Abnormal Increase in Registration Cost for Home Buyers in Tamil Nadu CREDAI Chennai

The members of all the Associations from across the State of Tamil Nadu, are writing to express our deep concern and disagreement with the recently announced single agreement system with composite valuation methodology for apartments, both High Rise Building (HRB) and Non-High-Rise Building (NHRB), as announced by the Tamil Nadu government and implemented from December 1, 2023, vide G.O. No. 131. We believe that this system will have a detrimental impact on both homebuyers and the real estate industry as a whole.

It’s noteworthy that the Single Document System has faced legal scrutiny, with the Honourable Supreme Court striking down its validity in the case of Park View Enterprises vs. State Govt of Tamil Nadu.
Our primary concerns with the current system are as follows:

Issues in the process of bringing Composite (Land + Building) Single document immediately:
The composite values published by the government appear arbitrary and lack a clear scientific basis.
The implementation of the Single Document System, effective December 1, 2023, lacks the essential groundwork required for its seamless execution.
The system, designed to be based on a composite value comprising both land and building assessments, demands a meticulous fixation process.
This elaborate procedure necessitates the expertise of a Central Valuation Committee, adhering to due protocol. As per Sec 47AA of the Indian Stamp Act, the valuation sub-committee shall on receipt of the instructions publish the intention of such estimation or revision, as the case may be, in the local newspapers and also on the notice board of important offices. A period of 15 days may be allowed for receipt of objections and suggestions from the public and all such suggestions and objections so received shall be considered by the concerned District Registrars and placed before the valuation sub-committee for discussion.

None of the work of the central valuation committee that should have been done has been duly followed before the changes were made.
Even the registrars, responsible for handling document registrations, find themselves without clear guidelines on how to process documents related to apartments as this has been introduced on such short notice without any application of mind.

Unrealistic Composite (Land + Building) Valuation Rates:
The composite rates set by the government, apparently as per the G.O. 131 aligned with the Karnataka rule are also false.
Karnataka has a uniform 6.5% rate.
While Tamil Nadu employs a tiered structure:
• 6% for properties below Rs 50 lakhs.
• 7% for those between Rs 50 lakhs and Rs 3 crores.
• 9% for properties exceeding Rs 3 crores.
The argument of the Government of Tamil Nadu is that this has been done so that the low-cost houses and their home buyers are burdened less by this tiered structure. While the explanation looks very convincing on the overall outlook, in reality, the arithmetic is not in favour of the home buyer. The consequence is that the Home Buyer ends up paying more than what he was paying prior.

The resulting confusion has prompted questions in the Home Buyers’ minds about the true intention of the Government of Tamil Nadu and the tangible outcome of benefits, if any.

These unrealistic valuation rates set by the government pose a direct impact, as homebuyers will hesitate in their purchasing decisions.

Fixation and Categorization:
While the Government is reversing the decision of these three categories of “Basic,” “Premium,” and “Ultra-Premium” based upon the interactions that they had with all Association office bearers on 14 Dec 2023, we still have concerns over the fixation values.

We have clearly given our opinion in the meeting with the Honorable Minister, Secretary, and the IG registration of the Commercial Tax and Registration department that if at all we have to go with the composite model, then the developer doing the fixation with the local registration office for every site will be the best way to go about.

The Government doing streetwise fixation will again bring in a lot of confusion. This was highlighted in the meeting with a simple example. The valuation from one end of the street to the other end may not be the same if there is a public toilet or a TASMAC shop so to say. Ideally, only the developer will understand the market realities to help arrive at a fixation value.

The below Illustrative examples further underscore the financial burden on homebuyers:

i. Before March 2023
No increase in GLV
9% Stamp Duty + 2% Reg. Charges (11% on UDS)
1% Stamp Duty + 1% Reg. Charges (2% on Con. Agreement)

ii. 1 April 2023 – 31 May 2023
33% GLV Increased
7% Stamp Duty + 2% Reg. Charges (9% on UDS)
1% Stamp Duty + 1% Reg. Charges (2% on Con. Agreement)

iii. Between 1 June 2023 – 30 Nov 2023
GLV Remains
7% Stamp Duty + 2% Reg. Charges (9% on UDS)
1% Stamp Duty + 3% Reg. Charges (4% on Con. Agreement)

iv. 1 Dec 2023 Onwards
Fixation
Composite Valuation
6%, 7% and 9%

These concrete examples vividly highlight the considerable spike in registration charges under the new composite (Land + Building) valuation methodology coupled with fixation and categorization, challenging the Government’s claim of reducing prices for homebuyers.

Executed Construction Agreements that have been registered Pre-December 2023 and Sale Deed yet to be registered !
The lack of clear directives from the government has placed all existing Construction agreement holders, representing a significant number of homebuyers, in a state of uncertainty and potential jeopardy.

With a substantial number of existing Construction agreement holders affected, the ambiguity surrounding the revised property registration system raises concerns about the legal and financial implications for these Home Buyers.

Lack of clarity on Sale Agreements Post-December 2023.

In a composite format (Land + Building) registration, the sale deed cannot be executed to the Home Buyer before the completion of the building.

In Karnataka, there is a Rs 20,000/- flat fee as a registration charge for a sale agreement when a Home Buyer purchases a home at the beginning of the project. The sale agreement fee is set off when the final sale deed is executed in favour of the Home Buyer.

In the new G.O. 131, there is no mention or clarity of sale agreements at all.

Any new sale of homes post-December 2023, now cannot be executed until the project is completed and ready for handover. Under construction new homes cannot be purchased and Home loans cannot be availed as per the new G.O. 131.

Stakeholder Consultation:
Contrary to recent statements from the Commercial Taxes and Registration Department regarding consultative meetings with builders’ associations, including CREDAI and
Circular No. 45438/L1/2023 which mentions that on 27.07.2023, 07.09.2023, and 12.09.2023 CREDAI was consulted, and a consensus arrived is completely false and untrue.

We would like to clarify that the opinions and concerns raised by CREDAI Chennai were not at all considered and have been completely ignored in the decision-making process.

While the meetings were convened to discuss the possibilities of implementing a new Property Registration system in Tamil Nadu, the Home Buyers’ interests have been completely overlooked.

This lack of transparency from the Government side has resulted in a system that is not aligned with the realities of the market.

Consequences for Homebuyers:
The implementation of this system will have a severe negative impact on homebuyers, particularly middle-class and first-time buyers, who will now be priced out of the market. This will lead to a decline in housing affordability and a decrease in the overall demand for homes.

It is evident that, in its eagerness to enhance revenue, the Registration Department is expediting significant changes without fully contemplating their implications. This rush with one week’s notice has raised uncertainty and challenges for both the department and the public alike.

We strongly urge the government of Tamil Nadu to reconsider the current composite valuation methodology, address the concerns outlined in this representation, and work collaboratively with stakeholders to develop a more efficient and equitable system.