The global economy is heading into higher inflation and interest rates. Being a capital-intensive investment, investing in real estate is more intimidating than ever. As a result, the real estate market is seeing several distinct buying trends emerge, followed by changes in consumer behaviour. One such change is the increasing popularity of joint property ownership among investors and home buyers instead of sole property ownership. Joint ownership is one of the best ways to reap benefits, especially if all owners are working professionals who can afford financial liability. It ensures several benefits, including increased loan eligibility and tax advantages. However, this arrangement has some drawbacks, as owning a property with another person can lead to various potentially contentious situations. Therefore, it is critical to understand this ownership structure in detail to avoid complications and avert unpredicted issues. Ensuring the protection of legal interests and consulting a real estate lawyer before investing in a joint venture can secure the future.
What is Joint Ownership?
A joint tenancy occurs when two or more tenants own equal property shares. Tenants have equal rights, revenue, and utilisation of the property, and they can also gain from splitting mortgage and tax payments. Married and unmarried couples, friends, family members, and coworkers can establish joint tenancies. It has two different basic types, which are as follows.
Based on the Rights of Survivorship
All partners can claim equal property under this type of ownership. Every partner is freely in charge of managing or utilising their share without the other owners’ consent. However, the property cannot be sold or mortgaged without the consent of all the partners. If one of the partners in this type of ownership passes away, the property is transferred to the remaining partners. The surviving partners must provide a death certificate for the deceased to prove their ownership of the property.
Tenancy by Entirety
Tenancy by entirety (TBE) enables married couples to have an equal interest in property and survivorship rights, avoiding probate. There is no 50/50 split. Under this type of ownership, each partner owns 100% of the property. When the owners divorce, they become tenants in common. Neither the husband nor the wife requires the permission of their spouse to do anything with their share of the property. Both partners must agree upon the mortgage or sale of the property. If one partner dies, the property is automatically transferred to the other.
What are the Benefits?
Easy Transfer of Asset
The property is transferred with few legal and administrative inconveniences. In the event of one partner’s death, the surviving owner becomes the asset owner with limited assets or probate fees. It is perfect for homes that multiple family members share.
Maximum Loan Eligibility
A significant advantage of jointly owning a property is increased loan eligibility. When joint applicants request a home loan, banks determine the maximum loan amount that can be approved based on the applicant’s net monthly take-home pay. The bank totals all partners’ earnings, and if the total monthly take-home pay is higher, banks readily approve a larger loan amount.
In joint ownership, all individuals are liable for that asset. They all benefit from the positive aspects and bear the same liabilities. None of the partners can accrue debt on the asset without incurring debt on themselves. For example, if a couple intends to divorce, one spouse cannot acquire a loan against the couple’s home and leave the debt with the other. When one party takes out the loan, they are equally responsible for its reimbursement. Similarly, a spouse cannot lease a portion of the property while getting a divorce without splitting the revenue with the other.
What are the Disadvantages?
Joint ownership could imply that the asset’s original owner no longer has sole authority. Regarding property, decisions about its upkeep or sale must be made collectively. A joint owner would typically have access to the money in a financial account, like a bank account. In addition, each tenant must agree to the sale or transfer of the property, which can be very limiting.
Delay in Documentation
Banks typically take longer to complete the documentation process when more people are involved in the home loan process. The application process is repeated twice or three times, according to the number of applicants. Ensure all the documents submitted are genuine because the bank may reject the loan application if they discover any forgeries.
Each joint tenant is responsible for paying their fair share of the property’s upkeep and repairs. If one of the owners owes money, a creditor may have the right to compel the seller to make up losses. As each tenant must approve of the sale or transfer of the property, this can be very limiting. Additional pitfalls include the need for consent, the potential for asset freezing, and the loss of control over how assets are distributed after death.
Absence of Inheritance Rights
In a tenancy by the entirety, joint tenants cannot transfer their interest following a death. They merely stop being the owner of any interest in the property, even if a person’s will specifies otherwise.
What is the Mechanism of Joint Ownership?
First, a joint ownership agreement must be signed in the presence of a referee by all parties involved in a joint real estate purchase. This should address the issues of property ownership, administration, and distribution. The agreement should specify the cost of the co-owned property, the date on which it was signed, and the duties of the co-owners so that any future disputes or misunderstandings will have a clear legal defence. Selling and transferring jointly-owned property is much more difficult than doing so for privately owned property. If one owner wants to sell the property, they cannot do so without the consent of the other owners. A co-owner may only sell his or her portion of the joint property in Pakistan, as per Section 44 of the Property Act 1882 (The Transfer of Property Act, 1882, 2020). However, if a share in a shared residence is sold, the buyer will not be permitted to use the space for private use. However, this is detrimental to both the buyer and the seller. This is common because joint families commonly use the joint property as shared dwellings.
With the changing landscape of the global economy, the real estate industry is undergoing constant changes altered by consumer buying patterns and technological trends. One such change is the growing popularity of joint ownership due to its ample benefits in periods of high inflation. However, investors should weigh all the merits and demerits of this ownership while also considering the rules and laws associated with such investment. This will ensure a secure future and maximum return on investment for prospective buyers.
(2020). The Transfer of Property Act, 1882. Retrieved from https://www.ma-law.org.pk/pdflaw/Property-Law-Transfer-of-Property-Act-1872.pdf