Your Dream Home is the biggest investment of your life
Your Dream Home is the biggest investment of your life and usually requires immense sacrifices. But staking your savings and signing on for a bank loan do not guarantee that your dream home will materialize. As a home buyers, you need to run many checks on the property you are eyeing. Here's how...
Most middle class people in the country dream of owning a house. Also, investing money in real estate is always rewarding . But since the government is yet to prepare an ownership registry of all the properties in the country, in many cases, the title of a property is not clear. Besides, as there is no clear land acquisition policy, a real estate project can run into trouble and the dream sour quickly. Besides, multiple agencies are required to give approvals before a project can take off and be completed. Unless buyers are diligent and ensure that the property they are purchasing has no encumbrances , they can easily land in trouble.
In order to help homebuyers take the necessary precautions before entering into a deal to buy a house, TOI is taking you through the various approvals and measures that a buyer should look for.
Quite often projects face hurdles in obtaining legal approvals from all the authorities. This not only leads to delay in implementation , but also, sometimes, can force the developer to scrap the project which can cause a huge loss to the buyer.
Before finding out whether a builder has secured all the approvals to start construction, you must check the ownership of the land on which the project is to be developed. For this, you can ask the developer to show the allotment letter of the land, if it has been purchased from a government agency.
If the land has been acquired from farmers, check the title paper which mentions the owner. This will also help you determine whether the title of the property is clear or not. The next step should be to find out whether the developer has secured all the approvals or not.
The major set of approvals that must be obtained by a builder are building plans and floor plans, structural safety certificates, no-objection certificates from the civic authorities, environment clearances, urban land ceiling certificates , commencement certificates and title deed. They will also have to secure an NOC from the water authority to use water for construction.
You must insist on a written agreement with the developer. It should clearly mention the specifications of the apartment and all the terms and conditions, including payment plan, time of delivery and quantum of penalty if any party defaults — construction deadline in the case of the developer and payment schedule in case of the buyer. This will also take care of hidden costs, if any. If one is buying a house in a completed project, the buyer should physically check the occupation certificate, fire safety equipment and mechanism, water and electricity connections and property tax receipts for the project.
This is very important as the country does not yet have a real estate regulator and well-laid-out guidelines for the sector. The occupation certificate from a government authority, in particular, is very important. It signifies that the building is complete and fit for living; and, that, it has not only got all the approvals in place but also that it has adhered to all the norms and building bylaws.
In NCR, purchasing a property is even more risky if one does it through power of attorney - in this, the title of the property remains with the original allottee but the rights to its use and all other benefits vest with the last buyer, who can also transfer the property rights to a new buyer. Even the share certificate of a property in a society continues in the name of the original allottee.
In this situation, it is difficult to find out who is the last owner. This leads to fraud many a times, and a person who is in possession of the property can claim to be the owner of the property with false documents and even sell it off. This is one reason why banks refuse to give a loan to a buyer who is buying a property from a person who owns it through power of attorney. Therefore, it is advisable to buy freehold property from the legal owner alone and get it registered in your name.
Using bank for checking
If you are planning to buy a flat, the best course of action is to buy it through a bank loan. A senior official of HDFC Ltd says that since the bank accepts the apartment - which is yet to be constructed in a new project - as collateral when they give a home loan, they do all the checks, including that of the credentials of the builder, to ensure that the market value of the collateral does not diminish.
So, even if you have adequate money, take a small loan from a bank so that it too is involved in the whole process. Later, if you want, you can prepay the loan as this does not attract any penalty.
It pays to be cautious
When buying a property, no amount of scrutiny is enough. It always pays to be cautious. We tell you how to figure out the value and track record of a developer and get the best deal when you have made your choice.
Background check of the developer :
This will help assess the execution capability of the developer on timeliness and quality. It will also help to compare the project with that of the developers' competitors. The financial soundness of the builder should also be studied as it will indicate his capability to execute and complete the project in absence of external borrowings. The developer should have a traceable track record which is a good reference point for new launches and under-construction projects. The number of projects delivered by the builder and the time taken for delivery should be considered. It is also important to be aware of the developers'involvement in any legal feud in the past so one can judiciously make the buying decision.
Fundability of the project and financial institution affiliations:
If the flat has to be mortgaged, it is always helpful to identify lenders and financiers for the project. This ensures authenticity of the titles and approvals as these would have been investigated with greater diligence.
The buyer should monitor structural and finishing specifications which are spelt out when the project is launched and marketed. However , one should supervise the progress through frequent visits to the site and ensure the specifications, as shown in the sample flats, are adhered to. In case of any difference, one can write a formal complaint to the developer and also approach the consumer court.
Price of the apartment:
The total price of the apartment is a factor of the basic selling price (BSP) and the cost incurred for external and internal development , power back-up , preferential location charges, club membership, maintenance and parking. The costs that are not generally accounted for by the buyer are stamp duty and registration charges and maintenance cost per square foot. Most builders may also take the society maintenance charges for up to two years in advance. Typically, the developer markets the projects on BSP and mentions additional costs separately . In certain projects, pricing may vary depending on the amenities and specifications. Brokers may offer discounts and pay back commissions to the buyer. The buyer should compare the prevailing rates and values with those of similar projects in the area or comparable locations.
Mode of payment:
Although there are a number of payment modes offered by developers for under-construction or newly-launched projects, most prevalent are down payment, constructionlinked and flexi-payment plans. Down payment plan requires the buyer to pay around 10-15 % of the cost as booking amount, around 80-90 % within 45-60 days of booking and the remaining at the time of possession. This plan is the most economical as the developer offers huge discounts but the risks are higher if there is delay in completion. The construction-linked plan has a relatively lower risk although it may the most expensive. In this plan, the buyer pays 10% of the total cost of the apartment or a specific amount for booking and the rest is paid at various construction milestones. The flexi plan is a combination of the earlier two plans whereby one is required to pay around 30-40 % at the time of booking and a similar amount is pegged to construction milestones with the rest to be paid at the time of possession.
This agreement has all the clauses, terms, conditions and legal implications for the buyer and developer should there be a default on either side. Important points are interest, penalty and default charges for a buyer and clauses of refund of payment in case the project is not completed or is scrapped. Also, the penalty in case of structural defects and delay in construction should be included. The agreement should also include a clause to transfer the undivided and common land to the society and owners which will ensure no further development or construction by the developer after the project is completed and handed over. The agreement should be registered.
Area of flat
The buyer should check the area of the apartment as usually the
area marketed and sold is the super built-up area which is then used to work out the cost of the apartment. The developer charges for the built-up area, which includes the area enclosed by the walls and the area occupied by the walls, while the actual usable area is the carpet area which is the area within the walls
Design and layout
Buyer should fi nd out about contractor, architect and structural engineer in order to assess quality of work as this is critical if flat is for own use. Cross-ventilation and ample sunlight should be
Check with people living in a developer's earlier projects about the quality of work Prefer projects which are about to be completed Check project's legality—land title, status of layout plan and other NOCs Check difference between super area and carpet area of fl at In the name of super area, developer adds proportionate area of common facilities to each flat . This 'load' can range from 15% to 45% Go for construction-linked plan because you have to pay according to the pace of construction For loan, avoid banks suggested by developer Seek service of bank lawyer who can provide you the valuation and legal status of property for a nominal fee, usually Rs 3,500-4 ,000
Perpetual lease deed | Conveyance deed | Sale deed in case of resale properties | Mutation paid | Last paid house tax receipt | Last paid electricity and water bills | Completion certificate | Sanctioned plans
For Noida/Greater Noida:
Allotment letter from Noida Authority (in case of a plot or flat built by authority) | Registered perpetual lease deed | Proof of payment of lease rental, one-time or yearly | Transfer memorandum and registered transfer deed in case of resale property | NOC from Jal Department | Share certificate and NOC from society (where applicable as some old sectors or group housings have been allotted to societies) | Completion certificate for houses with sanctioned building plans | Mutation letter in name of current owner
Allotment letter/builder-buyer agreement in case of DLF or HUDA properties | Registered sale deed in name of current owner with all originals from previous owners | Sanctioned building plans and completion certifi cate in case of independent houses | Mutation letter from DLF or HUDA | Proof of up-to-date payments of power and water and house tax charges | NOC from RWA or maintenance offi ce in case of group housing
Titles and documentation
The risk of clear titles and documentation is significantly less if the property is purchased from the urban development authorities. However, if the flat is to be purchased from a private developer or colonizer, one should seek legal assistance to check documents related to land ownership, licences and approvals, allotment letter, sanctioned plans etc.
Certificate from society
One should check the share certificate issued by a society. This establishes the identity of the seller. The share needs to be transferred in your name as the purchaser. This certificate forms a part of your ownership deed.
NOC from society
Check NOC issued by the society in case of a resale. This NOC states there are no dues payable by the seller to the society and that the seller has complied with the conditions laid down by the society.
Ownership titles for group housing cooperatives.
It is essential to have the shares or the ownership documents allotted or transferred to ascertain the legal rights.
If you are buying the property directly from a builder, you should check the title papers showing who the owner is. This will tell you whether the title is clear or the property is under litigation, whether the land is freehold or leasehold, whether the seller has the authority to develop and sell the property, and if the property is free of encumbrances. A clear title can be ensured when there's a conveyance deed in favour of the seller.
Checking by bank
For those availing a loan, the bank normally appoints its own lawyer to check the title deeds. Or, you hire a lawyer and ask for originals, don't accept photocopies.
Another important document is the completion certificate issued by the municipal authorities. It shows whether a building complies with the rules in respect of height and distance from road, besides other things, and whether it is built according to the approved plan. You should also check the occupation certificate . It certifies that water, sewage and electrical connections are in place.
Another document that needs to be checked is the purchase agreement between the developer and the authority or the agency from which the developer has bought the land. It ensures the seller (developer) is entitled to sell the property, states if there is a mortgage on the property, and shows if the mortgage money has been paid off.
If the property has been developed jointly by the owner and a builder, scrutinize the joint development agreement, which mentions the terms of development of the property.
List of approvals
Often a project faces delays in getting legal approvals from a number of authorities. Noncompliance may result in scrapping of the project and reduction in market value. The approvals to be obtained are building plans and floor plan approvals, structural safety certificate , no-objection certificate from the civic authority, environment clearances, urban land ceiling certificate, commencement certificate and title deed. Upon possession, the buyer should physically check the occupation certificate, fire safety equipment and mechanisms, water and electricity connections and property tax receipts.