UNIT 4 REAL ESTATE MANAGEMENT

Structure
4.0 Objectives
4.1 Introduction
4.2 Meaning and Definition
4.2.1 Understanding Real Estate Management
4.3 Types of Real Estate Management
4.3.1 Residential Property Management
4.3.2 Commercial Property Management
4.3.3 Industrial Property Management
4.3.4 Special-Purpose Property Management
4.4 Environment Protection
4.4.1 Environment Protection Act, 1986
4.4.2 The Air (Prevention and Control of Pollution) Act, 1981
4.4.3 Wildlife (Protection) Act, 1972
4.4.4 Water (Prevention and Control of Pollution) Act, 1974
4.4.5 Hazardous waste (management and handling) Rules
4.4.6 Coastal Regulation Zone Notification
4.4.7 Forest Conservation Act 1980
4.5 Regulatory Authorities
4.6 Lease
4.6.1 Definitions
4.6.2 Types of Leases
4.6.2.1 Full Service Lease or Gross Lease
4.6.2.2 Net Lease
4.6.2.2.1 Single Net Lease:
4.6.2.2.2 Double Net Lease:
4.6.2.2.3 Triple Net Lease
4.6.2.2.4 Absolute Triple Net Lease
4.6.2.3 Modified Gross Lease/Modified Net Lease
4.7 Ownership
4.7.1 Individual Property Ownership
4.7.2 Joint Property Ownership
 4.7.2.1 Tenancy in Common
4.7.2.2 Joint Tenancy
4.7.2.3 Tenancy in Entirety
4.7.2.4 Coparcenary
4.7.3 Ownership based on Nomination
4.7.4 Fractional Ownership
4.8 Real Estate Portfolio Management
4.8.1 Clarify your Business Objectives
4.8.2 Regular Assessment of Portfolio
4.8.3 Allocation of budget
4.8.4 Asset Allocation and Diversification
4.8.5 Consulting the Professionals
4.9 Laws
4.9.1 The Indian Contract, 1872
4.9.2 Transfer of Property Act of 1882:
4.9.3 The Indian Stamp Act, 1989
4.9.4 Indian Registration Act, 1908
4.9.5 Real Estate (Regulation and Development) Act, 2016
4.9.6 Foreign Exchange Management Act, 1999 (FEMA) and Foreign Direct
Investment Policy (FDI)
4.10 Permits/Licenses/Approvals
4.10.1 Encumbrance certificate
4.10.2 Land use change permit
4.10.3 Zoning permits
4.10.4 Building sanctions and approvals
4.10.5 RERA certificate
4.10.6 EIA and Environment Clearance
4.10.7 Ground Water Boring Permission
4.10.8 Fire NOC
4.10.9 Certificates from Pollution Control Boards
4.11 Let’s Sum Up
4.0 OBJECTIVES

After reading this unit the students will be able to:

  Understand the meaning of real estate sector
 Understand the types of real estate businesses and various environment protection
laws in India related to the sector
 Define different types of lease and ownership in the real estate
 Learn how to manage portfolios in real estate sector
 Have an idea about the laws applicable, permits and licenses required for real estate
business in India
4.1 INTRODUCTION

To answer what is real estate management we can say it is the routine supervision of
residential, commercial, or industrial real estate infrastructure. Usually responsibilities of
real estate management include routine upkeep, maintenance and security of properties. Real
estate management involves working for the owners of real estate assets such as residential
and commercial buildings/complexes, housing societies, business and shopping centres and
industrial parks etc. Today, the utilization of Real estate management is aimed at various
types of rental properties, including residential and commercial properties. The Real estate
management involve oversight of all rental operations as well as the preservation of the
properties and also encompasses the buying and selling of the properties. A professional real
estate management firm looks after all areas of their clients’ properties, be it negotiating and
selecting the tenants or collection of rent from them. Their work also includes evictions when
needed and processing related paperwork as required by local laws. In short we can say that
real estate management is a one-stop shop for all the needs of prospective landlords.

4.2 MEANING AND DEFINITION

Real estate is a form of actual property and can be defined as infrastructure which comprises
land and its solid attachments means it’s something one owns and is a part of a set of a land.
It can be used for various purposes such as – residential, commercial and industrial purposes
and normally contains the water and mineral resources on the land.
Real estate is included among the most valuable assets of the people and acquires more value
with the passage of time. Appreciation in real estate is an indicator of sound economic health.
Today real estate market directly impacts a huge number of jobs worldwide.
In its most basic principle the real estate comprises a piece of land with some permanent
infrastructure affixed to it. Land and building is an indicator of any nation’s wealth in the
world economy and has been among the most sought after form of investment.
India has become a real home of real estate business. The true boom in real estate sector in
India came in March 2005 when government of India allowed for 100% FDI in the sector.
Real estate is playing an important role in our developing country in terms of shaping the
future of nation. This industry has evolved in India into divergent fields. The growing
 economy plays a significant role to the development of real estate industry which includes
investors-realtors, developers or builders, agents or middlemen, purchasers and sellers.
Acquiring real estate requires significant amount of capital. Real estate is very unpredictable
and irregular in nature in terms of value and price. Most of the time real estate players need to
value the business and assist the progress of transactions. There are many forms of real estate
business.

Professional Appraisal: Brokerages: Guiding purchasers

valuation services and sellers in dealings.

Property management: Development: Improving

Managing properties for Real Estate Business land by adding new or
their owners
replacing old buildings

Move management: Moving

people or business to different
locations.

Management in real estate sector involves setting a pricing policy, forecasting demand and
managing supply for housing and commercial properties.

4.2.1 Understanding Real Estate Management

The real estate industry contributes in economic growth and wealth generation in a huge way.
Beyond the definition, this business also encompasses the development of assets,
management of assets, owning, and selling of assets.

The following are the typical works of a real estate management firms:

 Managing day to day activities assigned by owners

 Preserving the worth of property while generating income
 Screening of tenants and filling the property with them
 Arrangement of necessary repairs and maintenance
 Preparing the lease documents and getting it signed by both the parties
 Collection of rent
 Renewal of lease agreements
 Drafting the budget for property maintenance and adhering to its provisions
 Having a thorough knowledge of state and national laws and regulations
pertaining to laws of tenancy
  Marketing properties
 Supervising other employees
 Handling taxes
 Buying and selling properties with the help of brokers, appraisers and other
external parties.

4.3 TYPES OF REAL ESTATE MANAGEMENT

Range of types of property is huge in this sector. Few real estate management companies
have different fields of specialization to offer management services for different types of
properties while others can provide a complete range of services to a range of property types.
The types of real estate management are discussed below.

4.3.1 Residential Property Management

Any property used for residential purposes. It includes the management of rental properties
and the rental process. It usually covers:

 Single-family residences
 Holiday rentals
 Multi-family residences
 Villas and bungalows
 Condominiums
 Housing complexes
 Duplexes
 Cooperative societies

4.3.2 Commercial Property Management

Any property used exclusively for business purposes. Commercial property management can
apply to:

 Lodging properties
 Retail sector - malls, restaurants, and gas stations etc.
 Offices - real estate brokerages or doctors’ cabins
 Shared-office spaces
 Hospitals
 Shopping centres, stores, theatres, grocery stores
 Offices, parking facilities

4.3.3 Industrial Property Management

Any property used for manufacturing, production, distribution, storage, and research and
development. It includes:
  Heavy manufacturing plants like - automotive facilities
 Medium and small manufacturing plants like - foodstuff packaging factories
 Warehouses
 Logistic facilities

4.3.4 Special-Purpose Property Management

This category covers various types of properties those are not covered into the categories
above fall under this category, such as:

 Theatres
 Sports stadiums
 Resorts
 Old age homes
 Educational institutions
 Temples and other places of worship

4.4 ENVIRONMENT PROTECTION

According to article 48A of Indian Constitution “the State shall endeavor to protect and
improve the environment and to safeguard the forest and wildlife of the country”.
Government has imposed a number of legislations to control the pollution and for
environmental protection. In our country real estate significantly contributes to environmental
pollution and greenhouse gas emissions. The development of construction sites creates huge
amount of water, land and air pollution. Data of World Economic Forum reveals that, apart
from contributing 40% of global CO2 emissions the built environment is responsible for a
massive amount of energy usage. Despite of a huge contribution to economy and
employability there is a need to promote sustainability and stricter compliances. Though
owing to growing awareness for environmental degradation the sector is coming forward to
tackle the threat of climate change yet a lot needs to be done to achieve the desired level of
compliance.

Let’s discuss the key legislations in India related to environment protection.

4.4.1 Environment Protection Act, 1986

This act was created and implemented by Indian government after adopting the principles of
conference on Human Environment by United Nations in June 1972 in Stockhholm. This
paved the way to implement India’s promises for conservation and protection of
environment. Overnight death of a huge number of people due to Bhopal Gas Tragedy in
1984 provided the real impetus to the process. Due to lack of legislation covering such
tragedies the people of the concerned company could escape which agitated the public
ultimately spurring the government into action.
The act is aimed at
 Ensuring the environment protection
 Controlling environmental pollution
 Enabling the govt. agencies/authorities to take strict action against the
violators.
 Raising awareness among the public for the deteriorating effects of
environmental pollution.

Provisions of this act allow it to take precedence over other acts. Which means that the EPA
1986 will be given the highest priority in case of multiple legislation, including this act, are
applicable for a committed offence?

Salient Features of the Environment Protection Act, 1986

EPA allows the Centre to take following measures for the protection of environment:-

 Coordination and execution of nationwide programmes and plans.

 Providing the mandate on environmental quality standards, especially related to the
production or release of environmental pollutants.
 Imposing restrictions on the location of industries.
 Examine and test the equipments and analyze the sample of water, soil and air or any
other material from any place.
 Set the regulatory standards for the limit for discharging environmental pollutants.
 Prior permission is required from the authorized government officials for handling
prohibited hazardous substances.
 The EPA Act empowers any person, along with concerned government officers, to
file a petition in a court of law regarding any contravention of the guidelines given in
the act.

4.4.2 The Air (Prevention and Control of Pollution) Act, 1981

To control air pollution there is a prescribed level for releasing particulate matter, sulfur
dioxide, carbon monoxide, nitrogen oxide, lead, volatile organic compounds (VOCs) or other
poisonous material and sources of air pollution like industries and power plants etc. have to
honour this limit. The quality of air is severely affected by the exploitation of natural
resources for manufacturing raw materials for construction. Construction sector is a
contributor to global warming and climate change through huge emission of green house
gases. The Act was put out to conserve the quality of air and to ensure that the level of air
pollution is under a controlled level.

Objectives of the Act:

  Avoidance, Control and reduction of air pollution.
 Formation of boards for the implementation of the Act at State as well as Central
level.
 To empower the boards to implement the statutes of the Act.

4.4.3 Wildlife (Protection) Act, 1972

This act prescribes strict regulations for protecting all wildlife, including both flora and fauna
and prescribes guidelines for declaration and notification of National Parks & Wildlife
Sanctuaries. It provides necessary guidelines to formulate wildlife advisory boards. There is a
ban on hunting of wildlife specified in Schedules I to IV of this Act. Protected plants are
included in schedule VI.

The act was amended in the year 2002 which lays strict guidelines for commercial use of
resources by local people. No infringement and construction of both commercial/residential
constructions is allowed on the places notified under Protected Areas. Forest produce are also
redefined just to ensure better protection of ecosystems. This legislation strives to limit the
encroachment into natural forest areas.

4.4.4 Water (Prevention and Control of Pollution) Act, 1974

This act aims to avoid, control and abatement of water pollution through preservation and
restoration of freshwater and to prevent the contamination of water from domestic,
agricultural and industrial wastewater. The act is framed to evaluate the levels of pollution
and make suitable provisions to punish the polluters. For effective monitoring of water
pollution, ‘Pollution Control Boards’ have been setup by both the Central Government and
the State Governments. These Boards are empowered to screen and remove the impediments
to the conservation and protection of country’s national water resources. Consequently all the
sectors which are highly water-intensive including real estate need clearance from these
boards to operate. These PCBs are empowered and have been delegated necessary powers, by
the government, to handle the problems related to water pollution. There is provision of
penalties for the violators of the act.

4.4.5 Hazardous waste (management and handling) Rules

As estimated by The World Economic Forum, out of total waste, in Europe, around 30%
comes from the real estate sector. The figure is quite similar to India. Hazardous waste is a
threat to the overall health of the population and it has explicit ramifications on the value of
the properties. This legislation provides ways for sustainable waste management practices,
safe handling, treatment and disposal of hazardous waste thereby creating green living
spaces. These rules were first notified in 1989. They were then amended in 2000, 2003 and
final notification was issued in 2008. Now these rules cover all aspects of discharge, handling
and destruction of hazardous wastes.

4.4.6 Coastal Regulation Zone Notification

India has 7500 km of coastal line. Government of India regulates construction of tourism
infrastructure, buildings and other developments in coastal areas through Coastal Regulation
Zones Notification. Notification issues guidelines on the types of developmental activities
allowed based o their distance from shore.

Government issued this notification in 1991, under Environment Protection act, 1986 for
protection and conservation of environment and ecosystem on Indian coastline. The
Notification was revised in 2011 and is amended from time to time on the basis of
representations received from various stakeholders.
Government formed a committee, in June 2014, to look into issues of Coastal States and to
recommend required changes in the notification revised in 2011. The committee conducted a
series of discussions with various stakeholders and in 2015 the chairman Dr. Shailesh Nayak
submitted the report of the committee recommending appropriate changes in the notification.
In December 2018, the Union Cabinet accorded approval to that draft notification. The
Ministry of Environment, Forest & Climate Change (MoEFCC) then notified new CRZ
norms in January 2019.
The act is administered by the ministry of Environment and Forests & Climate Change
(MoEFCC).

4.4.7 Forest Conservation Act 1980

The Forest Conservation Act came into force in 1980 to control deforestation, which was
further amended in 1988. It protected forestlands from being de-reserved without the
permission of the Central Government. Act places the restrictions on States to de-reserve the
reserved forests for development activities or for the use of non-forest purposes. The Act
provides suitable provisions to penalize the people involved in deforestation activities.

4.5 REGULATORY AUTHORITIES

Following are the regulatory authorities related to real estate sector in India

 Real Estate Regulatory Authority (RERA)

 The Ministry of Environment, Forest & Climate Change (MoEFCC)
 National Board for Wildlife (NBWL)
 National Green Tribunal (NGT)
 Pollution Control Boards
 Forest Settlement Officer and
 Coastal Regulation Zone Management Authority

Companies in real estate sector need due clearances from these authorities for any
development plan. Environment Clearance (EC) is essential to start a new project or
expansion of any existing projects. The Projects following the ‘green building rating’
considerations are given due priority for environment clearances.
4.6 LEASE

4.6.1 Definitions

In a simple term, we can understand that Lease is a written agreement made between a tenant
and landlord providing the tenant the legal right to either possess or make a specific use of
the landlord's real estate and provide the legal right to the landlord to obtain an agreed upon
rent from the tenant at the decided frequencies. Leases summarize the legal rights and
obligations of both landlord and tenant. Most leases contain standard terms and provisions;
however they can vary depending on the nature of the property and the type of tenant.

A lease can be defined as the relationship between the landlord or landlady and his or her
tenants. Lease is a contract between landlord and tenant for a fixed period of time. This
relationship between both parties arises when the proprietor of an immovable property
handover his property to a second party for a fixed period of time after furnishing a written
agreement.

A lease is a contract laying the guidelines where a lessor (landlord) transfers the usage rights
of his property to a lessee (tenant). The contract allows the lessee to use the property for a
mutually agreed period of time and make him bound to pay the rent to the owner for the
agreed period.

The landlord and the tenant have to follow the terms & conditions of the contract, and face
the legal consequences if they fail to meet the contractual obligations.

In real estate there are various expenses in a lease which may occur either on the tenant’s side
or landlord’s side. Typical lease expenses include:-

 Insurance and taxes of property

 Repairs and maintenance
 Lighting, landscaping, parking lot etc.
 HVAC (heating, ventilation and air conditioning)
 Electrical plumbing, Carpet cleaning
 Gas, water, electricity telephone, internet and other utilities
 Structural maintenance and roof
 Calculating a cost to rent a property needs understanding of different expenses on
both the landlord’s and tenant’s side.

Following are few of the salient features of the leases:-

(a) The tenant or lessee can’t make any additional construction or dismantle any existing
features in the building/premises without informing and taking prior permission of the lessor.
(b) The lessee can’t use the premises for any unlawful purposes. Even if the tenant wants to
use the property for a different purpose than that specified in the lease deed the tenant has to
take prior permission from the lessor.
(c) The lessee can’t sublet the lease to a third party or sub-divide the leased property without
intimation and prior permission of the lessor.
(d) In case of any breach of the contract by the lessee, the lessor can cancel the lease deed
before the expiry of lease term. However such breaches may be condoned after making
payment for misuse charges acceptable to the lessor.

4.6.2 Types of Leases

Different types of leases are used in different types of properties but there are some
commonly found leases in real estate sector. The important thing to understand for both the
parties is the expenses covered or excluded in the lease as every lease has different structure.

Structure of lease usually depends on prevalent practices in the market and preference of
landlord. Leases may be favourable to landlord or to the tenant depending on the distribution
of expenses on both sides however a balanced lease is most preferred one. However there is
a similarity among all types of leases that there is a provision of basic rent and
variable operational expenses to be paid.

Some common lease structures are discussed below:-

4.6.2.1 Full Service Lease or Gross Lease

A full service lease or gross lease covers most of the operating expenses. These expenses are
covered from tenant’s rent. These expenses include property taxes & insurances, utilities,
exterior and interior maintenance, maintenance of common areas and janitorial
etc. Telephone and data expenses are few exceptions. Consequently, the base rent is on a
higher side but the tenant doesn’t have to pay any other cost.

Tenants prefer this form of lease for a variety of reasons like:

 No involvement in day to day operations

  Fixed rental payment without any operating risk however the expenses aren’t
fixed such as – air conditioning bill in summers.

Some landlords include a premium charge in the rent to take on these expenses and risks,
which is a potential disadvantage.

Since this lease structure provides the landlords with proper control over property’s
appearance and maintenance, they appreciate it.

“Escalation Clauses” that account for variable cost such as an increase of insurance or
taxes are added by some landlords to include some flexibility in the lease.

This type of lease structure is usually found in industrial, retail, office, freestanding
properties or multi-tenant office buildings where the tenants use the shared utilities.

4.6.2.2 Net Lease

The type of lease is very adjustable. In this type the base rent is lower than that of a gross
lease, but some fixed operating expenses such as insurance & taxes, items covered under
common area maintenance (CAM), are paid by the tenant. Net Leases have four sub-types:

4.6.2.2.1 Single Net Lease:

In this type of net lease, tenants pay a fixed rent and share the property tax as decided with
the owner. Building expenses are paid by the landlord but the charges of utilities and other
services are directly paid by the tenant.

4.6.2.2.2 Double Net Lease:

It has many similarities with the single net lease but under this structure the tenant is
responsible to share a part of property insurance along with the property tax. Maintenance of
the common area is paid by the landlord but paying for own utilities and garbage services is
still the responsibility of the tenant.

4.6.2.2.3 Triple Net Lease

It is one of the most accepted structures of lease. This type of lease encompasses
usually three types of expenses: - 1) Actual property taxes, 2) Insurance and 3) Common
area maintenance. These expenses are passed- through to the tenant as an additional rent
above the base rental rate. The tenants pay these expenses either in full or a part of them
in addition to their base rent.

A triple net lease or a “NNN Lease” is used both in a single-tenant and in a multi-tenant
premise. In case of former one, the tenant controls the property’s appearance by taking care
of the landscaping and upkeep of the exteriors. In multi-tenant setup, any one tenant can’t
damage the property’s structure face/ appearance for other tenants as exterior upkeep is
controlled by the landlord. Tenants in such a setup pay for their part of operating expenses,
however they are free to audit the operating expenses paid by landlord. Tenants typically pay
for their utilities. A pro-rata share for utilities is decided for all the tenants if they are not
metered separately. Landlords are responsible for the maintenance and upkeep of structural
elements including roof of building.

Triple net lease favours the landlords as it safeguard their interests against rising operating
expenses as the tenants also pay their shares. This is a favorable lease structure for
tenants also as they are provided the facility to review the oper ating expenses paid by
landlords, and any savings are given back to them.

4.6.2.2.4 Absolute Triple Net Lease

It’s a magnified version of triple net lease. The tenant has sole responsibility of the
building as he/she takes on all costs.

This type of lease structure is usually found in case of buildings with single-tenant on a long-
term lease. Buildings are usually built considering the requirement or specifications given by
the tenants. The tenant is generally a large corporation which is capable of and prepared to
take on all the expenses. The benefit in this lease for large corporation is that they
virtually own the building without purchasing it.

4.6.2.3 Modified Gross Lease/Modified Net Lease

Modified grease lease is a middle way for both the parties. In this structure the
landlord pays the insurance, actual property taxes and maintenance for common areas
whereas the tenant pays for his/her utilities, janitorial and maintenance of internal areas. It
allows free negotiations for setting operating expenses so the base rent is mutually agreed
upon by both the parties. Like triple net lease roof and structural components are usually the
responsibility of landlord.

Like in a triple net lease the landlords are responsible for the maintenance and upkeep of
structural elements including roof of building. Base rental is also comparatively higher as the
landlord is sharing more operating expenses. Lease rate remains fixed irrespective of any
changes in cost. Lease rent is usually higher than a net lease structure as the owner is
taking on more expenses.

It’s a favourable lease structure for both the parties as the landlord is responsible for
managing and sharing the risk of many components of operating expenses. On the other hand
tenant has to pay a relatively fixed rental. However the landlord may charge an extra
premium to cover the risk of potential rise in operating expenses.
 Check Your Progress 1

1) Write a detailed note on types of real estate management.

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2) Discuss the functions of a real estate management firm.
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3) Write about different legislations related to environment protection.
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4.7 OWNERSHIP

In this section we will discuss some common types of ownership structures in real estate.

Individual

Joint Ownership Nomination

Venture Structures

Fractional
4.7.1 Individual Property Ownership

Individual or Sole property ownership refers to a property which is purchased and enrolled in
the name of one person who alone holds the proprietorship title of it. The sole proprietor may
have taken help from others in orchestrating assets for the purchase but they have no right in
the property if the deal deed is enrolled in his name.

Advantages of individual ownership:-

 The proprietor has full authority to sell the property.

 The purchaser doesn’t require any consent from anyone else.

 In the event of death of the owner, it’s easy to distribute the property according to the
terms of his will. If there is no will, explicit legacy laws will apply, and the property
will be divided among the legitimate beneficiaries of the late proprietor.

4.7.2 Joint Property Ownership

According to property rights in India, a joint proprietorship refers to acquired property which
is enlisted in the name of more than one individual. The possessors of such title of properties
are known as joint owners or co-owners of the acquired resource. The law doesn’
differentiate between joint control and co-responsibility.

It is appropriate to note that there is no difference between joint control and co-responsibility
under
any law; the two terms can be treated as equivalent. There are a few different ways to possess
a property mutually.

Joint property ownership has four major forms:

4.7.2.1 Tenancy in Common

Under this type of property ownership, there is no specific mention of shares of co-owners at
the time of purchase or we can say that they do not have equal rights. These co-owners are
tenant-in-common. They all enjoy equal rights in the joint property throughout their life. In
the event of death of any co-owner his/her rights doesn’t automatically transfer to the
surviving co-owner. The property is divided as per the terms of the will of the deceased co-
owner.

4.7.2.2 Joint Tenancy

The ownership is referred to as joint tenancy when each joint owner is given an equal portion
of the property through the title deed of that property. Right of survivorship is the base of this
form of ownership. In the event of death of any co-owner his/her rights automatically passes
on to the surviving tenant.
Here a specific mention has to be included in the legal documents of joint property that the
concerned property is owned as joint tenants by co-owners otherwise legally the property will
be treated as the tenancy in common.

4.7.2.3 Tenancy in Entirety

This form of ownership between legally married couple is the simplest kind of joint
ownership. In this type of ownership the spouse co-held the title to a property. No change in
share or sale of property is allowed without the permission of each other. In the event of death
of a partner, total ownership of the property passes on to the surviving partner provided that
he/ she or the tenant in entirety also occupy the property at that time through a legal
agreement and have same rights in the property. Tenancy in entirety comes to the end in case
of divorcement.

4.7.2.4 Coparcenary
This concept of coparcenary form of ownership is provided by The Hindu Succession Act,
1956, for the members of a Hindu Undivided Family (HUF).

Every coparcener obtains an interest in a coparcenary property at birth. This form of

ownership, which is pretty similar to joint tenancy, permits even an unborn child, to have an
equal stake in a HUF property.

This concept, which is comparable to joint tenancy, permits an equal stake in an HUF
property even to an unborn child. After birth, every coparcener obtains a share of the
coparcenary property. In the event of death, his/her undivided share in the total property
transfers to his legal heirs only, and not to the other shareholders/coparcencers.

4.7.3 Ownership based on Nomination

Nomination is a process, where the specified asset is transferred in the name of the nominee
after the death of the owner. Under this form of ownership a legal owner of the property can
give somebody the inheritance of his immovable property and other assets in case of his
passing. Property nomination ensures the landlord that the property will not stay unclaimed or
get subjected to litigation after he passes away.
Nomination based ownership is usually found in cooperative housing societies, where
application for membership requires recommendation of members when someone applies for
membership. In the event of owner's death, the property’s title is transferred to the nominee by
these housing societies.
Once the title of property is transferred in the name of the nominee or handed over to him the
nominee becomes a trustee to hold the property on behalf of the legal heirs of the late owner
and doesn’t become the owner of the property.

4.7.4 Fractional Ownership

Fractional ownership is the latest trend of investment in commercial real estate. Fractional
ownership refers to an arrangement wherein groups of investors purchase a property from
pooled funds. In this the overall cost of a property is shared by a group of owners. Through
this approach the investors reduce their individual financial burden while purchasing a
property and earn returns on their investment. The purchased asset can be either residential or
commercial.

It can be defined as a percentage ownership in an asset. Individual shareholders purchase the

fractional ownership shares in any asset and enjoy usage rights share in income etc.
Fractional ownership is used for high value properties such as a vacation property where the
owner can make personal use of the space and receives revenue when it is not used
personally and is rented out.

Usually a real estate management company arranges the fractional ownership and takes the
responsibility of maintenance and upkeep of the vacation homes.

4.8 REAL ESTATE PORTFOLIO MANAGEMENT

A real estate portfolio can be described as the collection of investment properties that are
owned by an individual or a corporation. It's a list of diverse investment properties that are
owned and managed in view of a monetary objective. These portfolios act as a detailed
summary of all investments and financial transactions which help the real estate players to
make calculative decisions.
Real estate portfolio management is the centralized practice of managing assets owned by the
client or an organization to achieve long term financial goals.
Real estate portfolio management is a necessary requirement for real estate investors and
involves a steady review of individual property and its role in the long-term objectives and
maximizing value to the organization. Managing the real estate portfolio require following
steps/strategies:

4.8.1 Clarify your Business Objectives

Different investments produce different results at different time so before choosing an

investment the investors must first determine their end goal or objective for building an active
real estate portfolio. The mix of investments in the portfolio and risk factors associated with
them directly affects the overall income. The investors have to decide whether they want a
long term passive income or short term profits. Setting the business objective helps the
investors to choose the right type of investment and to formulate working strategies to
achieve their target, right from the start.

4.8.2 Regular Assessment of Portfolio

A routine assessment of portfolio allows you to evaluate and assess the performance of all
your assets and take suitable measures for the required improvements and make financial
provisions for real estate investments. It allows you to take proactive decisions on over
performing and underperforming assets as whether to hold onto it or sell it as per the market
conditions.

A regular portfolio assessment can help you to:

 Have a clear picture of the strength of your real estate investments

 Allocate your finances for the acquisition of new assets
 Reduce the operational cost
 Achieve optimum rental income
 Track the performance of assets

4.8.3 Allocation of budget

It’s important to allocate a budget for operational expenses, property maintenance, property
management fees, insurance and gives you a fair idea about the funds available for investing
purposes. Allocating a sufficient amount for unexpected emergencies is essential to handle
last minute problems. There should be proper allocations of funds for your expenses and for
investments. Regular updation of budget helps to plan long term wealth accumulation and
protects your interests in uncertain or unexpected situations.

4.8.4 Asset Allocation and Diversification

This involves deciding the best strategy for asset allocation. Diversity in portfolio of assets
gives you the best chance to reach the business goals and minimize the risk. The
diversification of real estate investments will help you to achieve your targets.

 Rental Properties: if you are looking for a steady source of passive income that
appreciates over a long term. Investors receive income in the form of rent collected
from these properties.

 Commercial Real Estate: Commercial properties include the office building,

industrial spaces, retail, etc. owners can lease these spaces and earn a steady income.

 Raw or fresh Land: it’s a good option for long term investments as it appreciates
over a period of time. The land can be resold, given on rent or be used for other
commercial constructions.

4.8.5 Consulting the Professionals

The final thing to decide a real estate portfolio is to determine how it will be handled. Owners
can manage their properties themselves but a real estate portfolio professional can help them
to realize the value of the asset and the selection of assets to set a profitable real estate
portfolio. Seeking guidance from a professional will help you to:
 Build a portfolio as per your needs and business objectives
 Streamline your property search
 Decide investments based on short-term and long-term financial needs
 Take effective budgetary decisions to maintain a positive cash flow

4.9 LAWS

Under this chapter we are going to discuss various laws, permits/licenses/approvals

applicable to the real estate industry in India.
the following laws are related to the Indian real estate sector:

4.9.1 The Indian Contract, 1872

This law makes provisions related to the contract such as:
 Power to enter into contract
 Execution of contract
 Implementation of contract
 Rights of parties in a contract and
 Remedies in case of breach of contract

4.9.2 Transfer of Property Act of 1882:

This legislation provides regulations for the transfer of properties in India. It encompasses
provisions related to sale, lease, exchange, mortgage and the gift of both movable and
immovable property, as well as part performance. The law was enacted on 1 July 1882.
Transfer of property has been defined as an act of conveying a property to a person or a group
of persons by an individual or a group of individuals and a company.

4.9.3 The Indian Stamp Act, 1989

The purpose of this act was the consolidation and amendment of the laws relating to Stamps
and to make provisions to stamp duty payment.

4.9.4 Indian Registration Act, 1908

This act was enacted for the consolidation of enactments related to the registration of
documents related to all immovable properties. Under the act registration is mandatory for
some specific documents in order to avoid forgery of these documents. All properties
purchased in India should be registered to safeguard evidence, decide ownership and prevent
fraud.
4.9.5 Real Estate (Regulation and Development) Act, 2016
The act was enacted in 2016 to establish RERA (Real Estate Regulatory Authority) to govern
the real estate industry, to secure the interests of buyers, and speedy redressal of disputes in
real estate industry. This act regulates and addresses issues pertaining to delays in delivery of
projects, pricing in real estate, quality of construction, title and other changes; in a transparent
and effective manner.
Objectives of the Real Estate Act:
 To ensure accountability towards buyers and protect their interest
 Maintain transparency and fair-play thereby reducing frauds & delays
 Pan India standardization
 Ensure correct information from promoter to buyer
 prescribing responsibilities for both promoter and buyer;
 Quick dispute resolution mechanism;
 foster confidence among investors by establishing good governance

4.9.6 Foreign Exchange Management Act, 1999 (FEMA) and Foreign Direct
Investment Policy (FDI)

FEMA was established to facilitate external trade and payments in India. Another purpose
of act is to help organized growth and systematic maintenance of foreign exchange market in
India. This act sets the mechanism for the sale and purchase of any immovable property in
India by foreign corporations and NRIs. The unified FDI Policy establish the mechanism for
foreign investment in rapidly growing real estate sector of India, as well as compliance and
exit criteria for such investors.

4.10 PERMITS/LICENSES/APPROVALS

For the construction of all the buildings the developer needs to have few permissions or
approvals from various competent authorities. Some important approvals and sanctions for
building construction are listed below:

4.10.1 Encumbrance certificate

It’s a crucial document serves as an evidence of free title/ possession of a property and
required while purchasing or selling a property. Sub registrar’s office can be approached for
this certificate.

4.10.2 Land use change permit

A land use conversion certificate from agricultural to non-agricultural land is required for
constructing a building for residential and commercial purposes on an agricultural land.
In India, any kind of construction on an agricultural land is otherwise not permitted. However
a pan India uniform law in this regard is not available but each state has formulated its own
rules with minute changes.
The competent revenue authority i. e. Collector/SDM/Tehsildar grants the approval for
change of land use after ensuring the fulfillment of prescribed conditions.

4.10.3 Zoning permits

Zoning laws govern the development of structures and use of land and are framed by local
authorities in India. Land is segregated into various zones to ensure proper use of land for
development purposes such as zoning regulations framed to prevent the construction of
commercial buildings in residential zone. There are different land use patterns in different
zones. These regulations may also frame guidelines related to the limit of height of building,
green spaces and type of commercial activities allowed in a specific region.

4.10.4 Building sanctions and approvals

Approval for building plan and layout is required from authorities under the provisions of
master plan, local body acts and building byelaws.
 Building plan: a building plan has to be approved before the commencement
of construction of building and the construction should start within two years
of sanction. No deviation is allowed from the sanctioned plan.
 Layout Approval: It is as per Floor Area Ratio (FAR) of Floor Space Index
(FSI) and has to be obtained before commencement of construction of
residential and commercial buildings.
 IOD: intimation of disapproval also known as a building permit and states
compliance guidelines during different phases of an under construction
project.
 Completion certificate: it’s an important document which states that the
building has been built, according to standards and proves the legitimacy of a
residential or commercial building. Without this certificate the building can’t
be sold by the developers.

4.10.5 RERA certificate

A certificate from Real Estate Regulatory Authority is a legal document and serves as
evidence that a property, project, or property agent has been registered under state-level
RERA authority or tribunal.
The certificate contains information about the real estate developer, property or building, and
the real estate agent along with the unique registration number. The registration number is
mandatory for the real estate agents to practice legally. No developer, builder, prompter, or
real estate agent can advertise, book to sell properties without this registration certificate.

4.10.6 EIA and Environment Clearance

Environmental Impact Assessment is a tool to assess the impacts of a new industry or
expansion of industry. The purpose of an EIA is to determine the effects of a proposed
development on the society, health and environment.

Environment Impact Assessment (EIA) Notification addresses the environmental impacts of

real estate projects. The purpose of EIA report is to restrict the negative impacts of the
upcoming project with alternatives and preventive measures. Environmental Clearance
monitors and minimizes environmental damages that may be caused due to real estate
projects.

4.10.7 Ground Water Boring Permission

Permission for ground water boring is required for commercial and domestic activities if a
bore well for water extraction is being used. Central Ground Water Authority (CGWA) and
State Ground Water Management Authority are granting permission to extract ground water
for commercial uses.

4.10.8 Fire NOC

All commercial real estate projects require to mandatorily obtain a NOC from local fire
department of the respective state. It is issued after examining the fire assistance of building
and the installed machineries for fire safety or fire handling.

4.10.9 Certificates from Pollution Control Boards

The commercial complexes require installation of sewage treatment plants as they generate a
huge quantity of waste water. For their energy needs they also install large DG sets for power
backup. All this is required to be tested thoroughly by the laboratories accredited by pollution
control boards.

Check Your Progress 2

1) Define lease. Write about types of lease in real estate sector.

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2) Write brief notes on fractional ownership and joint ownership.
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3) Discuss real estate portfolio management.
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4.11 LET SUM UP

Real estate industry is one of the largest industries not only in India but throughout the world.
It is one of the major economic drivers of the country. It is second largest in terms of
generating employment in the country after the agriculture sector. Millions of jobs are
generated by real estate industry both directly and indirectly through its allied sectors. With
the growing needs of a huge population on India this sector is expected to rise in leaps and
bounds. Real estate management requires thorough understanding of different types of
markets in industry and their distinctive needs. Knowledge of day to day operational
activities and a great sense of anticipation of the clients are keys to the success of any real
estate management firm. These firms need to have a clear understanding of various statutory
and legal requirements to operate the business in the most befitting manner. These firms are
supposed to provide able guidance to the investors to manage their property portfolios in
order to sustain in the market.