The ten step buyer’s guide
Have you investigated the title? Have all electricity and water dues been paid up? There are numerous checks you need to do before buying a house. Keep this list handy to avoid headaches later on
Every property transaction is unique. Nevertheless, this guide can serve as added help. Keep the following steps in mind before buying a property, irrespective of whether it is being purchased from a developer or an independent seller. Also, certain additional documents/ procedures that vary from state to state may be required at some stages.
The choice starts with zeroing in the property on broad parameters. At this stage, key considerations must include size and type of the property (flat, bungalow, penthouse, etc.), distance of the property from hospitals, schools, malls. The state of public infrastructure in and around the area, green cover and availability of open spaces, clubs, golf courses, etc are also being factored in now during the finalisation of purchase deals.
Buyers should decide whether they want a leasehold property or freehold property, as their rights and nature of ownership shall differ for the two. Leasehold properties come under the purview of public land owning agencies. Here, the parties execute a perpetual lease deed where the land owning authority takes on the role of a lessor and the person who is allotted the property takes on the role of a lessee. To transfer a leasehold property, the lessee requires prior permission of the land owning authority, upon fulfilment of certain conditions by the lessee. Freehold properties, on the other hand, require no such prior permission to be taken before transfer. Such freedom obviously comes at a price as freehold properties are usually more expensive. At this stage, identifying your financial assets and liabilities
is key to decision-making.
With competition at an alltime high, developers are competing by differentiating themselves in terms of price and value-added amenities such as concierge facilities, spa, gym, tennis courts, etc. In addition to comparing these, conduct a background check of the developer’s project track record with respect to previous housing projects undertaken by it. This is usually a good indicator of the reliability and market standing of the developer.
Investigation of title
The importance of checking the history of change of ownership of the property being purchased, ideally for the past 30 years at least, cannot be stressed enough. Such investigation of title can safeguard against possible defects in the buyer’s title of ownership.
As due diligence is a time consuming and complex process, professional legal help may be sought at this stage.
Demand title documents
As the exact nature of ownership is known only by the seller (owner), it is his duty to acknowledge the buyer’s right to demand and get details of seller’s ownership in the property. Moreover, having original title deeds in hand rules out the possibility of an equitable mortgage (by previous owners) existing on the property. In a welcome step to bring about transparency, developers now keep originals of title deeds at their office, for the prior inspection by prospective purchasers.
Title documents include sale deed, development agreement, power of attorney, perpetual lease deed, etc. In all these documents, the description of the property must match the description of the property being purchased. The property should be clearly demarcated by metes and bounds and identify all owners, if more than one. If the property is indeed jointly owned, check the quantum of share that each joint owner holds. To be valid, title deeds that require mandatory stamping and subsequent registration by law should also have been duly stamped and registered by the seller and previous owners. In a perpetual lease deed, note the remaining duration of lease and clarify whether the rent payable by the seller to the land owning authority is an annual/ recurring payment or a one-time payment has been made. If the seller has inherited the property as a sole legal heir, in case of intestate death of previous owner of the property, the seller can validly sell such property. If the seller has inherited property along with other heirs, ensure that all legal heirs give their consent to sale.
Encumbrances and dues
Registered debts and mortgages can be ascertained by visiting the relevant sub-registrar’s office (where title deeds of the property have been registered). If the seller had previously taken a mortgage on the property being purchased, he must be able to prove the same by showing the release certificate from the concerned bank. If the property is still under mortgage, the parties would require a no objection certificate from the bank before any sale/ purchase. If the bank grants such permission, the buyer usually becomes liable for paying the outstanding loan. Buyers should also visit local municipal departments and service providers to check if there are any outstanding charges (eg property tax, water/electricity/telephone/gas connection charges) on the property in the name of the seller.
Ensure that the property does not fall within any un-authorised settlement/colony. Moreover, it should also have been permitted for residential use. In case the previous permitted usage of land was nonresidential, check whether the seller has the requisite conversion licence/deed permitting the land to be used for residential purposes. Some buyers are also keen to purchase a residential property for the purpose of carrying out a commercial activity in it, such as running a crèche, doctor’s clinic, etc. Before doing so, ensure that the property is actually situated in a “mixed use” area according to the city’s master plan. Buyers must check whether a conversion license for the property has been obtained. Other features of the property (eg parking space, width of road surrounding the property) should also be in compliance with the rules and regulations contained in the relevant master plan.
It is not unusual for buyers to repent their decision when they discover the poor quality of the property’s construction. When purchasing a fully constructed property, the seller should provide sanctioned building plans, completion certificate and occupation certificate for the property. Also check whether the property has indeed been constructed according to such sanctioned building plans and whether the construction is within permissible FAR. If it has been constructed over and above the permissible limit in the sanc- tioned building plans, the seller should have paid the requisite compounding charges to relevant local authorities in order to regularise such construction. If not, the property would be in danger of demolition and sealing as it would amount to an illegal construction.
Once the buyer has completed entire due diligence of the property and is satisfied with his decision to purchase the property, he must continue exercising similar caution at the time of executing the sale/purchase documents. For properties in a housing complex in the process of being developed, an allotment letter followed by a buyer’s agreement is executed between a developer and buyer. However, the buyer’s agreement by itself does not confer title of the property in favour of the buyer, unless it is followed by the execution of a sale deed in favour of the buyer at a later stage. Buyers should thoroughly examine terms and conditions in the buyer’s agreement and sale deed.
Stamping and registration
The Indian Stamp Act, 1899 and Registration Act, 1908, make payment of stamp duty and registration fee mandatory for “conveyance” deeds. Stamp duty and registration fee levied vary from state to state. Adequate stamping and subsequent registration, wherever required, grants legal documents the status of being admissible as evidence in courts. Inadequate/nonpayment of stamp duty can lead to competent authorities impounding such document and charging a hefty penalty of up to ten times the applicable stamp duty. The buyer must pay complete stamp duty and registration fee on time to fully secure ownership over the purchased property.