It is concerning that many casual and oversimplified pieces of advice are seen floating regarding real-estate investments on social media. I am not a legal professional, but I have been involved in many property issues and thought of sharing some of my experiences here. This is not a recommendation of equity over real estate but just highlighting some interesting aspects of the law.
About the author: Manmohan Sethumadhavan is a freelancer, investor, and personal finance enthusiast “in search of the absolute truth.” You can follow Manu on Twitter @ManuTsr. Also, read his article: How to calculate LTCG with Grandfathering for equity shares that split – How to fill Schedule 112A. And Have capital gains and dividends? Correct this autofill while filing ITR!
Let us analyse what happens in equity investing. You place a purchase order to the stock exchange through your broker. Money is transferred from your bank to the broker’s, and from there to the Clearing Corporation (ICCL) which settles it to the seller through his broker. The shares are transferred from the seller’s demat account to ICCL, and from there to your demat account. Note that, in this process, the distinguishing identity of the shares are scraped off, i.e., you don’t know who the seller was, who are the previous owners, or what all had happened for the shares before. Normally, the transaction is final, and your shares will not be taken away due to any legal problems from the seller. It is the same for any instrument bought from the exchange or something like mutual funds, which is similar to buying some tomatoes from the market; you never know the farmer or the transporter, and in no way they will contact you.
But, this is not the case of immovable property or real-estate. It comes to you with all the burden of previous ownerships and other legal complications. Before going into that, let us see the important concepts of law.
- Right to property is a Constitutional right under Article 300A; no one can take away someone’s right in a property, even if it is transferred or mutated.
- Rights in property are automatic even if not claimed, recorded or mutated properly. This means that rightful claims to the property remain intact, regardless of any administrative oversights or errors in officially documenting the ownership, or even if there is an erroneous court order.
- When you buy a property, no agency or government guarantees you a proper title. In line with the principle of “Caveat Emptor”, which means “let the buyer beware”, it is the buyer’s responsibility to verify the title and any potential disputes. The title deed is a proof of transaction, not a proof of title.
- You never get a better title than the previous owner. If a person buys a property from someone who does not have a clear title to the property, the buyer will only get the same title that the previous owner had, irrespective of whatever has been written in the document.
- Land records, the concepts, methods and laws, are entirely different in different states of India, and even areas within the states too. Personal laws and inheritance are too complicated and are different for sections of the society, and at different places in India. Most of the laws are designed for a time when people resided within a village and knew each other. There are positions in law that are still unsettled. All these can have an effect on your property.
See some situations below to realise how complicated things are. These are not hypothetical ones, but cases which I had personally dealt with. The names are changed and events are simplified.
- Sunil died. Wife Preeti is the only legal heir. She sold the property to Krishna in 2015. Four years later, Latha raised a claim, and Krishna’s property was attached. Sunil had married Latha first, which many don’t know. Their marriage was not registered, and was not dissolved through a court either, still valid under the Hindu Marriage Act. The second marriage is invalid, Latha is the only successor. Krishna’s property is lost.
- Sunil died. Wife Preeti, son Kiran, mother Sita are the legal heirs as per Hindu Succession Act. Sita sold her share in the property to Krishna. Few years later, Preeti and Kiran also sold their share to Krishna. Years later, Preeti and Kiran raised a claim in Krishna’s property and it was attached. Sunil had married Maria decades ago under the Special Marriage Act, and Maria passed away after a short period. Later Sunil married Preeti and no one was concerned about the past. But the succession of property of a person married under SMA will be regulated by Indian Succession Act (forever) and not by the Hindu Act. Even if they divorce, or the spouse dies, the rights are not reverted back to personal laws. Under ISA, the legal heirs are wife and son only, not mother. Mother actually didn’t have a right, and the whole property belonged to Preeti and Kiran. Krishna suffered a loss.
- There was a divorce case between Sunil and Preeti, which was concluded. Days later Sunil died. Sunil’s brothers, the legal heirs, sold the property to Krishna. Few years later, Preeti raised a claim in Krishna’s property and it was attached. In the divorce case, since the Judge was on leave, the order was dated 6 days after Sunil’s death. Preeti came to know this later. So, at the time of Sunil’s death, Preeti is still his wife, and she alone is the legal heir of Sunil. Krishna lost his property.
- Father died. Two sons are legal heirs. They sold the property to Krishna. 5 years later, Kiran raised a claim and property was attached. Kiran was the third son, who had left the home in childhood, which very few know. Krishna suffered a loss.
- Krishna bought a property from Sunil and built a house. 8 years later, Govt. seized the property. Sunil had lands in different villages, the total which had exceeded the land ceiling limits. It was under impression that it is under the limits, but Sunil, who was cultivating coconut, had changed to arecanut. Yes, the limits are based on the crops! Krishna lost his property.
- Mother died decades ago. Two daughters are legal heirs. They sold the property in 2016 to Krishna. Rahul raised a claim in the property in 2020 and was attached. Rahul was the son of one of the daughters, and was born in Nov 1976, days before Kerala Joint Hindu Family System Abolition Act, and hence he also has a right. Krishna would suffer a loss.
- Four flat complexes in Kochi; 345 apartments; 310 of them had availed housing loans from banks after all legal scrutiny by professionals. One morning, all the four were demolished using explosives, following an order from SC, due to violation of CRZ rules. All the owners suffered the loss; not banks.
- Sunil died in 2016 leaving a Will registered at Kochi in 2002 in favour of niece Radha. Radha sold the property to Krishna. 3 years later, Rahul raised a claim and property was attached. Sunil had registered another Will at Patiala in 2012, when he was residing there, in favour of Rahul, his nephew, which no one knew. The latest Will stands valid. Krishna lost the property.
- Antony and Susan, an old couple, died 10 years ago in an accident, no children. Property of Susan goes to her 14 relatives. All of them sold it to Krishna. 5 years later, 19 people filed a claim and property was attached. Antony had died one day after Susan. One half of Susan’s property would go to husband Antony, and only the other half to her relatives. Next day when Antony dies, that half would go to Antony’s relatives. Krishna suffered a loss.
- Sunil died. No children. Wife Neha only legal heir. Neha sold the property to Krishna. 3 years later, Sunil’s siblings raised a claim and property was attached. Neha was from a different religion which many people didn’t know. They married decades ago in a Temple and registered in the local government. Inter-faith marriage is invalid unless registered under the Special Marriage Act. Neha is not a legal wife and has no inheritance. Krishna lost the property.
- Amir died. No children. He had married under the Special Marriage Act. Wife Preeti and one brother Salim are legal heirs. Both sold their respective shares to Krishna in 2015. Now Salim says that he owns full share, and that share sold by Preeti is invalid. Hon.HC of Madhya Pradesh and the Hon.SC, recently ruled that if the husband is of one particular religion, inter-faith marriages registered even under Special Marriage Act is invalid. After 30 years of marriage, it is now argued that Preeti is not a legitimate wife, and hence no inheritance. Krishna may face a loss.
- Sunil died. Had written a Will in favour of a minor nephew. The minor’s father obtained an order under the Guardians and Wards Act from court. The property was sold to Krishna. Years later, the minor, on attaining majority, raised a claim, and Krishna’s property was attached. There were complicated issues in the minor child’s family. It was not the actual father of the minor that was present before the court; the process was manipulated. Krishna lost the property.
- Krishna bought a property from Sunil which was self-acquired. Next month, the property was attached following a court order. Sunil had a family dispute with his wife in a court 300 kms away, which had jurisdiction since they had resided there. Wife had sought attachment of the property, for which orders were issued. The order came late, before which Sunil sold the property. Krishna lost the property.
In all these cases, proper legal-heirship and other certificates were obtained and legal scrutiny was done by professionals. The seller with a defective title, does not necessarily be the immediate seller, the defect could originate from any of the previous owners of the property. There can be such circumstances which cannot be anticipated by any professional. Of course one can file a case against the seller and try to recover the loss, which may take a long time, or may not be possible at all.
What can be done?
- Understand the risks, and that there can be risks.
- Take calculated risks only.
- Take expert legal advice, don’t simply depend on your bank loan team.
- Understand the limitations of such advice.
- Diversify properly.
- Don’t put your entire life savings in a dream home project.
- Statutory warning: Equity investments are subject to market risks. Real-estate investments are subject to many other risks.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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