This article is from a series appearing in the magazine Abhiyan.
In the earlier article, we have seen some examples of how a real estate buyer can be cheated. We have also seen the advantages of this investment. In this article let us see :
Check list of matters which may be thoroughly examined before investing in real estate, and
steps that the Government can take to help real estate investors.
Buying of land or a complete building is a complex subject. One should never go ahead without taking the help of a good lawyer. In this article, main concentration is on buying a flat / office or gala in a co-operative society. This is an easier subject. Even for these purchases, I would recommend that the investor should take legal help. However, where it is not possible, the following check list may help.
1. Buy a ready unit. Do not go for under construction premises. That way you are saved from some builders who promise the sky and don't deliver anything. The higher price of a ready unit is the worthwhile considering the risks involved.
2. Ask whether the co-operative society is already formed or not. If the society is not formed; examine the risks involved.
3. Ask for the share certificates. The share certificate is the ultimate title document. The seller must have share certificate in his own name in the co-operative society. And there should be no lien or mortgage on the same. He should be able to transfer the shares.
4. Go to the Society's office. Meet the secretary or other office bearers. Ascertain that the seller is a regular member of the society, that specific shares and the specific unit are allotted to him and that he has no outstanding dues.
5. Understand the procedure and cost for transfer. Be clear about the society's transfer charges and who will bear what portion of the transfer charges.
6. Ask for Income-tax clearance certificate from the seller. In case of co-operative societies, a certificate U/S. 230A is not necessary. However, for your own protection, ask for a simple certificate U/S.230. This would establish that the seller has no serious problems with the Income-tax department.
7. Do not pay any large amounts as advance or "earnest money". Pay only a token amount. Full consideration should be paid simultaneously on execution of the agreements and receipt of "possession".
"Possession" of course comes last. Before that several steps have to be taken. Only suggestion here is do not pay very large amounts in advance. Avoid black money/cash. In any case, pay the major amount only at the time of possession.
8. Get the draft agreement approved by both parties - seller and purchaser. Do not just accept an agreement given by the seller. Show the draft to your lawyer and understand whether the agreement is fair to both sides. If any particular clause is unfair, do not ignore it. Insist on the deletion or modification of the clause as advised by your lawyer.
Wherever possible, you yourself must read the agreement. Do not be afraid that it is too long. Do not be tired. Remember that it represents your life time savings.
9. Take actual measurement of the premises. If you can not take the measurements yourself, ask an engineer or architect to take actual measurements. The fees paid to the professional will be worthwhile.
If the builder or seller tries to discourage you from the measurement, be firm. You must actually know how much area you are getting. If the seller states that he is selling on "superbuilt-up" area basis or "lump sum" basis; still insist on measurement. And if the seller prevents you from measurement, then don't buy. Simply walk out of the transaction.
10.Pay the appropriate stamp duty. Remember that the duty should be paid before signing the papers. If large amounts are involved, pay by "pay order". If you are paying cash, it is better to go to the stamp office personally - or send some trusted man.
11.Possession - Following matters must be completed the time of possession :
11.1Take a separate letter that the seller has given you clean and vacant possession of the premises.
11.2Take a separate receipt on revenue stamp for the full consideration being paid.
11.3Remove the seller's lock and name plate from the premises. Attach your own lock, and name plate.
11.4Get the purchase agreement signed by all the parties concerned in presence of two witnesses.
11.5With the agreement, get all the forms for transfer - required by the co-operative society - also executed properly.
11.6Make out appropriate cheques for society charges.
11.7Submit all documents and cheques to the society for registration of transfer. Both, purchaser and seller may go to the society simultaneously to submit the papers.
12.Submit the transfer papers for registration with sub-registrar of assurances.
A careful observation of this check-list can save you from many possible frauds.
Central and the state Governments can make some changes and improve the position of the investors - and the building industry.
1. Building Construction should be recognised as an "Industry" and banks and other institutions must give adequate loans to the industry at the normal rates that they charge to any other industry.
2. A specialised financial institutions like HDFC and HUDCO may also lend to the builders to a larger extent.
Once financial problem of the industry is solved, a significant portion of wrong doings will be reduced.
3.The same financial institution may also lend to the flat purchasers.
4. This finance, however, should be made available only if the following conditions are satisfied :
4.1The builder must form a co-operative housing society and get it registered with the registrar of co-operative societies.
4.2The land must be purchased in the name of the society and should be registered in the name of the society.
4.3Loans will of course be given only if the land title is clear and transferable to the society.
4.4All the share certificates of the society, the land and building will be mortgaged with the financial institution for the security.
4.5Builder must contribute as least 50% of the loan applied for (Debt : Equity ratio will be 1:2) and must give personal guarantees for the entire loan.
4.6There should be legal agreements amongst the following :
Land owner and society for transfer of land ;
Builder and Society for construction:
Builder, Society and buyer of flats - for the allotment of flat;
Builder, Society and the financial institution for loan.
The financial institution's lawyers must examine all these draft documents and approve the same if they are fair. The pressure of the financial institutions will be far more effective than the pressure of any law passed by the Government.
5.The Sub-Registrar's offices all over India must be thoroughly reorganised. All offices all over India must be linked through a central computer. Registration of documents must be made instantaneous.
Present Maharashtra Government claims to be sympathetic to the house purchasers. If it is really serious, it must take effective steps to help the house purchasers.
If the buyer is cautious and Government is helpful, we can really enjoy the property that we buy. Remember -
1. This is not investment in cash and hence it protects against inflation.
2. You can use the property and yet earn appreciation.
3. Since you have the possession of the property, you are not dependent upon someone else's trust worthiness etc.
4. Real estate in India will not be affected (like gold) by international fluctuations.
I wish all investors, a happy and safe investment.