Important points to keep in mind before you purchase a House Property:
Mr. Balraj Bhatt bought a property in June 2016. However, he is still facing trouble to get the property registered under his name due to pending clearances from the local corporation authorities. In yet another case, Mr. Chandan Mukherjee purchased an apartment in Jan 2015, and the builder promised to give the possession by March 2016. However, Mr. Mukherjee is yet to get the possession of the apartment as there is a delay in the project and the construction is still not complete due to builder’s cash crunch.
There are many such cases where the buyers had to face trouble in dealing with the developers/ builders. To overcome such hassles, here is a list of points you should keep in mind before buying a house property:
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1. Check for legal approvals and clearances
One you decide to purchase an apartment, check for the paperwork from the builder which ranges from the clearances by the local authorities to environment clearances, approval of building plans, etc. Some of the documents you may look at before finalizing the property are:
• Title Deed: It gives you the details of the ownership right, mortgages, any obligations on the property, etc. and will help you to understand whether the land on which the project will come up has been registered and development rights are transferred to the builder’s name or not. You can also take help of a legal advisor to understand the deed or you can ask for a copy of the deed from the builder and get it crosschecked with the land record officer.
• Commencement Certificate: Builders need to have a commencement certificate before starting the construction of the property. These certificates are issued after the inspection of the basic foundation for superstructure and building boundaries, by the engineering and the town planning department. If the builder does not have the commencement certificate, he will not be provided with the occupancy certificate for the property. Occupying such property is illegal.
• Land Use Certificate: Any construction for residential purpose in the commercial or industrial zone is illegal. Go through the certificate to check whether the apartment you are planning to purchase is in the residential area.
• No Objection Certificate: Check whether the builder has NOC for environment clearance, NOCs from electricity board, water board and any other local municipal authorities. The builder should be able to provide the copy of all such NOCs to you.
• Encumbrance Certificate: This certificate contains the details of all the transactions on the property. It is proof that the property is free from any legal and monetary liabilities and will be handed over to you without any burden.
• Miscellaneous: In case you are buying a flat/apartment which is for resale, do check if it is pledged for a bank loan. If yes, then get the clearance from the bank for the loan repayment before purchasing such flat/apartment. Also, check for the previous tax receipts from the seller to ensure that there are no pending bills.
2. Check for the Bank tie-ups
Usually, banks will not finance the projects which have a risk associated with them, especially public sector banks. Banks do a thorough verification of the projects before approving them for any loans. Go for the project which has a tie-up with the banks and finance is easily available, check for the low-interest financing. However, before you believe the bank representative at the site, you should visit the bank branch to understand the T&C.
3. Verify Builder’s Standing
It’s crucial that you check the reputation of the builder in the market before finalizing the property. You can visit the old projects from the builder to check the quality standards followed by the builder. It will also help you understand whether the promises made by the builder would be up to your expectations and you will get the possession of the apartment on time as stated by the builder or not. You can also post your queries on various real estate forums to know more about the builder and its past and current projects.
4. Do Cost Estimation
Many times builders will not reveal the actual total cost associated with the apartment and hide charges such as maintenance cost, preferred location charges, parking charges, club membership charges, electrification charges, service tax, etc. All these charges will escalate the basic cost, and the actual cost of the property will be higher. Do a cost estimation of the property so that it does not cross your budget.
5. Check for the Carpet Area
Any flat/apartment will have Super Built-up, Built-up and Carpet area. Super Built-up area includes Built-up area, Carpet area and common spaces such as elevator space, lobby, staircase, shafts, etc. The built-up area includes Carpet area and the area occupied by the walls of the house/flat. On the other hand, Carpet area is the area enclosed within the four walls of the house/flat. Builders quote the price of the apartment on the Super Built-up area. Carpet area is what you should be more interested in. Usually, the Carpet area will be 20-25% less than the Super Built-up area.
6. Check for the Location of the property and the availability of basic amenities in the area
You can look for a project which is closer to your work location and essential amenities such as market, schools, hospitals, public transport, etc. are readily available. However, do remember, a project in a prime location will be costlier and also after a few years down the line there is a probability of increased population, pollution and other commercial activities in the area.
7. Visit Competitors projects
You can look at the projects being built up by other builders in the area. It will help you to understand the amenities, price, quality and other benefits offered by various developers and make an informed decision before finalizing the apartment.
8. Discounts/Gifts
Builders offer discounts or gifts on early registration of the apartment or sometimes waive off the registration fee. However, remember all such discounts and gifts are already factored into the price of the apartment. Always look for the project which is cost-effective and provide cash incentives rather than getting carried away with such offers.
9. Don’t get bogged down by what you see
Whenever you visit any site, builders will show you the sample apartment. Sample apartments are usually designed to attract the buyers where the furnishings, ambience, and higher ceilings in the apartment make it look bigger. Also, sample apartments will be in a location which offers a clear view of the site from every window and balcony. However, all these are marketing tactics by the builders. The reality may be different from what you see, and the actual apartment may have a smaller space. You can find out the Super Built-up area and the Carpet area of the apartment by looking at its architectural drawing.
10. Penalty clause on late possession
It is quite common that the project may get delayed due to factors which may or may not be in control of the developer/builder, and you may not get the possession of the apartment at the time as promised. It is important that you get into an agreement with the developer/builder for the possession of the apartment that clearly states the date/month for the handover of the apartment along with any penalty clause and grace period associated with the late handover. All the T&C should be clearly defined in the agreement.
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11. Don’t always look at the property from an investment perspective
If you are planning to buy an apartment for investment purpose with the help of a loan, it may not be a lucrative idea because in most of the scenarios the IRR of your investment might be much lower than your cost, if you take into consideration taxes, the interest cost as well as all the incidental costs and charges that are associated with the property. Also, do remember that real estate is the most illiquid asset class, therefore think twice before you buy a second house.
Also read: Capital Gains on House Property: Calculation & Tax Planning
Final Words
Buying a house property is a necessity as well as a dream for all of us. However, it’s important that you go through the checkpoints mentioned above before finalizing any property and putting your hard earned money into it.
