Shared ownership is another term for co-ownership or joint ownership. In this type of ownership, two or more people jointly own residential property. There are three commonly known types of shared ownership- tenancy in common, joint tenancy, and tenancy by the entirety.
Shared ownership can apply to self-acquired property and ancestral property. For instance, the concept of the Hindu Undivided Family (HUF) is legally recognized by Indian law with laws made and codified around this concept. A HUF has the family members of such a family jointly owning an undivided estate that consists of ancestral property. Every family member called a coparcener has proprietary rights on the ancestral property as a whole. In this case, the concept of shared ownership is an element of HUF. This article seeks to address questions on shared ownership and provide some explanation on the topic
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Is shared ownership only for first-time buyers?
Buying a house is an expensive financial decision. First-time homebuyers may find it financially exhaustive to purchase a house even after availing a home loan that has to be repaid in installments.
- However, shared ownership is a good alternative for first time home buyers to buy a house.
- If the people who resort to shared ownership have a source of income and loan eligibility, they can be co-applicants to avail a joint home loan, one with a greater quantum than a regular home loan. A lender has greater assurance in this case about the repayment of loan money.
- The liability of loan repayment is spread over the co-applicants of the joint loan.
- With the greater quantum of the sanctioned joint loan, they may purchase a house.
- That being said, share ownership is not only for first-time buyers. It can be opted for by people who already have a house or have sold their houses to buy a new one.
What are the advantages and disadvantages of shared ownership?
Shared ownership has several advantages:
- Shared ownership allows individual homebuyers to pool in their resources or avail a joint home loan in some conditions to purchase a house.
- Shared ownership allows for the smooth transfer of share in property and interest therein in cases of tenancy in common and tenancy by the entirety because of the survivorship rights present in these two types of shared ownership. It does not subject the legal heirs to legal drudgery for cleaning legal processes to finally inherit the share in the property.
- Shared ownership allows mutual ownership in the whole property i.e. even though the co-owners have their respective shares in the property, each one has a proprietary interest in the whole property.
- There are several tax benefits for you and your co-owners under section 24 of the Income Tax Act, 1961, which can give a standard deduction of Rs. 2 lakh per owner. There are also other provisions like Section 80C which provide deduction towards principal repayment. There are also provisions like Section 54 and 54EC which provide for a reduction in capital gains tax on the sale of the house property for every co-owner separately if certain conditions are complied with.
However, there are disadvantages of shared ownership like:
- Due to the mutual ownership of the property, all decisions to be taken concerning the property needs to be taken with mutual consent of all co-owners. If all the owners do not approve a particular course of action, the action is not taken.
- Getting into joint ownership also means more paperwork. For availing a joint home loan, lenders will ask for more paperwork and documents and by extension will take more time to verify the documentation submitted. Thus, it may take time to avail a joint home loan.
- In shared ownership, the credit history of a co-owner/co-applicant may be tarnished because repayment of loan falls on the shoulders of both applicants. But if it were to be repaid only by one, the credit history of the other applicant owner becomes tarnished.
Despite the disadvantages of shared ownership, the benefits outweigh the disadvantages when it comes to shared ownership.
Is it easy to sell a shared property? If yes, what is the fastest way to sell a shared property?
Shared ownership of property allows you to sell property, but it comes with certain constraints.
- For selling a joint property (resale) you need the consent or approval of all the co-owners to decide to execute a sale.
- You need the co-owners to transfer their share in the property to you via a registered relinquishment deed to allow you to receive their shares and then register 100% of the property in your name, making it sole ownership.
- This will allow you to resell the property.
- If all the co-owners are on the same page when it comes to reselling the house, this decision can be taken easily.
- However, it proves difficult when there are dissenting opinions against the reselling of the house. Convincing every member to give up their respective shares and interests extends the resale process.
How long does the shared ownership process take?
Where joint ownership has many advantages, the time taken to enter into joint ownership with others may prove to be a disadvantage.
- If you choose to avail a joint home loan for purchasing property, lenders take more time to verify all the documentation you have submitted. This is because effectively you are submitting documents for a group instead of an individual.
- A joint ownership agreement takes time to draft because you need to incorporate clauses that clearly outline everyone’s rights, obligations and liabilities. These rights, liabilities and obligations are governed suitable clauses that have to be carefully worded in clear, unambiguous terms.
- You can even mention everyone’s respective shares in the agreement. These shares and interests in the property are subject to negotiation and the relative investments of the co-owners in the property. These discussions between the co-owners for earmarking their shares are bound to take time.
How much deposit do you need for shared ownership?
The deposit on a sole ownership property ranges from 5% to 10% of the property value.
- However, in joint property, there are shares in the property involved and each co-owner has to normally contribute his/her part to the deposit in the proportion of their respective share in the property.
- For example, if the property is worth Rs 10,00,000 and you as a co-owner have a share of 25% in the property, your share would be Rs. 250,000. In this, if you paid a deposit of 5% of your share value, the quantum you have to pay is 5% of Rs 250,000 which is Rs. 12500.
- Combining the respective deposit shares paid by the other co-owners and yours should add up to Rs. 50,000 which is a 5% deposit on Rs. 10,00,000 (property value).
- However, this is subject to the arrangement between the co-owners.
There are four different types of shared ownership widely accepted:
Tenancy in common:
All tenants have equal rights in the property when they are alive in this type of ownership. However, there is no right of survivorship in this type of ownership.
This type of shared ownership is different from Tenancy in common because it has the right of survivorship.
Tenancy in entirety:
This type of shared ownership is exclusively for legally married couples.
This type of shared ownership is for joint families like the Hindu Undivided Families.
Shared ownership is a type of ownership that allows people to purchase a house in joint ownership. This type of ownership allows people to have a proprietary interest in the entire property despite their share in the property being confined to a certain part of the whole. As such, every decision regarding the property has to be taken with a consensus of all the co-owners.
This type of ownership has certain financial and tax benefits that make it attractive for homebuyers. But, too many co-owners can lead to indecisiveness over how to use and dispose of the property. However, the advantages outweigh the disadvantages and this option can be very beneficial to first-time homebuyers to purchase their very own house.