Buying a house? Do some sleuthing
The nature of property determines the specific type of due dilligence that you require to undertake
Property buyers are often warned that they must conduct thorough due diligence before investing in any property, and that they should not rely solely on the verification process done by banks while they are processing a home loan request. This is sound advice, especially in the current times when many buyers have found themselves in troubled waters after making property purchase decisions without doing their homework.
What does due diligence mean with regard to property purchase? Basically, it is a thorough investigative process, the objective of which is to determine whether or not a certain real estate option is safe to invest in. The process requires a focus on different elements, depending on whether one is purchasing a ready-to-occupy property or one which is under construction. A due diligence for redeveloped properties also has specific areas to be focused on.
Due diligence for readyto-occupy properties
Get all details pertaining to the developer’s credibility. Make sure you check the developer’s delivery track record of past projects. There are many aspects that directly affect the level of risk, but are never revealed to buyers. The required information needs to be assimilated at a local level, preferably by someone who has been residing in the locality for a while.
Ask the developer for the approved drawings of the project, a copy of the IOD (intimation of disapproval) and completion certificate and a clear land title. Ensure that the property is free of litigation and any kind of associated debt. Also, establish the existence of a proper society. If one is buying a second-hand property, proper transfer and re-registration should be done before hand over. The documents required for registration of a
residential flat, apart from the sale deed, will include a letter from the society that reflects the number of floors in the building, the year in which the building was constructed, the apartment’s built-up area of the apartment and the number of lifts in the building.
The homebuyer should have a proper checklist in place; this must include the approved usage of the property, notices of any pending or threatened litigation or governmental action relating to the real estate or seller, any applicable condominium documents, service contracts, all construction-related documents including warranties, as-built plans and specifications etc.
Due diligence for underconstruction properties
If the project is under construction, get an accurate idea of the project’s progress. This is especially true if the property is being bought directly from the developer. When no property advisor is involved in the transaction, the risk of falling prey to a deceptive projection of the project’s development progress multiplies manifold.
The buyer needs to establish whether the builder has free and clear ownership of the land on which the project is being built. An agreement between builder and the original owner of the land is not sufficient. The project also needs to have an IOD. This is a set of instructions that a developer needs to comply with so that he can legally construct the project. The IOD is valid for one year and needs to be reissued if the project has not been completed in a year’s time. The project also needs to have a commencement certificate in place.
While considering a prelaunch option, it is even more necessary t o establish t he trustworthiness of the builder, especially in terms of his track record for transparent dealings and compliance with legal formalities.
Due diligence for redeveloped properties
What are buyers to do if they buy properties which are to be demolished or have already been demolished. Two scenarios are made possible. In the first, for the building to be demolished, the buyer moves into the property, which is vacated when other society members leave at the time of actual redevelopment.
However, if the building has already been demolished, the permission of both the society and developer are required since, though money has changed hands, the transaction is incomplete until the property has been reconstructed and registered in the new owner’s name.
Those wanting to buy a house should check for the approved usage of property and any pending litigation