Under Construction Property

Many builders offer to sell property during its construction phase. Sometimes, the original purchasers, who had earlier booked the property, may intend to sell it at a premium. Whether you buy directly from the builder or from a third party, you need to consider a few important points –

Be very sure of the size of the apartment, you wish to purchase. If you are buying directly from the builder, compare the rates with other similar projects in the locality. You may be able to negotiate the price better, especially in case the builder has been unable to sell all the units of the project. In case you are buying from a third party, who had booked it at an earlier stage, make proper enquiries from market, or reliable brokers in the area about the prevailing rates. Verify the approvals received by the builder for change of land usage, the layout plan from local authorities, and other related documents, viz documents for allotment of land for society and its registration, Do a background-check of the property; verify the credentials of the builder, registration of the land where the property is to be constructed, etc. Enquire when you would get the possession of the property. Check for accurate details of the Allotment Letter and Building Plan Take the Letter of Possession, once you make all the payments for the purchase and its possession is handed over to you. Letter of possession is issued by the builder and states that the possession of the duly completed flat/property is being delivered, with effect from a particular date. Assess all the charges that you may have to incur over and above the basic cost of the property

Legal documents while buying property from the builder

An allotment letter from the builder on paying the booking amount

Agreement for Sale - The builder makes out a formal Agreement for Sale on stamp paper and gets it stamped by paying the relevant stamp duty. After being stamped, the agreement is signed by both the purchaser and the builder. Within a month of signing, this agreement is registered with the Sub-registrar appointed by the State Government under the Indian Registration Act, 1908. The Agreement for Sale must include the following aspects:

1. Date by which the possession of the apartment must be handed over by the builder to you.

2. Your purchase price of the apartment and the installments due (due dates, amounts and at what stage of construction).

3. The common areas and facilities offered and your percentage share in these areas.

4. A declaration by the builder that he has not sold or encumbered the property in any manner to any third party and that he will hand over the property in vacant state to you.

The agreement for sale must also include copies of title certificate, a copy of the approved plans and specification of a list of fixtures and amenities including provisions for lifts to be provided.

Chain of conveyance/sale/partition/gift deed or will, by which land was acquired by the builder

Urban Land Ceiling & Regulation Act (ULC) Clearance Certificate, if applicable

7/12 extract (Property card extract), Index II issued by sub-registrar

Title Certificate / search report by an advocate for the last 30 years

Non-agricultural permission (N.A)

37-I clearance under section 269 UL (3) of the Income Tax Act, 1961

Income Tax clearance of the seller under section 230 A of the Income Tax Act, 1961

Development agreement with the landowner if the developer is not the owner of the property & the Power of Attorney executed by the landowner in favor of their developer.

Approved building plans

Commencement certificate

Completion /Occupation certificate

Note: Please have all the legal documents drafted and vetted by a property lawyer

Suitability of homes under construction

Property in the advanced stage of construction is ideal for buyers good at negotiating deals at lower prices. A distress sale by the builder who has not been able to sell all the units in a project could help the buyer win some discount.

Under-construction property is also suitable for buyers who wish to purchase it, purely, as an investment.

A good time to buy such property is when the real-estate market is down.

Parties Involved

In a transaction involved in purchasing property which is under construction various parties are involved-

1. Builder/Developer - is an important party since he is responsible for making the allotment to the buyer and handing over the possession of the property after receipt of all due payments.

2. Banker - It is the bank from where the buyer takes a loan for the purchase. The banker retains the original papers, including registration documents, society membership, letter of allotment, etc till all the dues are cleared.

3. Registrar - Registrar is a statutory authority appointed by the government, for registration of the sale deed on payment of appropriate stamp duty at rates applicable in the concerned state/ area.

Purchase Process

Pros and Cons of Property under construction

Under construction property, while offering various advantages, also has a word of caution attached. You need to analyse both these aspects of the property before making your decision.

1. Advantages of buying a property under construction

   It is easier to get modifications done in the basic construction.

   There are higher chances of prices appreciating once the area gets developed, thus holding good investment prospects.

2. Disadvantages of buying a property under construction

   Any delay in the construction schedule would delay its possession.

   The re-sale value of the property may drop if the construction is not completed on schedule, or due to lack of prospective buyers. This may lead to liquidity risks.

   Some issues like durability of pipes/wires or termite infestation etc, plague a house after a few years of construction. This cannot be gauged.

   It is not easy to know how well the society will come up once fully constructed.

Charges and costs involved

There are various costs associated with purchasing a property under construction. Some of these include…

1. Basic cost of the property

2. Premium that you may have to pay in case you have purchased the property from a third party and not the builder

3. Interest payments on your home loan

4. Stamp-duty, fees for registration, etc

5. Loan processing fees

6. Attorney fees, in case you hire a lawyer

7. Broker charges

8. Charges towards maintenance, parking, gas and electric back-up for your apartment, etc

Resale Of Property

These are existing properties with residents occupying them. It is preferable to contact brokers who help you spot properties available for sale. Brokers are usually location-specific i.e. they are well versed with a specific location only. Hence, you will have to contact more than one broker depending on the locations selected by you. However select a broker based on referrals since this is an unregulated and disorganized market with the possibility of touts presenting themselves as brokers.

There are a number of good reasons to use a broker:

Brokers save your time, energy and costs in finding you a suitable property.

They help you find a house specifically looking at your needs. You may never come across a sale of a house not advertised for by the owner, without the help of your broker.

They can inform you about the locality and the type of people residing there, which you may be unaware of.

They help you with regulations such as payment of stamp duty, registration, etc.

They help you find lenders, giving you insights about their requirements and helping you fit into their eligibility norms.

Most of all, they help you negotiate terms with the seller and close the deal.

Even though these good reasons exist, don’t let the broker manipulate you for his own benefit. Watch out for these tactics he may use:

The broker will pressure you to complete your transaction as quickly as possible giving you the reason, “Buy now, prices are expected to go up”, or, “Sell now, prices are expected to go down”. Don’t succumb to this kind of pressure. Take your time in getting a good deal.

Make sure the broker spends enough time on your deal and keeps in mind your requirements.

Usually brokers are restricted to particular areas. The broker may not show you property in any other area besides the area where he operates and may insist that there are no other choices. Contact brokers operating in other areas and see properties there too. Don’t expect your broker to ever tell you that you should look elsewhere and that properties in his area are not suitable for you.

Some brokers will make you feel that you are a small insignificant client and that they don’t need you as much as you need them. Understand that this is just a pressure tactic to make you take a hasty decision. Don’t give in to it. Stand your own ground.

The broker will not disclose problems with the house and may draw a very rosy picture to tempt you to decide to buy. Caution! Check with neighbors and friends who are aware of the area and building before making that crucial decision.

Most of all choose a broker through referral. There is no remedy if the broker cheats you. This is an unregulated and disorganized market.

What to look for while purchasing a ‘resale’ property

Keep the following aspects in mind while purchasing a ‘resale’ property:

Whether title documents are clear and marketable.

Whether all taxes have been paid.

The building is technically sound – it has strong foundations.

Does the building face the direction you need.

Whether you will get a parking facility. Whether it is an enclosed parking or an open one.

Compliance with Vaastu Shastra, feng shui, etc, if you believe in it.

The building maintains hygiene and has cleanliness facilities such as availability of a janitor and other cleaners.

There are adequate security systems in place.

The neighbors are acceptable.

The flat’s interiors are adequately decorated and no major repair work is needed.

1. Whether the water drainage facilities are in order

2. Electrical wiring must be sealed

3. Branded products should be used in the home - sanitary wares, fans, heaters, tube lights, etc.

4. Check for wall cracks.

5. There are no leakages

6. Check connection points for telephones, cable TV.

7. Check if there are sufficient power points for lights, fans, air conditioners, refrigerator, washing machine.

8. Check the lofts

9. Check the water tanks – if they are not leaking and are big enough for your water needs.

10. Proper place for keeping washing machine

11. Place for washing utensils

12. Sunlight adequacy

13. Platform in kitchen, position of sink

14. Store rooms, cupboards

15. Quality of flooring

16. Scalability of the home, keeping future plans in mind

17. The flat is properly ventilated.

18. Are the rooms of optimum size and well planned.

The building has a modern lift in working condition.

The terrace is in good condition.

There are no mosquito problems

Housemaids/ helpers are easily available.

Society charges for maintenance, parking space, etc., its rules regarding selling, giving flat on rent, etc.

The 10-step plan while purchasing and taking possession of a ‘resale’ property

Enumerated below is a clear-cut 10-step plan for buying a ‘resale’ property

1. On zeroing in the apartment of your choice, negotiate with the seller on the price. Usually, sellers quote a higher price that what the deal is finally decided upon. Arrive at a mutually acceptable transaction value.

2. Involve a lawyer to obtain the property’s title deeds from the seller and have them investigated in order to ensure that the seller’s title is clear and that there is no charge on the property for any dues from the seller. On the titles being confirmed as clear, request your lawyer to draft an Agreement for Sale, which should be acceptable to the seller as well. This Agreement for Sale is made out, finalized and executed by both the buyer and the seller.

3. Take all original documents and relevant papers from the seller and have the Agreement for Sale registered with sub-registrar appointed by the State Government under the Indian Registration Act, 1908.

4. Take a letter from the seller confirming that the seller is handing over vacant and peaceful possession of the apartment to you.

5. Make sure the seller has paid his electricity bill, society tax and other bills such as telephone bill till he was in possession.

6. Inspect the flat thoroughly before taking possession. Take possession on an auspicious day, if you believe in it. Ensure the seller has not taken anything that he was supposed to retain, such as light fittings, furniture, etc. Change the lock of the main door.

7. Do a puja, if you believe in it.

8. Change the nameplate on the main door – put yours in bold! Change the name in the electricity bill, telephone bill, etc to your name.

9. Make sure the society bills are made out in your name.

10. Insure your home against theft, fire, etc. If you have borrowed to buy your home, the housing finance company normally will insist on insurance and use it as a collateral for your loan.

Suitability

Old property may be suitable for the following –

A buyer whose loan sanction limit is high enough to get the registry done immediately, as well as renovate the old house

Buyers who have ready cash in hand and wish to take advantage of any distress sale.

Buyers who need immediate possession of the house.

Parties involved

Buyer and seller are the two important parties of the sale. A buyer makes his choice according to his budget, while the seller sets the final price, below which he would not like to sell the house. In addition, other parties involved in the process may be –

Banker - It is the bank from where the buyer takes a loan for the purchase. The banker retains the original papers, including registration documents, society membership, letter of allotment, etc till all the dues are cleared.

Broker - A broker is appointed by the buyer/ seller. He negotiates the price, and helps the parties arrive at a consensus. Brokers also help in registration and other formalities.

Lawyer - A lawyer takes care of all the legal aspects – checks if the documents are genuine, title is clear, and all the dues are paid.

Registrar - Registrar is a statutory authority appointed by the government, for registration of the sale deed on payment of appropriate stamp duty at rates applicable in the concerned state/ area.

Pros and Cons of Resale Property

There are various positives linked to buying a resale property. However, you need to be cautious of various factors as well.

1. Advantages of buying a home in re-sale

   You could take a complete view of how the township/ society has come up.

   A re-sale home could give a fair idea about the quality of civil construction.

   A distress sale deal is also possible, in which case you may be able to get attractive discount on the purchase.

   You get immediate possession of the house.

2. Disadvantages

   The house may require a makeover to suit your requirements.

   In addition to the purchase cost, the buyer will have to bear all other charges, including registry, makeover, broker, attorney fees, etc.

   These homes are normally in fully developed localities, leaving less scope for its price to appreciate in the future.

   It is easy to fall for a disputed property unless investigated properly.

   Old construction implies old wiring, pipes, etc unless the seller has recently got the same repaired. You may have to incur high maintenance cost on this account.

Charges and Costs Involved

1. Basic cost of the property

2. Interest payments on your home loan

3. Stamp-duty, fees for registration, etc

4. Loan processing fees

5. Attorney fees, in case you hire a lawyer

6. Broker charges

7. Charges towards maintenance, parking, gas and electric back-up for your apartment, etc

8. Apartment transfer fees payable to the building’s society

Documentation

1. Share certificate of the society bearing the name of the seller

2. Previous chain of conveyance/sale deeds, Sub - Registrar’s receipt in case the previous sales of the concerned property have been registered

3. 37 (I) clearance if applicable

4. 230 A certificate from the Income Tax authorities (to be obtained by seller). This certificate would indicate that the seller has no dues/outstanding in terms of the income tax payable him.

5. Original stamped receipts of payment made to previous sellers

6. No objection certificate from the society for transfer and sale of the apartment

7. Last receipt for the out goings bill paid to the society and electricity bill

8. Set of society transfer forms for transfer of ownership

9. Certificate of Title from an advocate

For flats being purchased in an unregistered society or flats originally allotted by a Development Authority

1. Previous chain of agreements with past owners in original with original receipt of registration (if any)

2. Original letter of allotment.

3. In case the latest agreement is pending registration, the original receipt issued by the sub-registrar acknowledging the pending registration needs to be taken along with a certified true copy of that agreement.

4. Original stamped receipts of payments

5. Transfer permission from the respective authority

6. Copy of Approved Plan and Occupation certificate

Note: Please have all the legal documents drafted and vetted by a property lawyer

New Property

In case you are buying a new property directly from the builder, you need to look out for the following –

Track record of the builder. Scanning though the previous projects of the builder/ developer is one of the foremost criteria. Also conduct a background check of the property. Hire a lawyer to do so. Verify the entire layout plan of the apartment as well as the township/society in which you are buying the apartment. Check for accuracy in the Allotment Letter and details of the building plan. All payment receipts should be in place every time you make a payment to the developer. It is important to obtain a Letter of Possession from developer, once you have been handed over the same, after completion of all payments. Builders may include charges for ground /first floor, park or swimming pool facing apartments, parking charges, etc in the total price. Ensure that you know the details of the amenities and the corresponding charges beforehand, to avoid future hassles. Additionally, you may have to pay charges for parking, maintenance, dedicated back up of power and water supply, etc in advance. It is desirable that such charges should be mentioned in the allotment letter, so that you are aware of such liabilities.

Suitability of Newly Constructed Property

This property type is best suitable for people with limited budgets. There is usually a time lag involved in the hike of the prices of newly constructed properties. Also, it may be a possibility that the builder has sold off majority of the properties in the society/locality in which case he may offer the remaining at a discounted price to speed up the process.

These projects are also suitable for people who need instant possession of the property and cannot afford further delays in taking over custody of the house.

Parties involved in the transaction of new project sale

Builder/Developer - is an important party since he is responsible for making the allotment to the buyer and handing over the possession of the property after receipt of all due payments.

Banker -It is the bank from where the buyer takes a loan for the purchase. The banker retains the original papers, including registration documents, society membership, letter of allotment, etc till all the dues are cleared.

Registrar -Registrar is a statutory authority appointed by the government, for registration of the sale deed on payment of appropriate stamp duty at rates applicable in the concerned state/ area.

Purchase Process – this remains the same as in case of buying property under construction

Pros and Cons of buying a newly constructed property

Advantages

The initial booking prices are usually lower mainly because developers look to sell apartments in their new projects quickly.

There is scope for appreciation in one to three years, since new projects are usually developed in localities with good potential for growth.

Disadvantages

The quality of construction and the materials used in the same quality cannot be judged in advance, for a new project. Issues related to durability of wood, piping, wiring and other crucial components of civil construction as well as infestation such as termite attacks etc are experienced only after using the property for a few years.

Charges and costs involved

Various costs that are associated with the deal are listed below.

Basic cost of property

Interest on the loan that you may have taken to buy the property

Stamp-duty, fees for registration, etc

Loan processing fees

Attorney fees, in case you hire a lawyer

Charges towards maintenance, parking, gas and electric back-up for your apartment, etc

Documentation

When buy a newly constructed property you would be needing the following documents

The allotment letter from the builder

All payment receipts made to the builder

Letter of possession from the builder/seller

Documents related to the registry of your property

Documents of loan approval/sanction, no objection certificate from the bank, etc

Using Cheque Versus Case While Buying Your Home

Some home purchase/sale transaction has an element of cash money payment over and above the transaction value indicated in the Agreement for Sale. This is simply breaking up the total transaction value (buy price for the buyer or selling price for the seller) into cash (black money/unaccounted money) and cheque (white money/accounted money).

Reasons for not showing the entire transaction value on the Agreement for Sale are…

Any property transaction above a specific value has to be reported to the Income Tax Department for scrutiny regarding the correctness of the value. This is a time-consuming affair since the Department takes up to three months to give its clearance.

For the property buyer, this is a convenient method of using his unaccounted money.

Stamp duty is payable as a percentage of the property value. This percentage varies from State to State. The higher the property value indicated in the Agreement for Sale, higher the stamp duty payable.

However, there are certain merits in paying for the property fully in cheque. These are…

1. Home loans are available for up to 85% of the transaction value. Higher the recorded value, higher the loan amount.

2. In the long term, on selling the house, the indexed cost of the house will be higher if the entire value has been paid in cheque i.e. (indexed value is the inflated value of the cost). This will reduce the amount of capital gains tax payable.

3. If the buyer needs to offer his home as a security for a loan, the amount of loan he will be eligible for will be higher.

4. Last, but not the least, the buyer will be free from worries of being hounded by the Income tax Department!