BUYING GUIDE

Buyers who refer to this guide can eliminate any hassles that one would usually encounter and is the ideal process to follow while looking for a dream house.

As a primary rule, check and verify if the seller owns the property and has a right to dispose it . In case he is a joint owner, he cannot sell the property without the consent of the other owner(s). One way to be sure of ownership is to go through the house agreement. If you are purchasing a flat in a housing society, ask for the original share certificates. To double check, you can peruse the telephone and electricity bills as they are always issued in the name of the legal owner. Alternatively, you can check the housing society maintenance bill, which contains the owner’s name and property tax details. This will also highlight any pending charges that are due for the flat you want to buy. This is crucial because if the owner sells a flat without paying his dues, the society may recover it from the new owner. To avoid such hassles, ask the society to issue a no-due certificate as well as a no-objection certificate.

Any pending litigation on the property should also be a signal to hightail it. This is because you are bound by the result of the suit, and if the court establishes that the seller was not the rightful owner, you will have to hand over the property to the winning litigant. To check for pending litigation, go through the lis pendens registry at the sub-registrar’s office, as it will contain the owner's name if there is pending suit.

Mortgaged properties are the other lemons you need to watch out for. In such cases, the original documents are sure to be with the lending institution. So, if the seller fails to show you the originals, it's reason enough to be on an alert. If the seller claims he has cleared all debts, ask him to show you the bank’s original discharge letter. Some experts are of the view that a clear title is not assurance enough and one should consider contacting past owners to rule out fraud. As a safety measure, publish an advertisement in the newspaper stating that you wish to buy the property and inviting objections.


Stages in Purchasing Property


Identifying an Agent

Budgeting

Identifying a Property

Assessment of Value

Due Diligence

Agreement to Sell

Sale Deed


Identifying an Agent
An agent can assist in locating and evaluating the right property, providing useful market information and resources, and eventually guiding the buyer through the whole process until the purchase is complete.

However real estate broking firms in India are often not institutionalized, and therefore it is essential that the buyer proceeds cautiously and chooses an agent who is experienced and knowledgeable about the market, transparent and informative through the entire process, and objective while providing information. Aristo will be providing potential buyers with this service for our sale properties.


Budgeting
While determining the budget for the purchase of property, there are several expenses besides the purchase price that must also be accounted for, such as:

Stamp duty

Registration fees

Legal fees

Brokerage fees

Society transfer charges (in buildings with societies)

Builder Transfer charges (in buildings where societies are not formed)

Cost of renovation/improving the property

Cost of furnishing the property

Future house tax/property tax payments

Maintenance fees, whether at actual or in the form of monthly payments to a society


For newly constructed properties, it is also possible that the builder/developer may not be fully transparent at the time of booking with regards to the gross pricing of the property. The gross price should typically be a sum of the base price, external development charges (EDC), infrastructure development charges (IDC), preferential location charges (PLC), car parking charges, club membership if applicable, MSEB charges, maintenance charges, etc.

While external development charges are levied by the developer on the buyer for developing infrastructure within the complex, infrastructure development charges are levied by the government on the developer and, in turn, passed by the developer on to the buyer. This charge includes development charges for water supply, sewerage, storm water drainage, roads, street lighting, community buildings, horticulture, public health maintenance, road maintenance, and street lighting maintenance

MSEB charges are levied by the developer on the buyer for availing of an electricity connection on behalf of the buyer.


Identifying a Property

There are numerous factors a buyer might consider while purchasing property, each with its own benefits and disadvantages.


Independent House vs. Apartment in a Co-operative Housing Society: Setting aside advantages related to independence and privacy, some of the most important factors to consider while making this decision in India are maintenance costs and responsibilities, amenities that may be provided by housing societies such as swimming pools, health clubs, and gardens, and arrangements for parking, security, power backup, etc.


Old vs. New construction: Sale price is generally determined on the basis of built-up area i.e. the measurement of the residential unit at floor measurement, including projections and balconies, and is measured from the external perimeter of the walls, whereas the carpet area i.e. the total area of a premises measured from the internal walls, is the area that is actually usable. In new constructions, the difference between the two might be substantial, and a buyer can end up paying a hefty sum for a smaller apartment, whereas in old constructions this difference is far lower.


Further, property and municipal taxes on new constructions are assessed at a higher rate and therefore the monthly outgoings would be higher. However, maintenance standards of new buildings are generally better than those of old buildings, and new buildings often provide amenities such as swimming pools, health club, garden, earthquake resistant designs, etc. which an old building might not possess.


Location, Location, Location: This is an oft-repeated mantra, which in India is taking on new meaning with the construction of new infrastructure such as highways, bridges and metros –which has generally resulted in appreciation of values in neighborhoods being served.



Due Diligence

Once the property has been identified, and a price agreed with the seller, the buyer’s lawyer will conduct a ‘due diligence’ or a search of all the documents related to the property to ensure that there are no deficiencies with the property that will hinder the proposed sale. Prior to due diligence the buyer and seller may sign a letter of intent or memorandum of understanding, accompanied by ‘earnest money’ or deposit.


Title:   Probably the first – and most important thing – the lawyer will check is the title of the seller with respect to the property. It is essential to know that if the seller does not have perfect title, he cannot transfer the same to the buyer.


For example, if the seller is not listed as the owner of the property, he cannot sell it. Similarly, if the property is jointly owned by more than one person, each joint owner would be required to sign the agreement to sell and sale deed, unless any one of them is authorized to act on behalf of the others by way of power of attorney.


A title search is taken at the office of the local sub-registrar. The buyer should ask for all title documents (and copies of the same) right from the first owner of the property or, in the case of property that is extremely old, title documents thirty years prior to the search. This process can take between 8 and 10 days. The lawyer should also ascertain the survey number, village and registration district of the property as these details will be required for registration.


Encumbrances:   The office of the local sub-registrar would also have to be searched to see if there are any encumbrances on the property, such as a mortgage, lien, or claim from a third party. Although mortgaging properties is not an exceptional practice, one needs to consider the implications of purchasing a mortgaged property very carefully.

In case the seller defaults in paying his debt, the mortgagee – usually a bank – can attach the property and sell it to recover the debt, despite the fact that the mortgagor/seller no longer owns the property. Also, the mortgage deed might contain a stipulation that the property cannot be sold unless the mortgagee gives a no objection certificate and in the case of mortgaged property the buyer must insist that the seller clears the mortgage obtains a NOC from the bank. Alternatively, the buyer may contract with the seller to make payment directly to the bank and remove the encumbrance.


Property Tax:  The lawyer must also check tax receipts for the past three years to determine whether the seller has paid the requisite property tax to the housing society or, in the case of independent houses, to the municipal authority.


Litigation:  It is also essential to ensure that the property is not the subject-matter of any litigation, as cases pending before the courts can take several years, if not decades, to be finally decided.


Probated Will:   In case of property that the seller has inherited, the lawyer must check the will by way of which the property was acquired. Although Indian law does not require a will to be probated (i.e, authenticated by a court), this is preferable as a probate ensures legitimacy of the will and is valid against any claims thereafter made against the seller’s right to inheritance of the property. Although challenging a probated will is not unheard of, it is extremely difficult for someone to do so successfully if the will is not fraudulent.

A buyer must also release an advertisement in a newspaper stating his intention to buy the property from the seller, and for our sale properties Aristo Property Solutions will assist with this. This is done so that any objections to the proposed sale are raised in advance and may be dealt with accordingly. The objections may bring to light certain hidden facts, such as an encumbrance, or title defect which might significantly impact a buyer’s decision to purchase the property. In case there is a defect in the title, the entire sale can fall through if not rectified.

Once the buyer’s lawyer is satisfied that the seller’s title is free from defects, he will issue a title certificate, which is a document stating that the seller has the necessary title to sell the buyer his property.


Agreement to Sell

After the buyer’s lawyer has issued the title certificate, the seller’s lawyers will draw up a document known as an ‘agreement to sell . A deposit may be required from the buyer prior to the title search and agreement to sell; the buyer’s lawyers will furnish the exact details. The agreement to sell will contain the terms and conditions of the sale, and while there is no standard format for the same, it usually contains the following vital information:

Description/location of the property

The purchase price for the property

The amount of deposit payable by the buyer

Date of closing – the date on which the purchase price is to be fully paid to the seller and the sale deed executed and registered by him

Date on which the buyer will be given possession of the property

The agreement to sell might also contain provisions to deal with breach by either party – e.g. forfeiture of deposit in case of buyer’s default, or return of deposit along with interest in case of seller’s default – an arbitration clause or a clause specifying the court which would have jurisdiction in case of a dispute, and provisions for inspection or investigation of title, such as the time in which this is to be completed.

The agreement to sell must be attested by the signatures of at least two witnesses and must be registered by the seller’s lawyers.

It is imperative that a buyer not sign any documents unless both he and his lawyer are satisfied with its contents.


Sale Deed

When the agreement to sell is duly registered and the entire purchase price has been duly paid by the buyer, the seller’s lawyer will draw up a document known as a sale deed. This is the document by which the buyer will acquire ownership and title to the property.

There are certain fees that are required to be paid with respect to the sale deed. Stamp duty, a levy imposed by the government on certain instruments, is payable on the property under the Stamp Act of the state in which the property is located (see box for the applicable stamp duty in various states). The stamp duty is payable either by printing the sale deed on stamp paper of the appropriate value or by franking of the sale deed for the value. In case the buyer has paid the stamp duty and the sale falls through, he would need to apply for a refund, which could take 4 to 6 months.

Like the agreement to sell, the sale deed too is required to be attested by two witnesses and registered, and the PAN cards of the buyer and the seller will be required. Registration of the sale deed is carried out by lodging the original stamped agreement with the relevant registration office. Registering the sale deed is crucial as the title to the property does not pass to the buyer unless it is duly registered in accordance with the Registration Act.

Please bear in mind that stamp duty and registration fees are two entirely separate costs, both of which are to be borne by the buyer .

If the property purchased is in a housing society, the buyer would need to complete certain forms of the society once the property is registered in his name. Once the forms are submitted the society president will raise the issue in the next AGM and admit the buyer as a member. In certain cases, a NOC (no objection certificate) from the society may be required.