Gain from new
Housing players If you do adequate due diligence, buying property from a first-time real estate developer can bring in some extra benefits,
The first question asked of those planning on buying a property is: does the property developer have a good track record? Most believe that a developer's past performance determines whether or not a property transaction will go smoothly. But, is this belief correct? Realty experts say that purchasing a property from a first-time developer with no proven track record could be as safe as buying it from an es to b-fished developer. In fact, it could bring in certain benefits. Performing the following checks can help you avail these benefits.
Builder background The first check to perform is that of the developer's background, says Anuj Puri, chairman and country head, JLL, India. "This is especially true if the developer's project is at the pre-launch or the very initial stage of construction," he says. In order to get a property within the stipulated time frame, as promised in the sale agreement, buyers should select projects whose execution does not pose s problem.
If possible, go for ready-to-move-in projects or those about to be completed.
Bank project funding lie bank has approved a project and is funding it, buyers' risks are cut dramatically "A first-time developer will not be mentally ready to face unforeseen problem compared to an established developer. In case any additional expense comes up, his project could get stalled. However, if a bank is funding the project, the developer will not face a liquidity crises," says Ganesh Vasudevan, CEO, India Property Online.
Documents and approvals Buyers need to check the title of the land and other legal documentation to ascertain that the land where the project is to be constructed has been acquired via legal means, says Vinod Sam-pat, a real estate lawyer. "You can get these details from the deputy collector's office or from the registrar's office. These documents will also list the people who owned the property before the developer purchased it," he says. Buyers will then need to verify if the developer has received all the necessary approvals for constructing the project. On averages a developer needs to obtain anywhere be-tween 40 and 50 kinds of permissions - from approvals from the fire department to environmental clearances. One should also check associated documents such as the approved drawings of the project, a copy of the intimation of disapproval (I0D). Ensure that the property is free from any litigation and any kind of debt. Some documents like the occupancy certificate are issued only after the civic authorities are satisfied with all aspects of the project. "You can get the details of the approvals by meeting the concerned officials or getting the information by using the right to information act," says Sampat. Some of the basic documentation that buyers need to check include 7/12 extract-basic document of title and proof of rights, government approved building plan, receipts of property tax that has been paid, Completion Certificate issued by the civic authority, No Encumbrance Certificate issued by concerned sub-registrar -to ensure the property has not been mortgaged - and Occupancy Certificate.
Purchase agreement As a buyer, you must try and ensure the builder-buyer agreement suits your needs. Builders tend to put an escalation clause in the builder-buyer agreement. Ask your developer to re-move this clause. Else, the developer can in-crease the property rates significantly at a later stage citing various reasons - economic and inflationary pressures, rise in cost of raw materials, etc. Also, buyers should ask the developer to put the exact date of the completion of the project. The compensation clause in case of delays should ensure that the builder pays a strict penalty. The purchase agreement, other than specifying the purchase price and the amenities the developer is planning to give the customer, states the mode of payment, details of occupancy certificate, and insurance of the building, says Sarnpat. "The customer must ensure that the developer does not alter the original plans by including the same in the purchase agreement," he adds.
Bank loan Banks conduct the necessary due diligence to safeguard their money. This can work to buyers' advantage. Those apprehensive about going through with a transaction can go for a bank loan to fund their purchase. Customers can also opt for construction-linked payment plans. "This safeguards buyers' payment against any delay in construction and non-completion. The lending bank will disburse the amount after the completion of each stage of the construction cycle, thus reducing the risk," says Sachin Sandhir, managing director, RICS South Asia. At times, new developers also tie-up with non-banking financial institutions and investors acting as financiers. "In such a case, the rate of lending is slightly higher than the prevalent interest rates," says Sandhir. Opting for a bank loan can be a better choice.