buying your first home

Simplify your approach to buying your first home

Buying your first house may seem like a tough task. But with a few simple guidelines and a little help, you can breeze through the process without much stress.

Here are a few tips to consider before or during the journey of buying your first house.

Map out your reasons for the home

As much as the excitement of buying a new home can thrill a person, you need to sit down and wrap your head around the basic questions of buying the home.

Are you looking to stay in the home? / is it just an investment?

This makes it easier to figure out your requirements of the home. This can range from ‘the number of rooms in the house’ to amenities provided. It helps you focus on a property that could be a long term investment. This also helps you pick between a second sale house and one that is under construction.

Check your finances

There are three financial points that influence the house you plan on buying.

First, save up for your down payment. This is the minimum amount needed to be paid at the time of purchase of a home. It ranges from at least 5 percent to 20 percent of the price of the property you are looking at. The more you set aside for down payment, the lower the amount needed to be borrowed through loans and mortgages.

Keep a track of your credit score. This score makes it easier to get approved for a housing loan.

Finally, estimate the total cost of the property purchased. This includes parking charges, stamp duty, registration charges, new furniture / furnishings for the future.

It isn’t just about what you can afford now but also about the future.

Ask the experts

Use skilled professionals to help make the journey easier. You may need to spend slightly more but is useful to understand the different parts that come into buying a new home. There could be unpaid property taxes, understanding the usable area in a home; all these factors can be avoided with the help of professionals.

Real estate agents help understand the different prices in a locality and which locality is best suited for your needs. Invest time in meeting with your local banking agents to help pick out loans that are better suited to your needs. Make sure to run the legal paperwork by a lawyer. This will help protect your interests in the process. But don’t forget to do your homework first.

Explore the neighbourhood

It is crucial to survey the neighbourhood. For working professionals, it is important to understand the commute to work. How close is the nearby train station? Can one walk to work? For a family, the need for a good school in the neighbourhood, a nearby hospital, a supermarket and a cinema are top priority when it comes to the location of the house.

It is also important to find out about the future development of the neighbourhood.

If you are planning on investing in a rental property, look for localities with high-rent or highly populated areas. Choose wisely and your home may be your best investment.

Keep your checklist ready and secure your loan

Once you have checked everything off your list, it is now time to secure the best loan for you. Think about the fact that a short term loan often has a lowered interest rate than a long term one, but a larger EMI. It is ultimately your decision. You have to decide how much time you need to repay your debt, within a given span of time.

The best way to start the process for finding a home loan in India, best suited to your needs, is to check for the lowest home loan interest rate. Look at the additional fees and charges such as the processing fees and prepayment charges. Make sure you pass the eligibility criteria. Check the other offers provided by the lender. These include prepayment facility, customized insurance scheme, online account access, etc and different loan repayment options.

Remember that banks, housing finance companies and other lending institutions calculate home loan eligibility on the basis of various factors like age, income, credit score, property value and work experience.

The next step is applying for the right house insurance. This will protect your property and ultimately makes the process of buying easy.

Keep looking for the best

Always remember to keep looking until you find a home better suited to your needs. At times you may get carried away with fancy furnishing and grand views and landscapes. Remember that these may increase the maintenance of the home. It is important to think minimal, not extravagant.

Keep in mind that the first house you like may not always be the answer to your prayers.

For homes that are under construction, visit ready buildings by the builder for a clear understanding of what you can expect.

Resale sale Value is an important aspect to consider before you plan on investing in a property. Most property buyers focus solely on prime locations or the budget of the property. If you choose the wrong estate or location, it is possible that your future sales price will always be less than the other homes around it.

After you have bought your dream home remember to fill rooms with basic furniture and build up from there. This helps protect finances and keeps you stable with your loans and mortgages.

Conclusion

These simple but important points can help make the process simple and as smooth as possible. Now the question that arises next would involve down payment and your current savings account.

You are probably waiting for the right time when your savings account is ripe with the exact down payment budget you had set for your dream house, but here’s the truth – You might take years until you reach that ‘right time’ and probably end up settling for less.

The good news is, you now have an option where your down payment is taken care of. Don’t believe us? Check out the HomeCapital Program.

Deal closure

Chapter 8: Deal Closure

Legal Due Diligence

Legal due diligence is a process by which you can minimise the legal risks associated with a real estate transaction. It forms the most critical aspect of your home buying process as you put your life savings into it. Neglecting anything in this aspect can lead you into unnecessary litigation or property dispute. It might also lead to losing your ownership rights or paying hefty penalties. Real estate transactions are legally sensitive matters. The true value of your real estate transaction or investment is realised only when you take into account the legal risks associated with it.

Home buyers should not lock any money with the builders/agents without conducting a proper legal due diligence on the property of interest. You will need the help of a lawyer or legal expert to perform your due diligence. You should ask your lawyer to create the draft agreement between you and the builder.

We present to you a comprehensive checklist of steps necessary to complete your legal due diligence process. The steps included are as follows:

Chain of Deeds/Title

While purchasing a property, make sure all the historical transfers of land title are in order and there is no missing link. Your lawyer will conduct searches in the Registrar Office and courts to be sure about the land. You should establish the successive transfer of land ownership since the past 30 years. If you are buying a flat/apartment in a multi-storey complex, you can conduct searches to verify that the developer/promoter has clear title of the land on which the structure is built. Ask for the title clearance certificate along with the search report from the builder.

Intimation of Disapproval (IOD)

An IOD is an authorization certificate issued by the local municipal body once the builder has obtained all the required No Objection Certificates (NOCs) separately from various departments and government authorities. The final approval to build is called the Commencement Certificate, which is given only when all the NOCs are obtained and all the IOD conditions met. There are about 40 IOD conditions for the builder to be met. Some of these include the Environment Authority and Airport Authority., If you are buying a unit in an under-construction project, make sure to ask for the copies of the IOD, NOCs and Commencement Certificate to avoid any future problems.

Completion Certificate (CC)

This is a certificate from the local municipal body confirming the completion of the building in accordance with the Building Standards and originally approved plan. You should ask for the CC from the builder once the deadline for the completion as mentioned in Sale Agreement is over.

Occupancy Certificate (OC)

This is the permission to occupy the building for the purpose of living. This certificate is issued by the local municipal body once the developer submits all necessary clearances such as electricity, water, fire and sewerage. You cannot legally occupy your unit for living until and unless the builder has the OC for the same.

Obtaining Possession

Once the building is ready for occupation as notified by the builder, it is your responsibility to check if what you are getting is what was promised during the start of the project. There have been instances, where the buyers have felt cheated by the builder as they did not deliver the amenities and features as initially promised or advertised. So, before taking the possession of your home from the builder make sure that you check everything related to your new home be it Project Delivery or Legal Documents.

Any irregularities with the delivery of the project or with the documentation should be flagged with the developer or agent. In case your queries are not resolved by the developer/seller, you can approach your state Real Estate Regulatory Authority (RA) for a timely resolution.

Your checklist before possession is classified into two categories: Project Delivery and Legal Documentation.

Project Delivery

Final Layout

Check if the final delivery is as per the originally planned layout & floor plan mentioned in the project brochure. Measure the dimensions of the rooms, hall, bathrooms, kitchen and balconies among other areas. to see if the actual carpet area is as per the agreements. In case of any major deviations, you can deny the possession and ask for a full refund with interest from the builder. You can approach your state RERA if the builder denies his obligations.

Built Quality

Check if the building and unit walls are properly built without any cracks. Check for any water leakages in the walls. Ensure that your unit adheres to the building standards & safety norms. Check if the door and windows of the house are placed as per the original plan. Ensure that they are of good quality with proper latching & knobs and are working smoothly.

Paint

Check for the quality of paints applied on the walls, wooden surfaces, doors, roofing sheets and so on. Check if the paint is of a good brand and has been applied as per manufacturer’s recommendations.

Amenities

Check if you are getting all the amenities as promised. Check for the type of amenities you were promised / advertised such as park, swimming pool, gym and clubhouse, among other facilities along with their quality and size. Flag any misrepresentations with the developer or approach your state RERA.

Electric Connections

Check if all the lights, fans and buttons are working properly. Ensure that all the sockets, plugs and bulb / light holders are properly fitted and connected to the main supply. Check for any broken wires in the house. Check that all the meters are installed and ensure that they are running properly. In case there is an inverter, check for the supply shift by turning off the main switch. For this purpose, you can hire an electrician. Check if the Miniature Circuit Breaker (MCB) has been installed and is of good quality. The MCB needs to be suitable as per the voltage supply of your home.

Common Facilities

It is a common occurrence that the flats are ready but the common amenities and facilities remain incomplete. The builder insists on giving you possession and demands 100% payment even if the project remains incomplete. You should avoid doing such a mistake as there is a risk that the project will never be completed. Remember that you are not just paying for your house but for the common facilities as well. You have the right to deny the possession and demand compensation or refund if the project remains incomplete when it comes to common amenities such as lifts.

Kitchen, Bathroom & Sanitation

Check if all the kitchen, bathroom and sanitary fittings are done in a proper way. The number of fittings, quality & brand should be as per the sales agreements. Check the working of all the taps in the house; if they are opening and closing without any leakages. There should not be any leakages and blockages in the fittings. And lastly, ask for the warranty papers of the fittings as most of the trusted brands come with a few years of warranty.

Flooring

Check for the floor of the new flat, if it is as per builder specifications (ceramic, marble or wooden) and does not have cracks. You would need to do a major rework if you ignore the flooring quality. You should check the material and work quality.

Drainage

Check if the water is flowing properly through the drainage system of the house without any clogs in bathrooms, kitchen and balconies. Also, check for any water leakages in the house. Clogs and leakages will lead to seepage in walls, which can be difficult to rectify later.

Obtain All Sets of Keys

Ask for all the sets of keys before possession for a worry-free stay. Some keys might be held by the construction/maintenance agencies. Ensure that you get back those keys as well.

Others

Some builders may promise additional features such as home furnishing and air conditioners (ACs) among others. Check if the ACs have proper water outlets as improper ducting can lead to water seepages in the walls. If you have invested in a home that has digital features such as lighting control, security cameras and temperature control, do check all the equipment to make sure that they are in a perfect working condition.

Legal Documentation

Encumbrance Certificate

A document that has details of all the transactions on the property over a period of time (usually 13-30 years). It is an evidence that the property in question is free from any monetary or legal liabilities. The certificate confirms that the property has a clear marketable title and will come to you without any financial obligations.

Khata/Patta (Certificate/Extract)

These documents certify that a particular property belongs to a particular person, who is responsible to pay taxes over the property to the local authorities. The documents also contain property details such as name, size, use and value of the property needed to evaluate tax on the same. Khata is used for registering your property, selling the property, availing loan on the property and applying for utilities such as water & electricity connections.

Sale Deed

Also known as Title Deed/ Mother Deed/Conveyance Deed this is a legal document, confirming the sale of property and transfer of ownership. The document establishes the ownership of the property in favour of the buyer and entitles them for further transactions on the property. A Sale Deed will be your main property document that needs to be registered with the Sub Registrar’s Office within 4 months from the date of execution.

Allotment Letter

A document issued by the developer, Co-operative Society, Housing Board or the Regional Development Authority required by the banks / Housing Finance Companies (HFCs) for the disbursal of your home loan. The document is proof that a certain property has been allocated to the buyer upon the payment of initial funds. The document contains the details like the amount paid, the amount due, the property details and project specifications on the basis of which the banks / HFCs will release the funds as a loan.

Possession Certificate Copy

A document issued by the developer to the home buyer that confirms that the possession of the house is being delivered to the home buyer on a specific date mentioned in the document. The document is essential to get tax deductions. By accepting the possession certificate, you confirm that the final product is delivered in a good condition as initially promised and that there is no major re-work. Do not accept the possession if you are not fully satisfied with the final product. If you notice any shortcomings in the delivery, you can deny the possession or accept conditional possession.

Tripartite Agreement

It is an agreement between the buyer, the builder and the bank/HFC in case one goes for a home loan in an under-construction project. Such an agreement is made because the ownership of the flat/apartment lies with the builder till the date of possession. The agreement ensures that the builder has a clear title over the land and makes them liable to complete the project on time as per the actual plan.

The agreement bars the builder from entering into any other agreements over the said property with any other party. The agreement makes the buyer liable to pay the EMIs as per mortgage agreement even if the builder delays or fails to deliver the flat on time or in case of any disputes between the buyer and the builder. In case of a default in repayment by the borrower or in case the deal between the borrower and the builder gets cancelled for any reason, the builder has to refund all the money back to the bank.

Maintenance Service Agreements (MSA)

An agreement between the builder and buyer where the builder agrees to provide and maintain essential services on reasonable maintenance charges to be paid by the residents. Most buyers don’t pay heed to maintenance charges initially but later feel the burden as the possession nears.

Once the society’s Resident Welfare Association (RWA) is formed, and the maintenance work is handed over to it, the builder can no longer charge for maintenance. The RWA can then devise its own set of rules for maintenance charges.

No Dues Certificate

It is given by the builder, once you make all the balance payments and pay all the charges as mentioned in the sales agreement. It is to be noted that the builder will not grant you the possession of your flat until and unless you clear all your dues as per sales agreements.

Joint Development Agreement

Joint Development Agreement comes into picture when the builder develops on the land owned by a third party. The land owners pool their land as a resource and the builder bears the cost of construction. If you are buying property in such an arrangement, make sure to ask for a copy of the Joint Development Agreement registered in the sub-registrar’s office.

Make sure who has the marketing rights over the flat/apartment you are purchasing, the landowner or the builder. You can ask for an NOC from the other party or execute a tripartite agreement involving yourself, the builder and the land owner.

Successfully Negotiating a Deal

Chapter 7: Successfully Negotiating a Deal

Scope for Negotiation

The developers are experiencing a liquidity crunch. They are bending by accommodating customers with more discounts and attractive offers. In the current market scenario, where there is more inventory than buyers, there is a room for more innovative negotiations such as flexible payment plans and freebies such as club memberships. Before starting a successful negotiation, it is advisable to do a background check on the developer. If the developer has enough number of buyers for his new project, then you can negotiate but up to a certain limit. The final discount, which you get might not be up to your expectations.

In order to successfully negotiate with the developer, you should:

Thoroughly Research the Market

Knowledge of the local market will help you in negotiating with the developer in a smart manner. In order to successfully strike a deal, you should know the prices of similar properties in the area. You can gauge the property prices prevailing in the area of your interest through online property portals such as MagicBricks.com, Housing.com and CommonFloor.com among other portals. You should try to find out for how long the property has been up for sale. In case of a property that has been unsold since a long time, the developer will like to liquidate the property at terms that are favourable for you. In such a scenario, the two things that work in your favour are long unsold inventory and the developer’s level of indebtedness.

Understand Price Trends

To get a realistic picture of how much discount you can get, it is necessary to understand the price trends prevailing locally. You should compare the price of the property now to the price of the property during launch. Local brokers can also help you in understanding how the property prices have moved in the market and how much discount on the quote you can get. Anyone who has already purchased a house in the same project/area will tell you how much the property has appreciated and how much discount you can expect. You should be extra cautious in case of heavily discounted properties.

Place Your Offer

Now that you understand the prevailing market conditions and price trends, it is time for you to make an offer. Contact the developers of all the properties you are interested in and ask for a quote. You should let them know that you are a serious buyer and want to buy a home at the earliest. Let them know that you are looking for the best possible deals and discounts and are exploring all possible options with different builders. Once you have the quote, make an offer supportive of your market and price research. Liquidating inventory even at lesser prices helps them to save funding costs and get the much-needed cash. You can make an offer at a price that is 15% lower than the quoted price so that you can get a practical discount of 7% to 8%, which is a win-win situation for all.

Be Cash Ready

Developers wish to sell their inventories as soon as possible. So, if you are cash- ready to make an ‘Advance Payment’ or pay the ‘Application Fee’, you can strike a good deal. For serious buyers, developers sometimes offer irresistible deals. You should keep your cheque book and/or pre-approved home loan documents ready in such a situation, as you will not be able to get the same deal again.

Realistic Approach

You should adopt a rational approach while negotiating with developers. You should understand that the developers might not lower prices below certain levels due to the costs involved and their own expectations of margins. Developers will also be mindful of their code of ethics as they do not want to give an impression that some customers are paying more and some are paying less. They are also averse to continuous bargaining. So, the buyers must consolidate all the negotiating points into a single offer.

Approach Brokers/Agents

It is sometimes likely that some real estate brokers/agents might bring you excellent deals and discounts given their experience, knowledge and network in real estate. In such a case, the amount they charge as brokerage will make economic sense. Even if you decide to go with a broker you should do your own thorough research. If you do not do your research, it is likely that you will end up paying a higher commission in the form of a higher quote of the property. You should also only go with reputed and RERA compliant brokers.

Perform SWOT Analysis

SWOT stands for Strength, Weakness, Opportunities & Threats. Before buying any property, you should analyse and note down, the Strengths, Weakness, Opportunities & Threats associated with any property. Such an analysis will help you in making your buying decision and enhance your negotiation skills especially while negotiating for the price. SWOT is an all-round analysis and will help you in making a particle decision.

Conclusion

Finally, you should understand that negotiation is different from bargaining and is intended to benefit both- the buyer and the seller of the property. In a successful negotiation, the buyer will be able to get the best price within his budget and seller would be able to make decent profits after all the deals and discounts in the favour of the buyer. To summarise, in order to successfully negotiate the deal, you should do your groundwork about the project, its developer, his overall credibility and track record of previous projects, the location and property prices in the vicinity and lastly the overall trends in the property market.

Understanding RERA

Chapter 6: RERA

The Real Estate (Regulation & Development) Act, 2016 (RERA) was enacted by the Indian Parliament in 2016 to regulate the real estate industry in India with the objective to ensure transparent and fair transactions. It is a landmark development and a much-needed consumer-oriented reform introduced with the aim to usher in a new era of transparency and accountability. RERA is a blessing for home buyers as it is launched with the vision to create a more balanced ecosystem in their favour.

The purpose of RERA is to curb the inflow of black money into the primary and secondary markets and help end speculation & price control. It is introduced to improve the financial discipline of the developers as they will not be able to divert funds from a given project. This will ensure timely completion of the projects.

About The Act

Real Estate (Regulation & Development) Act, 2016 (RERA) is an Act of Parliament of India passed in March 2016. It received the consent of the President of India on 25th March 2016 and came into force from 1st May 2017. The Act aims to establish a Real Estate Regulatory Authority in each state and union territory for the promotion and regulation of the real estate industry. It aims to ensure the sale of real estate properties (plots, apartments buildings) and projects in an efficient and transparent manner by protecting the interests of consumers.

The Act is applicable to ongoing and upcoming commercial and residential projects. However, it is not applicable to redevelopment, repair or renovation projects that do not include new allotment, selling, advertising and marketing.

The chance of a delayed possession has been the biggest cause of concern for any home buyer. In the absence of a regulator and no rules in place, it was the home buyer who had to suffer at the hands of builders. Now with RERA, each state and union territory will have its own Regulatory Authority (RA). The RA is responsible for framing rules and regulations according to the Act.

The Act aims to empower the RA or an Adjudicating Officer to resolve disputes and pass judgements. It also aims to create Appellate Tribunals to hear appeals against the orders, directions or decisions of the RA or the Adjudicating Officer.

Under the Act, the centre and the states are stipulated to notify their own versions of RERA based on the model rules framed under the Parliament Act within six months of its commencement date.

Features of the Real Estate (Regulation & Development) Act, 2016 (RERA)

  • Mandatory Registration: All the real estate developers across the country need to register mandatorily with the Real Estate Regulatory Authority of the state or union territory where the projects are developed. The projects (total size >= 500 sq.m. or number of apartments >= 8), which are new, ongoing or where the completion/occupancy certificates have not been obtained come under the purview of RERA. The Act also calls for compulsory registration of real estate agents.
  • Deliver as Promised: The promises made by the developer/promoter would be legally binding on them. Developers will now have to notify the buyers of the ‘carpet area’ of the units sold to them. They will now have to provide a declaration along with a written affidavit about the time period within which a project or a specific phase would be completed. The promoter is liable to compensate the buyers if any incorrect or false statement is given related to the building, apartment, plot or real estate project with a full refund of the property value and the interest amount.
  • Customer Centricity: RERA aims to protect the interest of property buyers and has empowered them with enormous rights to deal with errant developers. Its penal measures act as a deterrent for builders against cheating home buyers. RERA also contains provisions for speedy and effective redressal to aggrieved buyers.
  • Financial Discipline: Developers cannot accept more than 10% of the cost of unit sold as an Advance or Application Fee from the buyers. The developers will now have to deposit 70% of the amount collected from home buyers for the project in an Escrow Account, which is an entirely different dedicated account. This account is maintained in a scheduled bank to cover the cost of land and construction. The withdrawals from this account depend on the progress of the project, which has to be certified by an engineer, authorised architect or a Chartered Accountant. All the project accounts need to be audited on a timely basis, failing which would lead to freezing of the account by the RERA.
  • Land Title: The developers must provide a declaration that they possess the legal title to the land on which the development will take place. The declaration has to be supported by legally valid documents and a written affidavit. A separately written affidavit has to be provided by the promoter stating that the land is free from all encumbrances.

Consequences of Non-Compliance

In case of non-compliance with the RERA rules & regulations, the developers can lose the registration of the project. They can also face imprisonment up to a maximum period of three years and/or can be fined up to a maximum of 10% of the total estimated project costs.

In case of a default or delay in granting possession of the property by the developer as stipulated in the ‘agreement of sale’, the buyers have a right to withdraw from the project and get a full refund of the amount along with a certain rate of interest. Even if the registration of the developer/project is cancelled, the buyers will have full right to refund.

In case the buyer does not want to withdraw from the project and ask for a refund, the developer has to compensate the buyer every month with interest payments until the possession is granted. In case the buyers default in making payments to the developer, they will also have to compensate the developer with the same rate of interest.

The rate at which the developers or the buyers will compensate each other will be the same and will be determined by the state RA. This rate may differ from state to state. In most states, the rate of compensation is SBI MCLR + 2%.

The Real Estate Appellate Tribunal (REAT)

If buyers are not satisfied with the decision passed on by the Real Estate Regulatory Authority or the Adjudicating Officer, they can approach the REAT to challenge the same.

Benefits for the Home Buyers

  • Developers cannot delay the project. If delayed, the buyers should be compensated at the rate of SBI MCLR + 2% by the developers.
  • Home buyers need to pay only for the carpet area.
  • The developers must inform the buyers about any minor changes or additions to the project.
  • For any major changes or additions, the developer must seek the consent of at least 2/3 of the buyers.
  • Consent of the above-mentioned ratio of buyers is also required if the majority of rights are passed on to a third-party.
  • Mandatory disclosure by developers regarding project-related details such as project plan, layout and government approval like sanctioned Floor Space Index (FSI) and the number of buildings, among other aspects.
  • Mandatory registration of the projects by developers with RERA before launching, advertising or marketing.
  • Any structural defects or developer obligations as per the sales agreement should be rectified free of cost if brought to the notice of developers within five years.