Buying property anywhere in the world can be a long and drawn out experience. However in India, buying property is a particularly demanding task with several possible hurdles along the way such as inexperienced brokers, title defects, complicated tenancy laws, the condition of the property itself, and financing, to name just a few. It is therefore important that the entire procedure be dealt with systematically to reduce the hassles that accompany it.
Note: NRIs, PIOs and Foreign Nationals may refer to the article, “Guidelines for NRIs/PIOs/Foreign Nationals” available online at www.saffronart.com
Identifying a Realtor
A realtor 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.
A realtor 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 a broker who is experienced and knowledgeable about the market, transparent and informative through the entire process, and objective while providing information. Cushman & Wakefield 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:
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)
- 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, electricity and water connection charges, maintenance charges service and any other applicable taxes, 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, road maintenance, and street lighting maintenance. Electricity and water connection charges are levied by the developer on the buyer for availing of electricity and water 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.
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 neighbourhoods being served.
Investigate before executing sale deed:
- Title is free from defects
- There are no encumbrances on the property
- Property is not locked in litigation
- Inherited property has a probated will
- Utilities
- Property Tax
- No Objection Certificate (NOCs)
Assessment of Value
Another factor while choosing a property is whether the price is commensurate with existing market values. Information on previous transactions can be obtained from the market (brokers, residents of the neighbourhood/complex, registrars office, etc.), but the best option would be to consult a good realtor for advice on the last transacted sale price, comparable sale transactions etc. However it is pertinent to state that brokers may be motivated to inflate prices, and it is therefore not always easy to accurately determine the value of a property in India.
Another factor while choosing a property is whether the price is commensurate with existing market values. Information on previous transactions can be obtained from the market (brokers, residents of the neighbourhood/complex, registrars office, etc.), but the best option would be to consult a good realtor for advice on the last transacted sale price, comparable sale transactions etc. However it is pertinent to state that brokers may be motivated to inflate prices, and it is therefore not always easy to accurately determine the value of a property in India.
Legal Aspects of Purchasing Property
When a buyer has found the property that is the right fit for his needs and budget, there are several legal intricacies that must be dealt with to complete the purchase. It is highly recommended that the buyer instruct a good lawyer while purchasing property. Once the buyer has agreed upon a price with the seller, the rest of the process should be handled by his lawyers. Buying property in India involves lots of paperwork and diligence, and the lawyers should be well equipped to handle the entire process. To that end, the lawyers should ideally be those who are proficient in transactions in the region of India in which the property is located as rules, regulations and procedures can vary between states and also between districts.
When a buyer has found the property that is the right fit for his needs and budget, there are several legal intricacies that must be dealt with to complete the purchase. It is highly recommended that the buyer instruct a good lawyer while purchasing property. Once the buyer has agreed upon a price with the seller, the rest of the process should be handled by his lawyers. Buying property in India involves lots of paperwork and diligence, and the lawyers should be well equipped to handle the entire process. To that end, the lawyers should ideally be those who are proficient in transactions in the region of India in which the property is located as rules, regulations and procedures can vary between states and also between districts.
Buying from a Developer
There are several factors to consider when buying property that is still under construction. Reliability of the developer is paramount, and the buyer should enquire as to his reputation and record before committing to buying any property still in development. Financial institutions and banks funding the developer can help the buyer with his enquiries and to gain a better understanding of the developer’s financial status. It is important that the buyer look into aspects such as timely possession, quality of construction, compliance with the buyer’s agreement (especially penalty clauses), providing the amenities mentioned, etc. It is also important for the buyer to gain first-hand knowledge and the perspective of a previous buyer who has dealt with the developer.
There are several factors to consider when buying property that is still under construction. Reliability of the developer is paramount, and the buyer should enquire as to his reputation and record before committing to buying any property still in development. Financial institutions and banks funding the developer can help the buyer with his enquiries and to gain a better understanding of the developer’s financial status. It is important that the buyer look into aspects such as timely possession, quality of construction, compliance with the buyer’s agreement (especially penalty clauses), providing the amenities mentioned, etc. It is also important for the buyer to gain first-hand knowledge and the perspective of a previous buyer who has dealt with the developer.
If the buyer is convinced that the developer is reputable, a lawyer should be instructed to commence a search of necessary documentation, such as:
- An approved plan of the building along with the number of floors, and that the floor on which the apartment intended to be purchased is approved or not, as sometimes developers exceed the permissions granted to them.
- Whether the developer owns the land on which the building is located, or whether he has undertaken an agreement with a landlord. If so, the title of the land ownership, development agreement with the landowner, and power of attorney executed by the landowner in favour of the developer must be checked.
- That the land is not designated as agricultural land, else the construction will be illegal.
- The building byelaws as applicable in that area and whether the builder is not in violation of front setback, side setbacks, height, etc.
- Whether the specifications given in the “agreement to sell” or the sale brochure correspond with the plans of the construction.
- Whether urban land ceiling NOC (Non Objection Certificate), if applicable, has been obtained, and whether NOC from water, electricity and lift authorities has been obtained.
Once the buyer’s agreement is executed, the buyer would typically pay about 10% total sale price as a deposit. As the property being purchased is as yet incomplete, there are several options a buyer can choose from as far as the remaining payment is concerned.
Down Payment Plan: In a down payment plan, the buyer would be required to make a payment of 10% of the purchase price upfront with another 85% within 30 days of the booking date. The remaining 5% has to be paid at the time of possession, which could take several years. The advantage to this plan is that the buyer would almost certainly avail a discount of 10 to 12% on the Basic Sale Price. However, a down payment plan is not generally recommended as construction – and consequently possession – might be delayed, but the buyer would have already parted with the bulk of the purchase price. Construction Linked Payment Plan: In this plan, payments are made to the developer in instalments over a period of time spanning the time taken for construction of the building. The buyer pays 10% at the time of booking and another 10% after 30 days from the booking date, and thereafter instalments of 8 to 10% at each stage of construction. This is the most practical payment plan as the instalments are linked to stages of construction, and therefore the buyer’s capital is not blocked if the developer delays construction.
Time Linked Payment Plan: This plan is also based on payment in instalments, usually with payments being made approximately every 2 months over a period of 20 to 24 months. However, the payment schedule is decided by the builder and is structured based on time and not the stages of construction, and the buyer would have to pay the instalments on schedule irrespective of whether the construction is proceeding on schedule or not. This option is not as viable as opting to pay under a construction linked payment plan and should ideally be avoided.
Flexi Plan: The flexi plan includes features from both the down payment and the construction linked payment plan. U nder this plan, the buyer would, as in a down payment plan, have to pay 10% at the time of booking and another 30-40% within 30 days. Thereafter the payments are structured as with the construction linked payment plan. A flexi plan can earn a buyer a discount of 5 to 6% of the purchase price.
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.
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 or 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 Cushman and Wakefield 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. Buyer may back out of the final sale for the following reasons:
- Defect in title
- Non-payment of property tax (if not remedied)
- Material structural defects in the property
- Zoning/ land use related issues:
- Constructing unsanctioned floors
- Unsanctioned construction on agricultural/coastal land
- Unsanctioned construction plan
- Previously undisclosed encumbrances on property such as mortgages, liens, or claims
- Absence of probated will (if previously undisclosed) Note that the seller has the right to back out of the final sale if the buyer delays the process unnecessarily.
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.
Buyers’ rights:
- To examine all documents of title that the seller possesses or can produce
- To be informed of any material defect in the property of which the seller is aware
- To the execution of a proper conveyance upon payment of purchase price
- To possession of the property as per the agreement of sale
Stamp Duty Payable:
Delhi: 4 % (Females); 5 % (Joint); 6 % (Males)
Noida: 6% (Females); 7 % (Joint); 8 % (Males)
Gurgaon: 5 % (Females); 6 % (Joint); 7 % (Males)
Pune: 5 %
Chennai: 8%
Kolkata: Municipal area – Price <25 lacs then 6.1%,
Price >25 lacs then 7.1%; Panchayat area 6.1%
Mumbai: 5%
Bangalore: 6.72%
Goa: 3%
Delhi: 4 % (Females); 5 % (Joint); 6 % (Males)
Noida: 6% (Females); 7 % (Joint); 8 % (Males)
Gurgaon: 5 % (Females); 6 % (Joint); 7 % (Males)
Pune: 5 %
Chennai: 8%
Kolkata: Municipal area – Price <25 lacs then 6.1%,
Price >25 lacs then 7.1%; Panchayat area 6.1%
Mumbai: 5%
Bangalore: 6.72%
Goa: 3%
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’ (in certain geographies like Mumbai, 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:
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’ (in certain geographies like Mumbai, 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 – usually it would be in the range of 10% to 20% of the purchase price to be paid in advance
- 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 purchase price (or a portion thereof, if so agreed upon), 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 of and title to the property.
When the agreement to sell is duly registered and the purchase price (or a portion thereof, if so agreed upon), 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 of 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 unless otherwise agreed between the buyer and the seller
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.
