POINTS TO PONDER BEFORE ENTERING INTO A PROPERTY TRANSACTION

POINTS TO PONDER BEFORE ENTERING INTO A PROPERTY TRANSACTION

Herebelow are some important points to consider before entering into a property transaction. Some points may vary or differ depending on laws of Local bodies and State.

Types of Transactions

• Under Construction – Outright Purchase/Ready Possession
• Apartments from Developer
• Bungalow/Townhouse from Developer
• Outright Purchase from non developer
• Lease
• Leave and License

Under Construction

•  Riskier
• Don’t get feel of home
•  Less Expensive
• Payment in Installments

Ready Possession

•  Safer
•  What you see is what you get
• More Expensive
• Payment in one go

Under-Construction Properties

• Select your target market
• Map the Market
• Do a Comparative Market Analysis
• Select your developers with care
• Title of the property
• Study the project meticulously
• Project Permissions
• Reputation of Developer

Factors to be considered for calculation of value

—  Area of Apartment

—  Base Rate

—  Floor Rise

—  Efficiency of / Loading on the chargeable area of the property.

—  Parking Cost

—  Society Membership

—  Club Membership

—  Advance Maintenance

—  Stamp Duty

—  Registration

—  VAT

—  Service Tax

—  Transfer Fees

—  Brokerage

—  On Booking

—  Token Amount

—  Before Registration

—  All Dues other than Payment by Bank

—  On Possession

—  Membership, Maintenance etc

—  Transfer Fees

Token Money

—  Commitment to the Transaction

—  Agreement to Price, Payment and other terms of transaction

—  Payment of Token Money

—  Depends on value – for e.g. Fifty Thousand to Five Lakhs.

—  Balance to be given over a period agreed upon

Allotment Letter

—  Allotment Letter given when registration in the near future not possible or desirable

—  Eg. CC not obtained

—  Pre-Launch Investment

—  Investor does not want to spend money on stamp-duty

—  Contains terms of agreement

—  Gives details of Amount paid and pending

—  Mentions Free Transfers if applicable

Process for Mortgage Loans

• Scrutiny of both Property and Client financials by bank/lending institution
• Strongly recommended to have pre-approval of the loan in place before making any down payment or token advance.
• Maximum Purchase Value is ascertained
• Need to close before the approval expires
• Faster Transaction
• Most developers have tied up with banks for speedy disbursal
• On Approval of any project, an APF no. is available, use that as reference for that property
• Ensure that bank approval letter is available before registration
• All Dues other than bank loan to be paid to  seller
• Register the property
• Hand over the original documents to the bank
• Bank should disburse the directly payment to the Seller/Developer

Agreement for Sale vs Sale Agreement

• Agreement for sale is when there are future clauses to be incorporated
• If any of the conditions are not met, the sale may become void or invalid.
• Under Construction properties involve agreement for Sale
• Sale agreement is when all conditions are already met

Registration

• Title of property is conveyed to the buyer only on registration the Registrar’s Office
• Agreement for Sale has to be registered with the Sub-registrar of Assurances within whose jurisdiction the property is located
•  Registration should be completed within stipulated period from the date of execution of the Agreement for Sale
• The present registration fee is 1% of the market value of the property or the consideration subject to a  maximum limit of Rs. 30,000/-

Stamp Duty

• Stamp Duty is payable on the higher of the  market value of the property or on consideration paid under the agreement
•  Document has to be adjudicated before stamping
• The rate of stamp duty payable is 5%
•  The stamp duty has to be paid before signing or executing the document

Due Diligence

• Preliminary check for the title of the property should include
  • Original Registered Chain of Documents
  • Name on Original Share Certificate of Society
  • Name of all people on agreement should agree to the sale
    • Either they should be present
    • Or there should be registered Power of Attorney in favour of the person present
    • If the property is Mortgaged, an NOC from the Bank is required
    • Requisite form needs to be filed with Society
    • Always insist on Lawyer’s report
      • Title Search
      • Public Notice
      • Title Certificate

Possession

• For Under-Construction Flats
  • Getting O.C. By BMC for Under Construction properties
  • Checking of all Amenities
  • Clearance of all Dues
  • Handing over of premises by seller.
  • For Resale Flats
    • Taking of Indemnity Bond from Seller
    • Paying Transfer Fees to Society
    • Getting Name added on Share Certificate of Society

Maintenance

• Occupation Certificate is obtained after all commitments of the developer have been met
• Builder responsible for maintenance after getting O.C. for 18 months.
• Includes Cleaning, Security, Electrical Charges, Property Tax, Routine Repairs, etc.
• Maintenance is collected from Buyers
• On formation of Society, maintenance is handed over to the Society

Society Formation

• Initiation by builder to form Society.
• Opening of Bank Accounts
• Transfer of Unspent Money
• Committee Formation
• Conveyance in favour of society by Builder.

Where there is land involved:

• Calculation of value may be as
  • Cost of Land + Construction Cost
  • Cost of Bungalow/Town House

Treatment of Common Areas

• Housing Society
  • Common Areas belong to a society
  • Share Certificate for flat is the ownership of the buyer
  • Condominium
    • Housing Society can be formed only if there are atleast 10 members
    • Common Areas are shared equally among all Condominium owners
    • Bungalows
      • Land allotted to buyer, his property, common areas same as above

Lease

• Lease is defined under Transfer of Property Act 1882
• Lease is a transfer of a right to enjoy a property, made for a certain time or in perpetuity, in consideration of a price
• Transfer of interest
• Permitted to sublet or assign interest
• Exclusive Possession

Lease Deed

It is a form of contract through which one conveys real estate equipments or facilities for a specified term and for specified rent

Salient features of Lease Deed:

• The parties are termed as Lessor and Lessee in place of Vendor and Purchaser respectively
• Lease Period varies generally from 30 years to 999 years, or any period beyond 5 years, or so agreed.
• On the expiry of the lease period, the lease is required to be renewed as per the renewal terms if the same are provided in the original lease deed
• Attracts Stamp Duty and Registration

Lease Procedure

• Investigation of Title of Property
• Inspection of Documents
• Execution of proper Documents
• Payment of Stamp Duty and registration of Document

Specific Rights of Development / Construction

—  Ownership of land always remains & vests with the lessor alone

—  Public bodies such as Municipal Corporation, Port Trust, CIDCO, MHADA, MIDC etc. offer their lands on this basis

—  Land is offered for a lease period of 60 to 99 years.

—  Lessee is permitted to construct premises on the said land for specific users permitted, on the terms & conditions recorded in the lease deed.

Leave and License

—  License defined under Indian Easement Act and the Maharashtra Rent Control Act

—  Juridical possession of the property is with the licensor

—  No transfer of interest

—  Licensee cannot “sublicense” or assign its rights

—  Constructive Possession – Having the keys

—  Constructive possession of the property  with the licensee

—  Licensee has a mere right to use and occupy the property for a temporary period

—  Personal Facility given and does not amount to any interest in the property

—  Necessary to register and pay stamp duty

Recovery of Occupation :

—  On expiry of license in default, Licensor can apply to the Court for eviction

—  Such licensee liable to pay damages at double the rate of the license fee

—  Arrangement of license in writing shall be conclusive evidence of the fact stated therein.

—  For Companies with paid up capital of 1 Cr, it is easier for the Licensor to evict the Licensee