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Methods to Find the Valuation of Property or Apartment

Friday, August 6th, 2010

A property valuation report is given to the property owner to indicate the condition of the house and how much it is worth in the market. The report helps a buyer as well as a seller in assessing the value of a property. Property valuation in India has gained pace with the rapidly increasing demand for Real Estate in India. The property valuation company will give you a comprehensive property valuation report. Based on the property valuation reports, you can estimate the price of your property.

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Property Valuation Methods

The property valuation methods and property valuation process depends on the location of the property, the quality of construction, maintenance of the property, proximity to major infrastructure developments and more. Safety and security of the apartment is another factor which is closely looked upon in the present times. A property located in or near the riot prone area has lower rates, even if it is in the best of location and filled with all the modern conveniences and amenities. Good connectivity of the property with the bus depot, railway station and airport adds the face value of the apartment or house. Following are important property valuation methods.

  • The Investment Method: The investment method of valuation is directly related to its income producing power. This method is a practical and discreet one, extending a fair view of the value of the property. It involves converting a property’s income flow (rent) into an appropriate capital sum. Based on discounted cash flow method, it takes into account the future cash flows that the real property can bring to the investor.
  • The Comparison (or Comparative) Method: This method is best for residential property or purchase of property not usually for investment purposes but for occupation by the owner. In this method, the latest sales figure of property in the market is devised. It takes into account of latest sales figure and comparative values. Based on the comparative values, it derives capital values for properties and rental yield.
  • The Residual Method: This method is used when a property has potential for development or redevelopment. Residual valuations for property are regularly made by people who purchase residential properties that they believe could be made more valuable if money were spent on improvements and modernization. This method is generally applicable in development projects.
  • The Contractors Method: The Cost Method /Contractors Method of valuation of property assumes that a prospective purchaser would be prepared to pay the same amount for the premises as it would cost him or her to purchase a similar property elsewhere. What is required is not the cost of an exact duplicate of the existing building, but the cost of providing the same accommodation in a similar form using up-to-date construction techniques. It is generally used in rating all the compulsory purchases.
  • The Profits Method: For certain types of property, capital value is estimated from the amount of trade or business conducted at the property. In these cases, the profits method is used to take the gross earnings and then deduct the working expenses, which are interest on the capital provided by the tenant and an amount for the tenant’s risk and enterprise. The remaining balance is the amount that can be paid in rent.

Valuation Report is prepared by expert valuers

The valuation report for a property is prepared by expert valuers. If you are obtaining a mortgage, your lender will require a valuation by one of his panel surveyors, to ensure that if the mortgage is unpaid the outstanding amount will be covered. The estimated value of property is only valid as of a given date or period of time, since the market conditions, the investment climate and other factors change frequently.

Valuations are also required during for tax purposes and probate. Wealth tax is to be paid by property owners owning property above a certain value. The valuation report for a property is prepared by chartered surveyor and they offer impartial, specialist advice on a variety of property related issues and the services which they provide are diverse. A chartered surveyor is an expert in the value of property who has wide experience in and knowledge of the property market.

Sometimes, the statute (Law) lays down the methodology to be followed in arriving at the value. In such cases, the valuation report should be prepared taking into account the methodology. For example, for wealth tax purpose, the Wealth Tax Act specifies the procedure to be followed in arriving at the value of a property. The main assumptions and basis for arriving at the value of a property should be clearly mentioned.

Disclaimer: The article  contains data collected from various sources and the use of same is at readers discretion.

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Home Loan- Get Benefit By Shifting To Base Rate

Friday, August 6th, 2010

Base Rate is one of the reforms on banking system by RBI to reduce the lending risk for banks. Before setting the base rate system, banks used Prime Lending Rate (PLR) to set their lending rates. RBI come up with the new Base Rate system where banks can lend the loans based on the new rating system. Banks have given their existing customers the options to shift their benchmark rate to the base rate. Base Rate System has many advantages over the older method of Prime Lending Rate (PLR).

Advantage of Base Rate

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Normally the banks can not lend the money below the PLR but to lure the customers, banks started offering the loans cheaper than the PLR which put the extra burden on the borrowers. RBI come up with the new base rate system where every bank has to declare to the public how they have calculated the base rates. This provides more transparency to compare interest rates offered by various banks.

Banks have given their existing customers the options to shift to the base rate from the existing system of benchmarking against the PLR. The RBI has asked banks not to charge any fee for shifting from prime lending rate to base rate. Once you have shifted to the latest rate, this along with the linkage with base rate will ensure that future costs are saved.

Benefit by Shifting

The borrowers can shift to the base rate from the existing system of PLR. In Base rate system as the banks are supposed to visit their base rates every three months, they will have to cut their base rates if interest rates in the market fall. As all the variable rates of interest are pegged against the base rate, the existing borrowers will also be benefited by any cut in the base rate. The base rate is fixed on the basis of various costs that a bank incurs in mobilizing funds and is a more transparent system.

When a person shifts to base rate, the interest is likely to remain the same. Shifting early to the new benchmark would only help to get the benefits earlier. And if the existing loan rate is around 1-2 per cent lower than your existing rate, it makes sense to renegotiate as well. The bank says the margin would be adjusted accordingly to maintain the effective current interest rate. Assume you have a home loan of Rs 20 lakhs and the current effective rate of interest of 12 percent, now, with migration to base rate as the benchmark, your rate of interest will continue to be 12 percent (7.5 percent the base rate plus 4.5 percent margin). The bank has fixed its base rate at 7.5 percent.

In the new base rate system, if the interest rates fall, banks will have to lower the base rate, which is a function of cost of funds in the market. As all the variable rates of interest are pegged against the base rate, the existing borrowers will also be benefited by any cut in the base rate. Therefore, it is advisable for the existing borrowers to opt for the base rate as their benchmark rate.

Disclaimer: The article  contains data collected from various sources and the use of same is at readers discretion.

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Do’s and Don’ts for Renovation of your Apartment or House

Friday, July 23rd, 2010

Renovation of your flat without consent of your Housing Society or Apartment Owners Association is illegal. An apartment owners association in any state may be registered under - the Societies Registration Act. Every society has its own set of bye-laws, formulated within the frame work of the Society act, for the state concerned. All members of the association are bound by the bye-laws. No addition or alteration of existing flat in an apartment can be done without consent of Housing society or Apartment owners association. Following are Do’s and Don’ts for renovation of your Flat.

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Do’s

  • Do make application to the Secretary of the society, giving all the required particulars.
  • Do get acknowledgement from the Secretary of society on receipt of application.
  • Do get communication from Secretary of society in writing if your application has been accepted and get No Objection for starting renovation work.
  • Do abide all rules laid down by the society and ensure same are being followed by you in terms of working hours.
  • Do keep all the sanitary pipes, water pipes and its fittings in good conditions by replacing the broken parts promptly
  • Do maintain firefighting installation through qualified agencies.
  • Do dump the debris in an approved plot. For debris lying on the footpaths or roadside, you may be liable to be fined.
  • Do take safety of residents in concern when moving or shifting construction materials in and out of your flat.
  • Do get approval from local authority for respective change or addition in your flat.
  • Do keep your apartment and premises clean after completion of renovation works.

Don’ts

  • Don’t change in horizontal or vertical existing dimensions of the structure.
  • Don’t change locations of bathroom/ WC/ kitchen sink, in a way that can cause leakage to residents below.
  • Don’t replace or removal of any structure members of load bearing walls.
  • Don’t merge tenancies by removal or opening of any walls in between two or more tenancies.
  • Do not allow any unauthorized additions/alterations thereby loading the existing structure.
  • Don’t do any work which would jeopardize the safety of the building.
  • Don’t make any alterations or addition to your flat before getting consent from the society.
  • Do not place trash, boxes, or and other movable personal property in any common area.

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Base Rate Will Not Affect Home Loan

Friday, July 23rd, 2010
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Base Rate for loans is effective from July 1, 2010. Base Rate is more objective reference number than the benchmark prime lending rate (BPLR). The impact of Base Rate for individual customer could be an increase or decrease of 25 basis points compared to the current rate of interest they are paying. However, existing customers will not be impacted immediately.

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The base rate (BR) is the minimum rate of interest that a bank is allowed to charge its borrowers. However, all existing loans, including home loans and car loans, will continue to be at the current rate. Only the new loans taken on or after July 1 and old loans being renewed after this date will be linked to BR. The fixing of base rate by banks will not have any effect on the cost of borrowing for home loan clients. However, this will change with the hike in interest rates by RBI to curb inflation. A host of leading banks announced their base rates on Wednesday to 7.5 per cent per annum.

A bank can change its BR every quarter, and also during the quarter. A host of factors, like the cost of deposits, administrative costs, a bank’s profitability in the previous financial year and a few other parameters, with stipulated weights, are considered while calculating a lender’s BR. Only the new loans taken on or after July 1 and old loans being renewed after this date will be linked to BR.

Unless mandated by the government, the RBI rule stipulates that no bank can offer loans at a rate lower than the BR to any of its borrowers. However, all existing loans, including home loans and car loans, will continue to be at the benchmark prime lending rate (BPLR).   After July 1, no bank can lend at rates below BR. Banks’ net interest margins will be unaffected. The impact on banks’ profitability because of moving to the BR regime is not clear yet. Indications are that home finance rates are unlikely to rise unless the RBI hikes interest rates to tame inflation.

BR is a more objective reference number than the benchmark prime lending rate (BPLR). BPLR is the rate at which a bank is willing to lend to its most trustworthy or low-risk customers. However, often, banks lend at rates below BPLR. For example, most home loan rates are at sub-BPLR levels. Some large corporates also get loans at rates substantially lower than the BPLR. For all banks, BR will be much lower than their BPLR. However, there is a chance that some corporates, with low-risk profile, would get a lower rate under the new system as under the BR regime, banks are expected to take into consideration the risk levels of a borrower.

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Guide for Registering Khata in Bangalore

Monday, July 12th, 2010

Khata is important when you apply for any license of building or for trade, applying for loan from any banks or financial institution. Khata is an account which consist all the details of property like name of owner, size of buildings, location of property and all other details that helps to file property tax. Following is guide for registering Khata.

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  • Application for Khata: Get a Khata application form (costs Rs. 10) plus copies of 5 documents (betterment charges receipt, Receipt of latest Property Tax paid, building sanction letters, title certificate, sketch of layout). It is available either online or at any BBMP office.
  • Application for Encumbrance certificate (EC): Get an EC application (Form-22) available free of cost at sub-registrar office. It should be for a period of at least a year. The cost of EC is Rs. 35 for one year. You will need to go back after a day or two to collect the EC. While applying for EC, one has to carry copy of sales deed.
  • Obtain Notarized copy of documents: Get Notarized of the following Sale deed, Form II (if you have), Possession Certificate (if you have), GPA (if used), and fill up the form - green and pink.
  • Submit the Application: Tag the application to the notarized documents, EC, latest property tax receipt, plan of the flat along with the common documents and submit to the local ARO Office. Get the pink acknowledgement with submission number, stamped and signed by respective officer.
  • Follow up: Go back after 15 days to check the status. Keep doing this till you get the demand note. Demand note indicates the amount you need to pay as Khata registration fee.

  • Assessment of Property: Once you submit the Khata application, the BBMP Revenue In-charge and Assistant Revenue Officer personally visits the property to assess the property. After the property is assessed BBMP formally communicates this mentioning the property dimensions (in sq feet), its value as per BBMP assessment and the tax liability thereon.
  • Pay registration fee: Submit the DDs as per the demand note to ARO Office and get a stamped acknowledgement. Once you get acknowledgement, it means the process has begun. The administration fee or demand note amount is two per cent on the stamp paper value. Most people confuse this to be two per cent of the property value mentioned in the sale deed. The demand note is issued in batches. So do co-ordinate with others in your building whose names are in the demand note to get all the DDs.
  • Follow up: Go back after 15 days to check the status.
  • Khata notification: Check the notification to see that your name is spelt correctly and other information like area of flat, car park, and so on are correct. Take the Khata notification to the ARO office with an application requesting issue of Khata certificate (pay Rs. 25) and Khata extract (pay Rs. 100).
  • Khata Registration: Once you pay the Khata Registration fee, in about 1-2 weeks, one receives the notice for paying the pending property tax. Without this the Khata Extract will not be issued in your name. But if you have reached this point it means Khata has been technically registered on your name.

Follow up is important for successfully registering your Khata and getting your Khata Certificate. In case any BBMP official demands money apart from the Khata registration fee and cost of application form, you can lodge a complaint with the concerned Revenue Officer. Do not involve middle men for Khata registration. Approach senior BBMP officials at the zonal level if you counter any problems.

If you don’t get any response from BBMP after 2-3 months, file “Right to Information (RTI) application” to seek information on status of Khata registration. There is no prescribed form for application seeking information. However, the application should have name and complete postal address of the applicant. The application can be made on plain paper. The applicant is not required to give any reason for seeking information. In case of rejection of your application, applicant would be informed the reasons for rejection.


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Home Loan Amortization For Periodic Payments

Thursday, July 8th, 2010

Amortization is the process of clearing out your home loan by making periodic payments. Amortized loans are different from other loans due to the way the amount and the structure of each payment is determined. The word “Amortization” or amortisation comes from Middle English “amortisen”. This term means to deaden or kill, as in to “kill off” or eliminate the loan a bit at a time, via regular payments. An amortized loan is one which has regular periodic payments – usually monthly but can be weekly, bi-weekly, quarterly, etc. which include amounts for both principal and interest. Most consumer loans today are amortized loans.

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Difference between amortization and depreciation

Amortization usually refers to spreading an intangible asset’s cost over that asset’s useful life. Depreciation, on the other hand, refers to prorating a tangible asset’s cost over that asset’s life. For example, a patent on a piece of medical equipment usually has a life of 17 years. The cost involved with creating the medical equipment is spread out over the life of the patent, with each portion being recorded as an expense on the company’s income statement. Amortization is generally used in the context of writing off loans or intangible assets in equated annual/monthly installments over a scheduled period.

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Depreciation refers to prorating a tangible asset’s cost over that asset’s life. For example, an office building can be used for a number of years before it becomes run down and is sold. The cost of the building is spread out over the predicted life of the building, with a portion of the cost being expensed each accounting year. Depreciation is writing off tangible assets as consumed on pro-rata basis, for estimated pre-defined life of the asset.

Negative Amortization

In finance, negative amortization occurs whenever the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the loan increases. Unlike most other adjustable-rate loans, many negative-amortization loans have been advertised with either teaser or artificial, introductory interest rates or with the minimum loan payment expressed as a percentage of the loan amount. For example, a negative-amortization loan is often advertised as featuring “1% interest”, or by prominently displaying a 1% number without explaining the FIR.

The Fully Indexed Rate (FIR) is the sum of the Margin and the current Index value at the time of adjustment. Negative amortization arises when the payment made by the borrower is less than the interest due and the difference is added to the loan balance. If for some reason a borrower only makes a partial EMI repayment, say of half the interest due that month, the shortfall in the interest payment is added to the loan balance.


Loan Amortization Schedule

Amortization schedule is a schedule of payments for completely repaying a loan. It is a table that breaks down each payment (EMI) into interest and principal components. It also depicts the outstanding principal as of each repayment date. An “amortization schedule” for your loan will display the amount of your loan’s principal, the amount of your monthly payment, the interest which would be taken in periodically, how much will be applied to trim the principal, how many regular payments you have to make in order to pay off your mortgage loan.

Some banks have “balloon” home loans. In this type of loan, the necessary periodic payment is set on an amortization schedule that continues beyond the due date of the loan. The main problem with the balloon type loan is the inability of most people to come up with the money needed to pay off the loan at the end of the term. Banks are allowed to exercise a mixture of various methods to compute the interest due on mortgage.

Understanding amortization can result in simple strategies to pay off your loan faster as well understanding what to avoid for preventing having the term of your loan (and your payments) extended. Gratefully, there are numerous free loan amortization table calculators accessible on the Internet. You could use them to compute your periodic payment prior to deciding which loan is best for your situation.

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Encumbrance Certificate for Property Buying

Thursday, July 1st, 2010

The encumbrance certificate is used in property transactions as an evidence of free title/ownership. When buying an apartment, land or house, it is important to confirm that the land or property does not have any legal dues. A prospective home buyer must ensure that the property he intends to purchase has a clear and marketable title. The encumbrance certificate certifies that the property is not mortgaged and has no legal dues. The encumbrance certificate for property is available from the sub registrar office where the deed has been registered.

Encumbrance Certificate

The encumbrance certificate is vital for property buying, applying for Home loan or Loan against Property. Government Authorities and Financial Institution like banks etc demand 13 years of encumbrance. You could demand 30 years encumbrance certificate to be checked. If you still have anymore doubts, you can take a Possession Certificate of the ownership of the particular land, which is available from the village office.

The “Encumbrance” means the charges or liabilities created on a particular property, whereby it is held as a security for any debt of its owner which has not been discharged as on date. The encumbrance certificate contains all the transactions registered relating to a particular property for a period (as required).

The encumbrance certificates are issued in Form No. 15 or 16. If the property does not have any encumbrance during the said period, Form 16 will be issued i.e., certificate of Nil Encumbrance. If the property has any encumbrance registered during the said period form No. 15 will be issued. The certificate in form 15 discloses the documents registered in respect of the property, the parties to the deed, nature of the encumbrance, amounts secured or transacted in the said deed, the registered number of the document, Book No., Volume No., date-wise.

Limitations of Encumbrance Certificate

Government Authorities and Financial Institution like banks etc demand 13 years of encumbrance to confirm that the land or property does not have any legal dues. Public in general frequently use encumbrance certificates in property transactions as the sole evidence of free title / ownership. They are under the impression that the encumbrance certificate would disclose all the encumbrances that a property may have. However, encumbrance certificate has certain limitations and public should not completely rely on this certificates.

The encumbrances disclosed in the certificate are for the period for which certificate is issued and any encumbrance created at a prior date or at a later date are not included in the said certificate. Hence public should not completely rely on the certificates issued by the Registrar or Sub-Registrar office for tracing the clear title of the said property.

Procedures for Encumbrance Certificate

When you intend to purchase a property, an encumbrance certificate is a very important. The encumbrance certificate contains all the transactions registered relating to a particular property for a period. Government Authorities and Financial Institution like banks etc demand 13 years of encumbrance. You could demand 30 years encumbrance certificate to be checked. Before buying any land or house, it is important to confirm that the land does not have any legal dues. Following is procedure to obtain a no encumbrance certificate or encumbrance certificate.

  • Apply on Form 22, with a Rs 2 non-judicial stamp affixed, to the Tahsildar giving your complete residential address and the purpose for which the certificate is required.

  • Furnish details of ownership of property giving correct survey number and place where the property is situated. It is very important that the period, full description of the property, its measurements, and boundaries are clearly mentioned in the application

  • The requisite fee needs to be paid. The fee is to be paid year-wise. The encumbrance year commences from April 1 of a calendar and closes on March 31, of the next calendar year. Any fraction of the said encumbrance year attracts fee for the full year.

  • Enclose address proof such as Copy of ration card or any proof of residence address duly attested along with application.

  • The application should be submitted to the jurisdictional sub-registrar’s office under which the property falls.

  • In case the property does not have any encumbrance during the period, Form 16 is issued. This means no charge has been registered on the property. In case the property has any charges registered against it, then Form No 15 is issued.

  • Form 15 discloses the nature of charges created, documents of the property registered, amount secured, and the registration details and references.

  • In case there is no such entry and the report is favorable, the no encumbrance certificate is issued after conducting a detailed enquiry. The time taken may be anywhere between 15 to 30 days.
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Amendment in Service Tax for Under Construction Property

Thursday, July 1st, 2010

The budget 2010-11 has proposed to levy service tax on all sales of under-construction properties from July 1, 2010. The property buyers have to shell out an extra for payment made for purchase of property. Finance Bill 2010 has introduced eight new services to charge service tax. This includes Special services provided by a builder etc. to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges. There have been further amendments to the Finance Bill, 2010, which have been passed when the Bill became law. The following major changes have been made by the Finance Act 2010 for under construction property.

Amendment made by the Finance Act 2010

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  • An Explanation is added to section 65(105)(zzq) and (zzzh) which deems construction of a new building and complex intended for sale, wholly or partly, by a builder to a person before, during or after grant of completion certificate by the competent authority to be services provided by the builder to the buyer/prospective buyer except in situations where entire amount is paid by the buyer only after the receipt of completion Certificate.

  • Insertion of Explanation will be applicable to the cases wherein the construction activity has yet not commenced, going on or having been completed but completion certificate not received and the buyer makes payment to the builder. It will not affect the transactions wherein the payments have been made before 1-7-2010.

  • Service Tax exemption is provided to construction done under the Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana by notification no. 28/2010 dated 22nd June 2010.

  • Insertion of new clause zzzzu in section 65(105) i.e. levying of Service Tax (ST) on the amount collected towards preferential location or internal / external development. Such as services provided by a builder to a buyer in providing preferential location or external or internal development of complexes on extra charges.

  • Deletion of the word “service” from title of section 65(25b) and deletion of the word “service” from clause 65(105)(zzq) i.e. definition of commercial or industrial construction.

Contractor is entitled to claim abatement

There was some relief for the real estate sector with the finance minister offering for partial roll back of service tax that was imposed on the sector during the budget. Finance minister has rolled back Service Tax to 25% from 33% in the April session when house discussed and passed the finance bill. Abatement scheme, under notification number 1/2006 dated March 1, 2006, says that the contractor is entitled to claim abatement to the extent of 67 per cent of the value of services rendered by him. The finance minister has increased abatement from 67 per cent to 75 per cent. The abatement is subject to the following conditions:

  1. No exemption would be applicable for mere completion and finishing services
  2. The increased abatement of 75% would not be applicable in cases where the cost of land has been separately recovered from the buyer by the builder or his representative. This means that the abatement would have to be calculated on the entire value of sale of flat/unit. Effectively the rate of service tax shall be 2.575 (25% * 10.3%). Also by presumption the notification has indirectly considered value of land at 8% (75%-67%). This in my view is not correct.
  3. The abatement is subject to non-admissibility of Cenvat Credit on inputs, capital goods or input services.

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Authorities for issuing completion certificates

It should be noted that the service tax would be levied only on under construction property. A property is considered “under construction” till the builder receives a “completion certificate” from the relevant authorities. However the ministry has sought legal opinion as local authorities in some states do not issue completion certificates. The government is thinking of allowing some independent authorities, such as architects or builders’ associations, as a sufficient proof of completion.

For the purpose of issuing “completion certificate” by “competent authority” it has been clarified by notification no.1/2010 that for the purposes of sub-clauses (zzq) and (zzzh) of clause (105) of section 65 of the Finance Act, the expression ‘authority competent’ includes, besides any Government authority,-

  • Architect registered with the Council of Architecture constituted under the Architects Act, 1972(20 of 1972); or
  • Chartered engineer registered with the Institution of Engineers (India); or
  • Licensed surveyor of the respective local body of the city or town or village or development or planning authority

who is authorized under any law for the time being in force, to issue a completion certificate in respect of residential or commercial or industrial complex, as a precondition for its occupation.

No Service tax

  • From July 1, all sales of under-construction property will attract service tax. However, resale properties would not levied service tax as resale properties would essentially have obtained a completion certificate.

  • No service tax if entire payment for the property is paid by the buyer after completion of the construction including certification by the local authorities.

  • The low-cost housing segment (property worth less than Rs. 20 lakh) will be exempt from service tax.

The property buyers have to shell out an extra for payment made for purchase of property from July 1. It should be noted that the service tax would be levied only on under construction property. The ministry has sought legal opinion as local authorities in some states do not issue completion certificates. The low-cost housing segment (property worth less than Rs. 20 lakh) will be exempt from service tax. Service Tax would not be levied on parking lot and resale property. All sales of under-construction houses from July 1 will attract service tax with the finance ministry notifying tax on new services. Service tax has also been levied on any payment made by buyer to the builder for getting a preferential location.

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Beginners Guide for Buying an Apartment

Thursday, May 27th, 2010

The demand for property is rising day-by-day. Buying a good apartment from reputed dealer or developer offers you or its residents the convenience of lifestyle facilities like a club-house, swimming pool, gymnasium etc. Buying property is the decision of a lifetime and you need to be equipped with the right know how. It’s important to learn of the origin of the property, continuous flow of the title and present status of the property before buying the property. Buying a property for self occupation or investment is perhaps one of the biggest investments made by a person during his lifetime. A landmark decision like purchasing property need a well thought out.

Tips for Buying an Apartment

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A lot of care is needed while buying new flat to avoid legal hassles. If proper planning is not done prior to property buying, your property can turn into a nightmare. A well thought out helps you to avoid future problems and buying an apartment that meets your requirement. Following tips helps you to buy an apartment or property.

  • Define your requirement: This is first and important thing you need to consider for buying an apartment or property. Requirement of home buyers differ from one buyer to another depending on their lifestyle, family size, preference, usage etc. Defining your preference or requirement helps to save time on unyielding and time consuming deals for inappropriate properties. It will also help your real estate agent to come up with the right property faster. You will have to focus on factors like financing, real estate service providers, paperwork involved and other legal and regulatory issues.
  • Legal aspects of property: Once your requirement is defined and you found right property, check the legal aspect of the property. Be sure that the developer has acquired approvals and No-Objection-Certificate (NOC) from the Municipal Corporation, Area Development Authorities, Electricity Boards, Water Supply & Sewage Boards and concerned authorities. Ensure that the developer has entered into proper development agreements and property has clear titles. Every bank conducts a legal check on your documents to validate their authenticity before sanctioning Home Loan. As a buyer, it gives you confidence that your property has been inspected by experts and your property is legally clear and technically sound.
  • Property under construction: A home buyer books the property when builder or developer launches new project or property under construction. For a project under construction, you should ask for the allotment letter and development agreement. The development agreement is linked between the builder and the landowner and contains details regarding the terms and conditions on which the landowner has permitted development of his property. In case of constructed properties, you should ensure that the seller has the title and possession of the property as well as the right to transfer the property. Check whether dues such as property tax, society, water and electricity bills, etc. have been paid in full. Make sure to take possession of all relevant documents.
  • Duties and Taxes: Understanding Government policy and other legalities Stamp duty, Service tax etc will be extremely handy in making an informed choice of property. The stamp duty is usually a percentage of the transaction value levied by the state government, on every registered sale. The final sale deed should be stamped and registered at the appropriate local area office. The service tax will be charged on those payments made on residential projects which are still under construction.

A lot of care is needed from the beginning right from site visits till the registration of flat. Check the distance from facilities like schools, work place, colleges, transport facilities, markets, hospitals, etc. Check on amenities provided in the building and if any additional cost is involved for the use of these amenities. If the building is under construction, confirm tentative time for completion and enforce suitable penalty in case of delay. Visit the developer’s earlier projects to check out the quality of the construction, landscaping, and other amenities.

Before buying property, it is advisable to appoint a solicitor to inspect the original title documents of the property being purchased. It is advisable not to secure any property in a hurry and without subjecting all the property documents to rigorous legal scrutiny. Find out any minor claims, court litigations, government acquisition proceeding, zonal regulations and other subsisting charges on the property. You should approach a financial institution in order to check if they would provide a loan for that particular property. Planning will help you be out of the panic mode and keeps you on your toes for unplanned emergencies. Do your homework well before buying apartment or signing any agreement to buy the property.

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Service Tax On Purchase of Under Construction Property as per Budget 2010-11

Thursday, May 27th, 2010

The budget 2010-11 brought rude shocking and a lot of confusion to prospective home buyers. But don’t get too shocked, you won’t pay service tax on the entire amount. The budget has suggested 10 per cent service tax on construction. For the past one month, many city builders have been asking purchasers to start paying up the service tax. Buyers are shock and say they were not informed of the additional levy when they had booked the flats. As per the budget, the service tax will be charged on only those residential projects which are still under construction.

Under construction Property

It should be noted that the service tax would be levied only on under construction property. A property is considered “under construction” till the builder receives a “completion certificate” from the relevant authorities. If the entire amount for the property purchase is paid after the receipt of a completion certificate, there would be no levy of the service tax.

The obligation of paying service tax is on the builder. So, you would not have to go through the hassle of paying it. It is the duty of the builder to collect this service tax from the purchaser and deposit it with the department. However, ultimately this burden would be transferred to the home buyers in the form of higher price. This provision would be applicable from 1st April, 2010.

Abatement allowed

Budget 2010 brought a rude shock to prospective home buyers. But don’t get too shocked, you won’t pay service tax on the entire amount. Abatement scheme, under notification number 1/2006 dated March 1, 2006, says that the contractor is entitled to claim abatement to the extent of 67 per cent of the value of services rendered by him. Hence the net effect of the tax could be lesser than the 3.4 per cent, since construction attracts service tax only on 33 per cent of the value. Recently Finance Minister has rolled back Service Tax to 25% of the value.

No Service Tax on resale properties

Service Tax is applicable only on property under construction or where a completed building has not received its occupation certificate. As resale properties would essentially have obtained a completion certificate, this tax would not be applicable to resale properties. Service Tax would not be levied on parking lot. Many builders also sell parking space. It has been categorically mentioned in the budget that any amount paid for getting a parking slot allotted would not be subject to service tax.

Service tax rolled back

There was some relief for the real estate sector with the finance minister offering for partial roll back of service tax that was imposed on the sector during the budget. Finance minister has rolled back Service Tax to 25% from 33% in the April session when house discussed and passed the finance bill. Only days after the budget, ministries of urban development and housing had appealed to the finance ministry for a roll back of the proposed tax. According to analysts, the quantum of impact will not be very big. However, it might see developers shifting focus to affordable developments.

Service Tax on Preferential Location Services

The service tax has been levied on any amount spent by the builder for the development of the complex – like building internal roads, paving the garden, etc. Service tax of 10.3% has also been levied on any payment made by you to the builder for getting a preferential location for your house / flat.

  • Any floor rise amount paid for getting an apartment on a higher floor
  • Any amount paid to get an apartment / house with a specific number
  • Any amount paid to get an apartment / house facing a specific amenity, say a swimming pool, lake, park, sea, etc
  • Any amount paid to get an apartment / house facing a specific direction (maybe as per vaastu)

There is a false impression being created that 10 per cent service tax is levied on the entire value of the consideration which is paid to the builder / developer. Service tax is levied only on 33 per cent of the value. It should be noted that the service tax would be levied only on “under-construction property”. If the entire amount for the property purchase is paid after the receipt of a completion certificate, there would be no levy of the service tax. Service Tax would not be levied on parking lot and resale property. For those who have booked their flats some time back and paid amount based on the stage of the construction, the tax will only have to be paid on the remaining installments and not on the entire value of the flat.

Most of buyers buy a house through a home loan. They book the house when the builder launches the scheme or when it is under construction, and make the payments based on the stage of the construction. This means that they buyers make most of the payment before the builder gets the completion certificate. Thus, the entire amount paid by them to the builder would be subject to service tax. If the entire amount for the property purchase is paid after the receipt of a completion certificate, there would be no levy of the service tax.

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