Steps to a secure real estate transaction Part 1

The real estate industry of India is notorious for its lack of transparency. Home Buyers oftentimes find themselves paying for things they do not require or locked into defective properties. Worse, in certain cases the buyer shells out more to fund the fines levied on builders. The Government of India is setting up a regulator along with a Bill towards this end.

Till the regulator or the bill become a reality, property buying remains a highly risky task. To avoid this, knowledge of common tricks property developers use can come in handy.

Since an ownership registry of all the properties within the country is yet to be prepared by the government, in numerous cases, the property title is not clear. Buyers should be diligent and ensure that the property they are purchasing has no encumbrances.

Credentials checking:

Projects, quite often face numerous hurdles while trying to obtain legal approvals from various authorities. Before checking out whether or not a builder has secured all the approvals to begin the construction, the ownership of the land on which the project is to be developed should be thoroughly checked by the buyer.

The developer can be requested to show the allotment letter of the land towards the same end. The allotment letter of the land would be applicable if the land plot has been purchased from a government agency. The next step would include finding out whether the developer has secured all the approvals or not.

The prominent list of approvals that a builder must obtain include structural safety certificates, building and floor plans, environment clearances, no-objection certificates from the civic authorities, urban land ceiling certificates, title deed and commencement certificates, along with an no objection certificate (NOC) from the water authority to use water for construction.

Developer’s background verification:

The builder should have a traceable track record and the number of delivered projects as well as the time taken for delivery by the builder should be considered. This would help to determine the developer’s execution capability based on quality and timeliness. It would also help in comparing the project with that of the developers’ competitors. In order to find the builder’s capability to execute and finish the project in the absence of external borrowings, the builder’s financial soundness should also be studied.

‘Fundability’ of the project is an important criteria, especially in the case of projects being funded by private equity, as it greatly influences the timely delivery, quality of construction and almost every other aspect of the project.

Apartment price:

The apartment’s total price is a factor of the basic selling price (BSP) added with the cost incurred for internal and external development, power back-up, club membership, preferential location charges, parking and maintenance, etc. Generally, charges for stamp duty, registration and maintenance cost per square foot are some of the costs that are not accounted for, by the buyer.

Majority of builders might also charge the charges for society maintenance for up to two years in advance. Discounts might be offered by commission agents who would pay back a part of the commissions gained from the developer to the buyer. The prevailing values and rates should be compared with those of similar projects within the area or comparable locations.

Mode of payment:

The most prevalent payment methods are construction linked, down payment and flexi-payment plans. Down payment plan is the most economical as the developer offers huge discounts but the risks significantly increase in the case of postponing the completion date. The construction-linked plan has a relatively lower risk although it may the most expensive. The flexi plan is a combination of the earlier two plans whereby one is required to pay around thirty to forty per cent 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.

Checklist 

Buyers should check with the developer’s existing customer who reside in an earlier project about the quality of work. Buyers should give more preference to soon to be completed and launched projects. The project’s legality should be thoroughly checked for the status of layout plan, land title and other NOCs. The difference between carpet area and super built-up area of the flat should also be checked, as, proportionate area of common facilities is added to each flat by the developer in the name of super area. Preference should be given to construction-linked payment plans as the buyer would be required to pay as per the pace of construction. In case of applying for a home loan, banks suggested by the developer can be avoided. Buyers can also employ the services of bank lawyers, who provide legal status and valuation of property for a nominal fee, which usually ranges from Rs 3,500 to Rs. 4,000.