Spend, Save and Invest Smartly

Why You need to be Careful while Purchasing a Residential Apartment



Purchasing a good affordable home is something you dream of. It can turn out to be a nightmare if things go wrong.

Always check the documents

Title of the property
The Developer/Builder should be the owner of the property and specified in the title. The title needs to be marketable (free from legal issues) and should not have any pending amounts against it. (The land should not be under mortgage).

Type of land
If the property is an agricultural plot it needs to be converted to a residential plot by the developer. The developer sends an application to the deputy commissioner and the land is said to be DC converted once approved. Check and see if the land used for construction is a residential plot.

Whether building layout approved?


An apartment before construction needs to get its layout (building plan and construction) approved by the local authorities and listed in the Government register.

What happens if you don’t check the building layout/plan?

With population soaring in the country an affordable house can be a distant dream. Fraudulent developers realize this and present affordable projects exploiting your lack of knowledge in real estate to lure you into making a purchase.

Remember
Do not fall for the too good to be true advertisements. Not all developers are frauds, but certain developers (fly by night operators) exploit your lack of awareness while buying a residential apartment and then disappear. If there is no approval for the building plan/layout with the appropriate authorities and the developer has no track record (No history of past residential projects delivered) then alarm bells should ring in your head.

Encumbrance certificate
This document is the most important and tells you if the property has a clear title (Free from legal dues or a mortgage).Check the encumbrance certificate of the property for the past 13 years and if possible even 30 years. Check the encumbrance certificate at the sub-registrars office as this is very important if you want your home loan sanctioned by the bank.

Check the tax receipts
The Government collects tax on property and you need to check in the municipal office if the tax on the property has been paid. You must inspect the latest tax receipts to see if they are paid by the Developer. Check the water supply and electricity of the building

  • If the building does not have adequate water supply then you would have to arrange alternate water supply which can be costly.
  • Power failure and shortages on a regular basis present a major problem. Voltage fluctuations (sudden surges and falls in electric power) can damage costly electronic gadgets (Washing machines and TV) and home appliances.

Building completion certificate
This certificate is given by the municipal authorities only if the building is constructed according to the building layout plan. The height of the building as well as the distance from the road matters in order to get this certificate.

Occupancy certificate
The residential apartment gets the occupancy certificate after the water , sewage and electrical connections are complete.

Flat allotment letter
If you are booking an under construction apartment you need to get a flat allotment letter from the builder. It contains the specifications (details) of the apartment, the construction schedule (when what will be constructed), the delivery date (the date the apartment will be handed to you) and extra charges if any regarding maintenance and administration.

Why the flat allotment letter is important?

The flat allotment letter is handed to you after a certain percentage (say 20%) of the value of the apartment is paid to the builder. Make sure that a penalty clause (stiff fine) is included in case the builder does not hand over the apartment/flat in time. With a number of cases of builders/developers delaying the completion of residential projects and holding customers to ransom (pay more or else the wait continues) this penalty clause is very necessary. Why you can be on the losing side while purchasing an under construction apartment? Consider the following scenarios

  • The under construction building collapses due to a structural defect killing people and the builder is arrested.
  • The builder absconds/flees after mismanaging funds.
  • The builder is arrested in a case of fraud and the residential project is in limbo (half completed)
  • The builder keeps delaying the project asking for more money.
  • You have taken a home loan from the bank and are paying EMI’s over the years. (You may even have completed 90% of the EMI payments).
  • You might never see your dream apartment handed over to you even after you have paid most of the EMI’s on your home loan.
  • It is between you and the banks.
  • You will no longer be able to avail any loans from banks anywhere in India.

What happens if you file a case against the builder?

  • You could win the case and the builder would be forced to return your money with interest.
  • You will still be labeled a defaulter by the bank and cannot avail loans from any banks anywhere.
  • Use the payment received from the builder as compensation; to repay your home loan EMI’s and your CIBIL score could improve with time. Never be in a hurry to make a real estate purchase as this may be a once in a lifetime purchase. If you rush the purchase of your first home without taking time to check all documents or fall for the flashy advertisements of developers then a lifetime of regret awaits.