Resale market on a roll

Vinod Behl

While the landmark reform of RERA has regulated the primary real estate market, bringing in the much needed transparency, the fragmented secondary market, in the absence of regulatory reforms, continues to face challenges as a result of which its immense potential is not being realised.

Boost in secondary sales

The $15 billion secondary real estate  market covers over 50 million housing units. The scale of the secondary market transactions can be judged from the industry statistics that top 10 cities have about 340 sub registrar offices, registering over one million property documents a year. The greater the size of the secondary market, greater are the challenges that it faces. A recent  FICCI-Grant Thornton-Escrowffer survey fully highlights these challenges. Majority of the buyers of resale property are worried about the authenticity of the deal, credibility of brokers and about the ways to mitigate financial risk in the transaction. Background legal check of resale property is a major challenge before buyers and they run the risk of losing their money paid to the seller in cash or through  cheque. Finding the right property at the right place is another challenge.

In the backdrop of this report, Neeraj Sharma, Director, Grant Thornton Advisory calls for regularising  secondary market by streamlining the underlying processes through policy interventions.

Especially as the secondary market has its own merits such as no delays in getting possession and the opportunity to clearly see what you are buying and paying for.

The key reforms like Demonetisation and RERA, though initially created disruption, yet they had an overall positive impact on the secondary market, bringing in a semblance of sanity. Demonetisation helped in putting an end to inflated pricing due to speculative deals, involving  unaccounted cash  A recent Knight Frank India report points out that there was 4 per cent YoY decline in prices during H1 2018.   Santhosh Kumar, Vice Chairman, Anarock Property Consultants, says, “Compared  to 30-50 per cent of cash component in pre- demonetisation period, cash payments reduced significantly after demonetisation. Particularly in investor- driven markets like Delhi NCR, homebuyers benefited from 10-20 per cent drop in prices. Moreover, there were 10-12 per cent more buyers in the secondary market”. 

Another significant impact of reforms was the hike in secondary market transactions. In the Delhi-NCR market, according to FICCI-Grant Thornton- Escrowffer report, secondary market transactions soared to 72 per cent against 28 percent primary market transactions in 2017-18.

Challenges to tackle

Despite the positive impact of reforms, secondary market is still bogged down by challenges. As the biggest challenge pertains to property titles, legal experts call for digitising property titles of at least first property transactions in secondary market, to begin with, because this will help bring down litigation and legal costs and reduce the over all process time. Tarun Bhatia, Trasurer, National Association of Realtors (NAR-India), says, “In the absence of uniform brokerage fee and due to the lack of standardisation of agreements, there is a lack of trust between property buyers and realtors, often leading to transactions falling through”. In view of this, NAR India is developing standard formats for contracts, encouraging its members to follow these agreements to sell or lease properties. It is another matter that 20000 members of NAR India form a small part of the over all number of brokers.

How tech can save the day

Technology can play a major role in tackling the challenges faced by the secondary market and giving it the much needed boost. Use of escrow mechanism can protect all the involved parties — buyers, sellers and brokers. Gurugram-based Trust More Technologies has launched India’s first online secure neutral escrow account for secondary properties and it has got an overwhelming response. Says AshwinChawwla,CEO, Trustmore, “Escrow does not recognise blackmoney and promotes cheque payments. It is heartening that cities like Bengaluru and Pune have moved to all cheque regime. Further, blockchain technology can play an important role. Government should open its data bases for verification of users, title checks, creating a family tree of each property, Aadhaar linkage etc to ease property buying and selling in secondary market”. Yatin Sharma, COO RE/MAX India adds that escrow mechanism by ushering in transparency in the ecosystem, will help bridge trust deficit between brokers and buyers. In secondary market, buyers run the risk of losing 10 per cent of the property value as an advance to the seller, in case the deal falls through, leading to litigation”. It is here that escrow account comes in handy as broker will get money only after completion of transaction. We have entered into an agreement with Escrowffer to facilitate our members use escrow mechanism”, says Ravinder Aggarwal, President, Accredited Realtors Association of India (ACRI).

Need for single licence fee system

Going forward, it is suggested that in order to boost secondary market, the government , in line with global standards, should introduce a single license fee for property agents across the country and transaction cost should be brought down by subsuming stamp duty in the GST. Sums up Ashwin Chawwla, “We expect government to extend RERA to secondary market and make escrow accounts mandatory for secondary market transactions. Further, title insurance, property management and property diligence, will prove to be game changers”.