A frequently asked question by many home buyers is –“Can I buy a property from the first owner who does not have a sale deed in favour of him?” Simply put, this question means if a home buyer can buy an unregistered property? In this guide, we tell you why buying unregistered properties is a big financial mistake although you are made to believe otherwise by offering such properties at costs that are cheaper than the market value.
What is an unregistered property?
A property that has not been legally registered in the government book of records by paying the stamp duty and registration charges is known as an unregistered property. This can be a resale property or a property that is owned by a fly-by-night developer who would not have got any authorised permissions while constructing the property and hence it may be an illegal building altogether.
Why do people not register their property?
- Stamp duty and registration charges are a major revenue generator for the states. These money have to be paid over and above the cost of the property. While stamp duty is around 6-7% of the property costs in many states, the registration charges is around 1-2%. To save on this cost, many people delay or don’t proceed to register their property.
- If the property has not complied with the blue print during construction, there is every possibility that this will be flagged during property registration.
- With an intent to fraud, there are people who sell unregistered properties that may have no clarity on who the owner is and may also have liabilities attached.
What happens if property is not registered?
Mentioned are risks associated with buying an unregistered property.
- There is no history of ownership available that can be used for legal purposes.
- Since the registration deed is absent, there is always a danger of any person – legitimate or even a fraud claiming ownership.
- Since the property will be unregistered in the government records, tax benefits cannot be availed by the property owners.
- In case you plan to register an unregistered property in future it will be a difficult and tedious process with many documents being asked for – some of which you may not even be able to furnish.
What is the difference between registered and unregistered property?
| Registered property | Unregistered property |
| A registered property is legally registered by paying stamp duty and registration charges. | A property is unregistered when no stamp duty and registration charges are paid to the government to include it in the government book of records. |
| The records are present with the government and hence ownership is clear. | No record exist. Hence, ownership is unclear in an unregistered property. |
| Only after proper verification of all property documents at the sub registrar’s office, the registration takes place in the presence of the buyer, seller, and witnesses. | No such activity takes place. Hence, the validation of the property doesn’t occur. Also, many people do not register the property is the project is constructed without being compliant to government norms and does not have the required permissions in place. |
| A property, which is registered, is protected under law in case of disputes. | An unregistered property is not protected under law in case of disputes. |
| These will not have any undisclosed liabilities as they must be settled before the sale and registration of the property. | These will have undisclosed liabilities which may trouble the property owner later. |
Is it safe to buy unregistered flats?
Irrespective of the place, it is unsafe to buy unregistered flats because of the following reasons.
- No owner: In case of an unregistered property, there is no owner. This will lead to problems for the buyer in future if some person claims ownership by showing fake documents.
- Problems in securing funds: Most people buy a property with the help of a home loan. In case of an unregistered property, there may not be any proper document that shows its legal standing. Thus, getting finances for an unregistered property may be problematic.
- Encumbrances: As the title is not registered, these have many unpaid property taxes and other encumbrances that will also be the responsibility of the new owner. The property may also have litigations against them which will have to be faced by the new owner.
- Difficult to sell or rent: Since the property is not registered, you may find it difficult to rent in case you want to register your rental agreement. In case you decide not to register the rental agreement and notarise it, you may run the risk of an errant tenant who may forcefully occupy your property. This will be a double hit as you may end up with an unregistered property and now a tenant who has also unlawfully occupied it. Also, if you wish to sell this property in future, you may find it difficult to sell the property. You may also incur a loss if you may need to sell it below the market price and through illegal means which is risky and should be avoided.
- Difficult to legalise: With no proper documents and previous ownership details, it will be difficult to legalise and register the property. This project will also involve spending a huge amount of money (which ideally the seller from whom you bought the property should have spent.)
- Risk of loss of ownership: There is an increased risk of loss of ownership since the government can easily acquire an unregistered property for any infrastructural development project. Also, in case of this, the person to whom the unregistered property belongs to will lose on the compensation as the property is unregistered.
Is it legal to sell an unregistered property?
No. Selling an unregistered property under Transfer of Property Act is illegal. Only after a property is registered under government records it can be sold.
Can I get a home loan for unregistered property?
While you may get a home loan for unregistered properties, getting them is not easy like in the case of registered properties. While disbursing home loans for properties, banks follow a standard operating procedure (SOP), which cannot be followed in case of unregistered properties. Thus, they apply far more stringent measures in case of unregistered properties.
- Enquire with banks/financial institutions if they disburse home loans for unregistered properties. Most banks require registered property documents to give you a home loan, which in this case is missing.
- If you get a loan from any financial institution (most institutions will give personal loan and not a home loan), it will be less than the home loan that any registered property would get. This will mean that you may have to make a larger down payment that may affect your personal financials. Also, there will be a higher rate of interest on loan of unregistered properties.
- You may not be able to avail any tax benefits for the home loan you take as the loan may in the first place not be a home loan.
- Financial institutions may ask for extra guarantees against loan amount in the form of some of your assets, co-signers, guarantors, etc.
How can I register my old unregistered property in India?
- Find out the previous owner of the property. In case, the owner has passed away, find the legal heirs, and get them to execute a sale deed in your name.
- If the previous owner refuses to execute a sale deed, you may have to file a declaratory suit that should mention that the property belongs to you/your father/your ancestors had paid the full consideration and stamp duty for the property, but seller didn’t visit the SRO to register the property and transfer the ownership.
- Finally, if you are living in a property for more than 12 years and no one claims the property, you can submit a legal application stating that you have been staying here and under adverse possession, the ownership rights should be transferred to you.
Step by step process to register unregistered property
- Go to the sub-registrar office with all property related documents.
- Once registered, you will get a set of new documents that will bear the new owner’s name.
- Pay the stamp duty and registration charges for the property and get it legally registered in your name.
Housing.com POV
According to a post on Quora, a home buyer asked, “How do I proceed while buying an unregistered flat where there has been a sale agreement as well as payment between the now “seller” and the developer (who still is the owner) and sale deed and mutation has not happened?” In this case, while the buying of the property may be a good deal monetarily, it is unwise if the seller has not got the property registered and the title of the property on his name. In such a case, you may face a situation when later the developer may claim to be the legitimate owner of the property, leaving you in a tricky situation. Note that real estate is a very expensive investment and requires due diligence of the highest level done. Another point to remember is that agreement to sale and sale deed are two different things and one shouldn’t get fooled because of this.
FAQs
Can one sell a property not registered?
Yes, one can sell a property not registered but it cannot be transferred under the buyer's name legally due to absence of legal records.
Is the transfer of ownership recognised in case of unregistered properties sale?
No. In case of properties not registered, the transfer of ownership is not done.
What is the validity of an unregistered sale agreement?
The validity of an unregistered sale agreement is three years from the execution date.
Is it mandatory to register a sale agreement?
Only when the sale agreement is registered, it will be valid in the court of law.
Can unregistered property documents be admitted as evidence during a property dispute?
No, unregistered property documents cannot be admitted as evidence during a property dispute.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |