of the flat. Hence,  they  can continue  to charge  for common  areas  and  facilities  like staircases,  lobby and lift as per the super  built-up area concept.  The only caveat is that the buyer must be made aware of the cost of the carpet area, which is the net usable wall-to-wall area of the flat.

8. Reverse    mortgage    scheme:

8.1 A few months ago, National Housing Bank (NHB), the housing finance regulator, announced the final operational guidelines on reverse mortgages. A reverse mortgage product seeks to monetise the house as an asset and specifically the owner’s equity in the house. The scheme involves senior citizen borrowers mortgaging their property to a lender, who makes periodic payments to borrowers during their lifetime.

8.2 A senior citizen who is living in his own house may obtain a reverse mortgage loan (RML) and have a recurring income by mortgaging his house to banks or other financial institutions. He can also be a joint borrower with his spouse, provided at least one of the borrowers is above 60 years. Thus, the minimum age limit for availing this scheme is 60 years.

The draft guidelines provided that in case of married couples being eligible as joint borrowers, both of them must be above the age of 60 years, but that has now been relaxed to include those couples where at least one of the borrowers is 60.

8.3 In the event of the death of the husband who may be the owner of the property, the wife – who may be a co borrower but not co-owner – will receive income. The lender will not evict the wife, but will modify the cash flow.

8.4 The recent Finance Act, 2008 has clarified that any transfer of a capital asset under a scheme of reverse mortgage would not be chargeable as capital gains. Further, the loan amount received by the borrower will not be included in the total income. The changes made in respect of ‘reverse mortgages’ have clarified doubts and has made the scheme workable.