Will licensing brokers save you from fraud?
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Will licensing brokers save you from fraud?

The recent government proposal to grant licences to property agents is expected to make the realty market more organised and prevent cases of cheating

realestate Updated: Jul 25, 2014 17:48 IST

Nishat Khan, an investor, booked two apartments in Gurgaon through a broker in 2012, who promised him a 2% commission which helped Khan maintain cash flows in the short term. However, instead of getting a proper letter committing the 2% commission, Khan got a bogus note, which should have warned him of the broker’s premeditated intention to cheat. The case is currently with the Economic Offences Wing in Gurgaon.

And that’s not all. There have also been cases of brokers issuing postdated cheques to buyers and then filing a report of cheque book theft with the police, absolving themselves of all responsibility.

Delhi tops list of property fraud cases

In Delhi, as per the National Crime Records Bureau (NCRB) around 181 cases of loss of property were reported during the year 2013. The worth of properties is estimated to be around `3,000 crore. At least eight cases were for loss of property under the category criminal breach of trust. These were for properties worth `1 crore to `10 crore. Under the category of cheating, there were 102 cases for properties worth `1 to 10 crore, 43 cases of cheating for properties worth `10 to `25 crore and 22 cases of cheating for properties worth `25 to `50 crore. There were three cases of cheating for properties worth `50 to `100 crore and three cases for properties above `100 crore. Maharashtra came a close second with 176 cases (worth `1,600 crore) and Punjab with 82 (worth `500 crore) cases of property fraud.

Will including brokers in RERA help?

To protect homebuyers from unscrupulous property agents, the ministry of housing is planning to make it compulsory for real estate brokers to get registered with the proposed real estate regulatory authority (RERA). It also plans to expand the purview of RERA to cover commercial as well as residential real estate.

Real estate agents will now have to get registered with the proposed real estate regulatory authority and get a licence (renewed periodically) before they set up shop. If the broker were to commit a fraud, the licence can be cancelled – as is done in Dubai and Singapore. It also means the end of the fly-by-night property agents.

Honey Katyal, CEO, Investors Clinic says that it is a welcome move as brokers will be made more accountable for property deals by getting a service tax registration code and a licence from the government and paying service tax to the authority. Now they get just a dealer code from the developer. The real estate market is also going to get more organised.

“The fact that a licence can be cancelled if the broker were to indulge in fraudulent activities will instill fear in the minds of the broker community,” he says.

S K Pal, a Supreme Court advocate, says that since brokers play the most important role in the supply chain – they are the first point of contact before the buyer finalises a property deal – they ought to be made accountable.

In most cases, when problems arise with a project, the broker simply washes his hands off the entire deal. That’s primarily because he has received his commission and the matter is closed.

If brokers are regularised and their licences renewed from time to time, they will be brought under the tax net and will also have to pay licence fee to the government which means revenue for the latter, Pal adds.

The move will help regulate black money, increase revenue collection, strengthen the system of brokerage. Pal cites an example of a doctor who booked a property worth `80 lakh in the NCR. The broker he had invested with had promised him a free ticket to Dubai but the trip never materialised because the broker did not get his commission from the builder. The matter went to court.

“A qualification bracket can also be brought in. The message of the government is clear – strengthen the house buying process by bolstering the confidence of the investor. Regulating them is essential because the broker is always in a better position for collective bargaining with the builder as he does block bookings for them,” says Pal.

In the long run, the role of brokers can be enlarged to that of agents who can sell Real Estate Investment Trust (REITs) in the future; they can also operate seamlessly anywhere in the country. What this means is that the marketing cost of builders can come down drastically.

But will bringing brokers under the ambit of RERA create another pile of files on property disputes? This argument does not hold water as initially files may pile up but in the long run, as the market gets regulated, agents who are found to have indulged in fraudulent practices, will be ejected from the system and cases of fraud will come down drastically, adds Pal.

Realty brokers in singapore - how they work

Namrata Pande, director of Property Links (acquired by Investors Clinic) in Singapore, says there are at least 30,000 real estate brokers for the five million population in that country, and all of them have to register with the Council for Estate Agencies (CEA) in Singapore. “It is a statutory board, the principal functions of which are to license the estate agents (referring to the estate agencies) and register salespersons (referring to the property agents), promote the integrity and competence of estate agents and salespersons and engage in public education efforts to help consumers in property transactions.” As the property market is highly regulated, Pande has had to clear an exam for operating as a licensed agent in Singapore. “There are two licences that you require to operate in Singapore – a state agent licence and an agency licence that allows you to work with a property agency,” she says.

Also, if a broker was involved in a resale transaction of a property constructed by the Housing and Development Board (HDB), which looks after public housing in the country, the name of the agent who sold the property or who facilitated the deal will always be there in the agency’s record books. For every realty transaction that takes place, there are two brokers and two lawyers (from both sides) who are involved. Their licence
numbers are also mentioned in the property documents.

First Published: Jul 25, 2014 17:21 IST