When buying a property, the legal and financial aspects of the same become very important, particularly if it is a GPA property. GPA properties seem like a really easy source of investment, but they usually end up becoming a very important hindrance in availing bank loans. You actually need to know the GPA property, its non-availability from banks in lending against GPA, and other knowledge before making an investment.
What is GPA Property?
GPA property is property that is acquired using General Power of Attorney. The original owner does not directly transfer ownership through a deed of sale; rather, he or she gives it to another person to manage, sell, lease, or otherwise handle the property.
General Power of Attorney: a written document that gives one person the right to do anything for another in property matters.
Nature of Transfer: The GPA is not a title document, it only gives the authority to act on behalf of the owner.
Why Are GPA Properties Common?
Circumventing Regulations: GPA transactions are often used to avoid stamp duties and registration charges involved in formal property transfers.
Flexible Agreements: They are a popular choice in unapproved colonies or areas where formal property registration is restricted.
Interim Arrangements: Some buyers use GPA agreements as temporary ownership until legal issues with the property are resolved.
Why Do Banks Deny Loans on GPA Properties?
Banks consider GPA properties legally insecure and risky for lending due to the following reasons:
No Clear Ownership
A GPA does not confer ownership rights. Since banks require collateral with unambiguous legal ownership, they reject loan applications against such properties.
High Risk of Legal Disputes
GPA transactions are prone to disputes, as the original owner can revoke or contest the power of attorney at any time.
Such disputes create uncertainty about the buyer’s claim to the property.
Violation of Legal Norms
The Supreme Court of India has ruled that GPA agreements do not convey title or ownership. Buyers must register the sale deed to establish legal ownership.
Unregistered Nature
In most cases, GPA properties are not formally registered with the local authorities, making them non-compliant with real estate and banking laws.
Market Uncertainty
GPA properties are often in unapproved layouts or unauthorized colonies. These properties are risky investments, further discouraging banks from financing them.
Can GPA Property Owners Secure Loans?
If you own a GPA property and want to secure a bank loan, here’s what you can do:
Convert GPA into Sale Deed
Register the property by executing a proper sale deed or gift deed to establish ownership.
Pay the applicable stamp duty and registration fees.
Obtain Clear Titles
Resolve any pending legal disputes or encumbrances to make the property legally sound.
Explore Non-Banking Lenders
Some non-banking financial companies (NBFCs) may offer loans against GPA properties, but typically at higher interest rates.
Legal Consultation
Consult a real estate lawyer to understand the legal standing of your property and potential remedies to formalize its ownership.
Key Takeaways for Buyers
Do Thorough Due Diligence
The title of the property must be clear, and the sale deed should be registered before buying it.
Avoid GPA transactions unless you are aware of the legal implications.
Understand Loan Requirements
Banks require collateral that is free from legal ambiguities, has clear ownership, and is formally registered.
Know the Risks
While GPA properties may appear cheaper, they can result in significant legal and financial challenges.
Conclusion
GPA properties, while a common feature in India’s real estate market, come with significant legal and financial risks. Banks’ refusal to offer loans against such properties underscores the importance of clear ownership and proper registration. Buyers should prioritize due diligence and formalize their ownership to secure their investments and access financial support.
Before investing, ask yourself: Is the temporary convenience of a GPA property worth the long-term risk?