INVESTMENT GUIDE

Investing in property may be a cherished dream, but it doesn’t take much for it to turn into a nightmare. Given that real estate is among our most expensive purchases, landing a lemon can prove to be a financial disaster. The only way to avoid such a situation is to take time out to conduct due diligence before finalizing any property deal. Of course, a reliable shortcut is to buy into a project that is backed by financial intermediaries like banks.

You can also engage a lawyer to carry out due diligence, but as a smart buyer, it’s best to pore through the documents yourself. Here is a checklist of documents that you should peruse before signing on the dotted line.


Projects under construction


The first thing one should do in the case of projects that are still under construction is to make sure that the builder has all the necessary approvals in place, without which it would be considered illegal. The first of these is the permission to develop land into a residential complex. Builders need to get government approval to convert agricultural land or even land specially designated for industrial purposes into a residential area. If the builder has gone ahead without securing this approval, the entire project is illegal. In addition, there are environmental and municipal clearances to factor in. For instance, the builder has to ensure that his project does not interfere with the urban and town planning, and that it has unrestricted road access.


Next, find out if the builder has the authority to transfer the undivided share of land to each flat owner and the entire plot to the society, on completion of the project. You should also ensure the builder does not reserve any right on your portion of the apartment, such as balconies or terraces. Lastly, never forget that there’s many a slip between the blueprint and the final product. The developers tend to charge a premium for additional features, such as a swimming pool or designer furniture. However, unless you ask the builder to incorporate all the promised features in the agreement and make provisions for penalty in case of non-fulfillment, you stand on shaky ground. Also, watch out for the fine print: builders may slip in a clause in the agreement, stating that they reserve the right to alter any of the promised features.


To be safe, take a look at the approved construction plans and ensure if they match what has been promised to you. Ask the builder to show you the requisite permits from the concerned authorities. While the approved construction plans have to be mandatorily displayed at the construction site at all times, all the important approvals should be available at the builder’s office. Under the Transfer of Property Act and Maharashtra Ownership Flats Act, a seller is required to disclose all facts relating to the property, which includes the various permissions secured by him. In case a builder refuses to do so, a prospective buyer has recourse under the same Acts. In addition to these documents, you should also take a look at the Commencement Certificate for projects in Mumbai. As the name suggests, this certificate is given to the builder to begin construction only after he has obtained all the requisite clearances. Before you become the owner of a home in a housing complex, you have to complete certain formalities with the developer, such as submission of application form, execution of buyer’s agreement, execution of sale deed etc. Usually, the list of documents to be submitted with the application form is provided in the form itself some of which are:

  • Self-attested copy of identity proof (ie voter’s identity card, passport, driving license etc.);

  • Self-attested copy of resident proof (ie telephone bill, electricity bill, driving license etc.);

  • Copy of income tax PAN card;

  • Photograph of buyer/applicant;

After provisional allotment of the property, execution of a buyer’s agreement between the developer and buyer is the next step. The buyer’s agreement enumerates important terms and conditions with respect to sale and purchase of the property. To prevent unwarranted consequences, buyers must consider certain points before signing the buyer’s agreement:


1. Identification of property:

Check whether the property has been clearly identified and demarcated in the buyer’s agreement. Details of the land on which the housing complex is constructed, details of the property to be purchased such as unit number and floor, super area/built-up area of the property etc should be clearly provided. Moreover, layout plan of the property should also be annexed with the buyer’s agreement.


2. Facilities and amenities:

Details of facilities and amenities that the developer is undertaking to provide with the property must be taken into account. For instance, maintenance of the complex and/or common areas and facilities, electricity back-up, centralized air conditioning, car parking, membership of club/gym etc should be clearly mentioned. Carefully read the document to understand charges, if any, required to be paid for availing these facilities and amenities.


3. Payment of installments:

Check the types of payment plans offered by the developer. These could be down payment plan, time linked payment plan and construction linked payment plan. Each plan could have its own set of advantages and disadvantages. One often comes across incidents of buyers having paid the full/substantial sale price, at the initial stage of booking of the property where construction is far from complete within the time period stipulated in the buyer’s agreement, or worse, where construction doesn’t commence till much later. As a safeguard against unprecedented delays in getting possession of the property, a buyer may opt for construction- linked payment plan. Here, the buyer is required to pay a predetermined sum of money to the developer, only upon completion of specific construction phases of the complex in which the property is located.


4. Penalties:

Another important point to be considered is the clause on forfeiture of earnest money by the developer, in the event of non-payment of installments on timely basis by the buyer. Usually, two kinds of penalties are provided for in a buyer’s agreement

  • penalty on delayed payment of installments levied on the buyer
  • penalty on delayed delivery of possession of the property levied on the developer.

A buyer should carefully note the amount of penalty he would be required to pay in case he fails to pay the installment within the timelines provided in the buyer’s agreement. Also note the amount of penalty the developer has to pay if he fails to deliver possession within the timelines in the agreement.


5. Encumbrances and litigation:

An agent can assist you in finding about any encumbrance, charge and/or litigation with respect to the property and ensure that representations given by the developer with respect to charge, encumbrance and litigation have been clearly incorporated in the buyer’s agreement. Also ensure that the property is delivered free from all encumbrances at the time of possession.


6. Time of delivery:

Ensure that the time of possession is clearly mentioned in the agreement. Also make a note of the consequences (e.g. penalty on seller/developer)of delay in possession.


7. Specifications:

Specifications such as type/quality of flooring, paint, wood furnishings, or accessories such as central air conditioning, modular kitchens, etc if any, promised by the developer, should also be clearly incorporated in the agreement.


8. Transfer charges:

Some developers impose a transfer charge for transfer of the property by the buyer in favour a third party. However, some developers also permit the first few transfers without the charge. Provisions regarding transferability of the property along with applicable transfer charges should be discussed and if possible documented.


9. Other charges:

Last but not the least are provisions with respect to external development charges, internal development charges, preferential location charges, electrification charges, parking charges, interest-free deposit for maintenance services etc., in the agreement. To arrive at the actual total sale price, buyers should carefully consider the quantum of these charges. Also check whether these charges have been included in the sale price or are to be paid as additional charges, over and above the sale price.