Deal Closure

Doing proper legal due diligence before deal closure forms the most critical aspect of your home buying process as you put your life savings into it. Legal due diligence is a process by which you can minimize the legal risks associated with a real estate transaction. 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 realized only when you take into account the legal risks associated it.
As a responsible home buyer, you should not proceed for home deal closure 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 a legal expert to perform your due diligence. You should ask your lawyer to create the draft agreement between you and the builder.
You need to follow a comprehensive checklist of steps necessary to complete your legal due diligence process before home deal closure is done. First of all, you need to arrange for the chains of deeds/title. You have to make sure that all the historical transfers of the land title are in order and that 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.
After the chain of deeds, you can check on the Intimation of Disapproval (IOD) certificate. An IOD is an authorization certificate issued by the local municipal body once the builder has obtained all the required No Objection Certificates (NOCs) from various departments and government authorities. There are about 40 IOD conditions to be met. The final approval is to build the Commencement Certificate, which is given when all the NOCs are obtained and IOD conditions are met.
The third document that should be on your checklist of due diligence is the Completion Certificate (CC). CC is a certificate from the municipal body that confirms 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 the Sale Agreement is over.
Occupancy Certificate (OC) is a crucial certificate issued by the local municipal bodies once the developer submits all the necessary clearance such as electricity, water, fire, and sewerage. OC is the permission to occupy the building for the purpose of living. You cannot legally occupy your unit for living until and unless the builder has the OC for the same.

Once the building is ready for occupation as notified by the builder, you need to check if you are getting what was promised during the start of the project. You need to ensure that you are getting all the facilities as committed by the builder. If you come across any irregularities with the delivery of the project or with the documentation, you should raise this concern to the builder. If your issues are not solved by the builder, you can approach your Real Estate Regulatory Authority to get a quick solution.

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

When it comes to Project Delivery, you need to look into various aspects. These factors include final layout, built quality, fittings in the kitchen and bathroom, the quality of paint used, amenities such as swimming pool, gym and park provided as promised, electric connections, common facilities such as lifts, flooring, and drainage. You need to ensure that the final layout is according to what was originally planned in the project brochure. You need to measure all the dimensions of the hall, kitchen, balconies, and bedrooms in order to verify the same. You need to check if the building is built without any cracks on the walls and that the construction is done as per the building standards and safety norms. You need to ensure if the latches and doorknobs are working smoothly and that the door and windows are placed properly as mentioned in the original plan. You need to check if the fittings in the kitchen and bathroom are done properly with respect to quality and brand as mentioned in the sales agreements. You must verify the quality of paint applied on the walls, wooden surfaces, doors, and roofing sheets. It is important for you to assure that the paint used is of a reliable brand and has been applied as per the manufacturer’s recommendations.

There are various documents involved in Legal Documentation. These include Encumbrance Certificate, Khata/Patta (Certificate/Extract), Sale Deed, Allotment Letter, Possession Certificate Copy, Tripartite Agreement, Maintenance Service Agreements, No Dues Certificate and Joint Development Agreement. These documents are of utmost importance to determine the legal authenticity and credibility of the property.

Successfully Negotiating a Deal

If you are a home buyer, you have a huge scope for negotiation today. This is because the developers are experiencing a liquidity crunch. They are accommodating customers with more discounts and attractive offers.

Before starting a successful negotiation, it is advisable that you should do a background check of 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 developers, you need to follow some really useful tips that will enhance your negotiation skills. First of all, in order to be a good negotiator, you need to do a thorough research of the market. Having adequate knowledge of the local market will help you in negotiating with developer smartly. If you wish to successfully strike a deal, you need to have a complete idea of the prices of similar properties in the area. You can check the property prices of your preferred area through online property portals such as MagicBricks.com, Housing.com and CommonFloor.com among other portals.

The second tip that you need to follow in order to be a good negotiator is to understand the price trends. Understanding the price trends of the prevailing locality will help you get a realistic picture of how much discount you can get. You should do a comparison of the current price of the property and the property’s price during launch. You can also contact local brokers as they will help you in understanding how the property prices have moved in the market and give you an idea about how much discount you can get. Any individual who has purchased a house in the same project/location will guide you on how much the property’s value has appreciated and how much discount you can expect. An important point to note is that you should be extremely careful in case of properties that are offering heavy discounts.

After understanding the prevailing market conditions and price trends you should place your offer. You should 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.

You should be a buyer who is cash-ready. If you are a serious buyer who is ready to make an ‘Advance Payment’ or pay the ‘Application Fee’, you can strike a good deal. This is because sometimes developers offer irresistible deals for serious buyers. 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.

In order to be a good negotiator, you need to need to adopt a rational and practical approach while dealing with the 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.

Approaching reputed and RERA compliant brokers/agents could be helpful for you in getting a good deal as these professionals are experienced and they have good knowledge and strong network when it comes to real estate.

Lastly, you must perform a SWOT analysis wherein you must analyse the Strength, Weakness, Opportunities and 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.

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. RERA’s objective is 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 has been introduced to curb the inflow of black money into the primary and secondary markets and help end speculation & price control. Its aim is to further 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.

Real Estate (Regulation & Development) Act, 2016 (RERA) was passed with 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. It will be applicable to ongoing and upcoming commercial and residential projects. However, it will not be applicable to renovation, repair or redevelopment projects that do not involve marketing, advertising, selling and new allotment.

The biggest concern for any home buyer is a delayed possession of the property. In the absence of a regulator and no rules in place, it was the home buyer who had suffered in the hands of builders. Now with RERA, each state and union territory has 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.

The core features of RERA include mandatory registrations, delivery of project as per commitment, customer centricity, financial discipline and land title. According to the Act, it is mandatory for all the real estate developers to register with the Real Estate Regulatory Authority of the state or union territory where the projects are developed. Even real estate agents need to register themselves according to this Act. As per the Act, the commitments made by the developers/promoters are legally binding on them. They need to notify the buyers of the carpet areas of the units sold to them. In addition, they need to provide a declaration along with a written affidavit about the time duration within which the project or a particular phase of a project would be completed. If any promoter/developer makes an incorrect or false statement in connection with building, plot, real estate project or apartment, then the concerned promoter/developer is liable to compensate the buyers with a full refund of the property along with the interest amount. RERA has been introduced to ensure consumer satisfaction by protecting the interests of home buyers. It aims to empower the buyers with enormous rights to deal with errand developers and acts as a deterrent for builders who cheat home buyers. RERA promotes financial discipline among developers as the developers cannot accept more than 10% of the cost of unit sold as an ‘Advance’ or ‘Application Fee’ from the buyers. Lastly, according to the Act, the developers need to 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 with 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.

The developers would face adverse consequences if they do not comply with the rules and regulations of RERA. They can lose the registration of the project. In addition, they could face imprisonment up to a maximum period of three years and/or could be fined up to a maximum of 10% of the total estimated project costs. If a developer defaults or delays in granting the possession of the property to the buyers, as mentioned in the ‘agreement of sale’, the buyers can withdraw from the project and claim a full refund of the amount paid along with a certain rate of interest. The buyers have the complete right to avail of the refund even if the registration is cancelled.

If the buyers are not satisfied with the decision passed on by the Real Estate Regulatory Authority or the Adjudicating Officer, they can approach the Real Estate Appellate Tribunal (REAT) to challenge the same. REAT provides many benefits for home buyers. For instance, home buyers only need to pay for the carpet area. Also, developers must inform the buyers about any minor changes in the project and in case of any major modifications, the developers need to seek approval of at least 2/3 of the buyers.

Down Payment Financing

The HomeCapital Down Payment Assistance Program was launched with the objective to make home-buying more affordable for home buyers by financing a section of their down payment requirements. Various factors like increasing income levels and government reforms have made it the ideal period to purchase a home. However, arranging for the down payment remains a challenge.

Due to lack of down payment amount, you as a buyer, depend on future savings, costly personal loans or family borrowings. This situation also results in greater EMIs and higher interest rates. This program provides you with complete assistance in buying your dream home today by addressing the problem of down payment. You can double your down payment capability and widen your reach with this program.

Additionally, you can increase your home loan eligibility and make your home buying process quicker and easier. In the HomeCapital Down Payment Assistance Program, you are given financial assistance in the form of an interest-free personal loan, which is equivalent to your contribution towards the down payment amount. This amount is provided by the company’s partner-lending institutions while HomeCapital pays the interest.

Home Financing

While considering financial assistance in the form of home loan the two home financing options include banks and Housing Finance Companies (HFCs). Usually, banks are considered as the most common place to avail of a home loan. However, you can also avail of a home loan at attractive interest rates from an HFC. An HFC is a kind of a Non-Banking Finance Company (NBFC) solely into the financing of purchase or construction of homes. Banks are regulated by the Reserve Bank India (RBI) whereas HFCs are controlled by the National Housing Bank, a subsidiary of RBI.

When it comes to the funding of loan portfolios, banks use the money deposited by their customers in their Current Accounts & Savings Accounts (CASA) in order to lend the loans. It is the same money that is deposited by customers with banks. On the other hand, HFCs fund their loans either by raising money from the public or by borrowing money from banks. As HFCs borrow money from banks to provide loans, the cost of funding for them is much higher in comparison to banks. Hence, HFCs charge a higher interest rate as compared to banks.

When it comes to the Interest Rate Methodology, the HFCs interest rate on loans is based upon a rate called Benchmark Prime Lending Rate (BPLR). It is also referred to as Prime Lending Rate (PLR). HFCs use their costs of funds along with a certain profit margin to calculate the PLR. PLR is the maximum interest rate an HFC can charge to its borrowers. Most of the loans come at a Discount % on this rate. So, your effective interest rate is determined by subtracting the Discount% from the PLR.

On the other hand, banks determine their interest rates based on a rate called Marginal Cost of Funds Based Lending Rate (MCLR). MCLR is a tenure-linked and is regularly published for different maturities, i.e. Overnight, Monthly, Quarterly, Semi-Annual or Annual. The base rate is the same for all the tenures. Banks charge a Tenure Premium to take into consideration the tenure-related risks & funding costs. Banks’ interest rate is calculated by adding the MCLR and the Spread. The ‘Spread’ is determined by the borrower’s riskiness and the type of loan product.

You need to determine which option is more suitable for you – banks or HFCs. Banks offer lower interest rates, long-term savings and transparent interest rate methodology. On the other hand, interest rates charged by HFCs are on the higher side. Usually, borrowers who are denied a loan from banks approach HFCs as HFCs might consider any shortcomings with documentation. Moreover, they would be lenient with eligibility and credit score but will charge higher interest rates. They can sanction higher amounts as loan than banks for a given value of the property.

You need to identify which type of interest rate is suitable for you – a fixed interest rate or a floating interest rate. A fixed rate interest rate is where you pay a fixed interest and consequently fixed EMIs throughout the life of the loan. In such a loan, your rate of interest does not change with the modification in policy rates. You can be assured that as your income might increase over the period of time, your expenditure on the loan will be fixed leading to incremental future savings.

This will help you to have more control over the budget along with a sense of certainty and security. Thus, the fixed rates loan makes future planning easier. In the case of floating interest rates, you pay variable interest rates and variable EMI amounts during the loan tenure. The rate of interest applicable will be dependent on the prevalent economic conditions and policy rates. The floating interest rate is calculated by adding the Variable Component and the Fixed Spread.

Floating interest rates have a mix of drawbacks and benefits. If the prevailing rates go up, then you will have to pay more interest and consequently more EMI. If the rates go down, then you will have to pay less interest and consequently less EMI. Any adverse economic conditions and monetary policy decisions can have a negative impact on your savings as you will end up paying more in EMIs. However, Floating Interest Rates can bring you benefits as well. At the time of availing loans, the total floating interest rate offer is around 1 – 1.25 percentage points less than the fixed rates. Any favourable economic conditions and reduction in policy rates will further make you pay less EMI and save more.

To choose between a fixed loan or a floating one should be a well thought & carefully studied decision. You should consult your financial planner or home loan provider before making a decision. You should read the terms and conditions carefully to become sure that you are getting what you wanted.

The Pradhan Mantri Awas Yojana (PMAY) is a scheme launched by the Government of India in 2015 with the objective to provide Housing for All by 2022. The government has chosen 2022 as the year because in this year India will be celebrating its 75th year of independence. The scheme has two components – Pradhan Mantri Awas Yojana – Urban (PMAY- U) and Pradhan Mantri Awas Yojana Rural/Gramin (PMAY-G).

Selecting the Right Home

Once you decide upon your home budget, selecting the right property can prove to be a herculean task. In order to get a property of your choice in your preferred location and meet your budget requirements, it is important to gather as much information as you can. It is necessary that you make a decision based on the current financial situation, lifestyle consideration and long-term family needsShortlisting a property involves two crucial steps that include requirement gathering and location & property shortlisting. In the requirement gathering step, you need to consider the must-have features of your residential property, the good to have facilities and the things that must be avoided. The must-have features comprise of the much-needed facilities that you must consider while buying a new home. Your home should be in a safe and decent locality. It should be well-ventilated and airy. It should be child-friendly and spacious and must have security & fire features. The construction should be of good quality. You also need to analyse the stage of construction. In order to balance the rent and pre-EMIs you must choose under-construction/sub-vented projects and if you wish to stop paying rent you can opt for ‘Ready to Move’ properties. The good to have facilities are basically the additional benefits, which your prospective building must have. These include clubhouse, garden, gymnasium, open space and party lawns or halls. While selecting the new home there are a few aspects that need to be avoided. You must not select a home in an area that has proximity to slums and noise destination such as night clubs and pubs. Your property must not be in an area that is very densely or sparsely populated. You and your family members should not face any difficulty while commuting from your residential area on a daily basis. You should avoid purchasing a home in a building that has a crumbling infrastructure. Buying a home in a locality that has high crime rates is definitely a big NO. After the requirement gathering step, the next step is of locality and property shortlisting. You need to consider various factors before shortlisting a locality. These include future development prospects and plans, ease of commute, proximity to schools, colleges and hospitals and historic price trends in order to get an estimate of capital appreciation. In order to identify a suitable locality, you can begin the initial research through various property-related websites, talk to your family and friends and seek the assistance of reliable real estate consultants/agents. Property analysis and developer analysis are two important tasks that need to be undertaken while selecting your new home. In property analysis, you need to compare all the shortlisted properties and assign them a rank based on your current and future requirements, ease of travel and socio-cultural environment. The ranking will help narrow down your process. In developer analysis, you need to analyse the developer’s past experience. You need to check the developer’s financial and project delivery capabilities. You need to research if there is any pending litigation against the developer which can delay the project completion. In addition, you must do a thorough background check by getting in touch with people who are residing in the completed projects and find out about their level of satisfaction. While shortlisting a property, the crucial factors to consider include family size, locality and stage of construction. Family size refers to the number of family members who would reside in the new home. You must choose a promising locality that has proximity to public transport, railways stations, schools, and parks. The locality should have ample greenery, water supply and power supply. You are eligible to purchase a home during different stages of construction such as launch stage, under-construction stage and ready-to-move stage.

Assessment of Your Financial Situation

Before opting for a home loan it is essential to determine how much down payment you can make and how much amount you can afford towards payment of Equated Monthly Instalments (EMIs).

Doing such an assessment will help determine your the effective of your home loan investment. In addition, with this assessment, you will also get a clear understanding that for how long your assets can serve as cover for your EMIs if your regular income stops due to some unforeseen situation. You can determine your home loan budget by following a 4-step process. The steps involved in this process include estimating your net worth, estimating your home budget, home loan eligibility and cover. In the first step, the estimation of your net worth is done by considering all the assets and liabilities held by you and your family. The assets include cash and cash equivalents like savings accounts and fixed deposits, family investments such as mutual funds, equities and insurance, gold jewellery, retirement accounts such as Pension and Provident Fund, durable goods and automobile. The liabilities include home loan, car loan, personal loan, student loan, gold loan, credit card expenses and taxes. Your family’s net worth is defined as the difference between the total assets and the total liabilities. The formula for calculating the net worth is Net Worth = Total Assets – Total Liabilities. After estimating your net worth, you need to estimate your home budget. Usually, banks do perform a detailed assessment of your financial condition before providing you with a home loan. However, they do not consider various costs that consume your disposable income such as grocery expenses and medical bills. By doing an affordability check, you can be sure that you do not borrow more than what you can afford. While estimating your home budget, you need to consider various parameters such as net household income after tax, annual income, monthly expenses, annual expenses, monthly fixed obligations and self-assessment of your financial situation. Net household income after tax comprises of the total income of all the family members who contribute towards household expenses. This includes incomes from other sources such as commissions, bonuses and investments. Annual income includes the sum of the entire family income for the year. It includes income from interest on savings account, fixed deposits, bonds, dividends, gratuity, bonuses, fees and commissions. Income from capital gains on selling equities, mutual funds and gold is also a part of the annual income. Monthly household expenses include monthly bills such as grocery expenses, electricity bill, telephone bill, broadband bill, credit card bill, child’s education and lifestyle expenses. Annual expenses include the sum of monthly utility expenses for the year. These include annual healthcare expenses, annual premiums for health and life insurance, education, transportation, eating out and shopping, the sum of monthly food and grocery expenses for the year and sum of monthly rental paid for the year. Monthly fixed obligations include your fixed payable expenses such as credit card bills, EMI towards car loan, personal loan and education and the insurance premiums. Self-assessment of your financial situation involves the determination of your net disposable income. This calculation is done subtracting the monthly expenses and obligations from the monthly income amount. Home loan eligibility is the third step involved in assessing your financial situation. Home loan eligibility is determined on the basis of three important parameters that include Fixed Obligation to Income Ratio (FOIR), Loan to Value Ratio (LTV) and Instalment to Income Ratio (IIR). FOIR is the ratio of the sum of all the EMIs (current and future) to your gross monthly income. Usually, banks prefer an FOIR that is not more than 50%. LTV denotes the part of the property value that can be availed as the home loan from the banks. The LTV ratio is based on the size of the home loan sought and determines the maximum amount that can be sanctioned to a property buyer. The Reserve Bank of India (RBI) mandates the LTV of 90% for home loans of INR 30 lakh or less. For home loans more than INR 30 lakh and up to INR 75 lakh, the RBI mandates an LTV of 80%. For home loans more than 75 lakh, the RBI mandates an LTV of 75%. IIR denotes the percentage of your income going into paying the EMI of your home loan. Banks usually use an IIR of 30% to 40% while determining your home loan eligibility. Cover is the fourth and final step to assess your financial situation. If there is a sudden drop in your family income or a sudden rise in the expenses for some unforeseen reasons, you should have enough cover to make all your EMI payments for a few months.

home buying decision

Home Buying Decision

Owning a home gives a feeling of emotional satisfaction, pride and social security. Home buying is one of the biggest financial decisions that an individual makes in his entire lifetime.

With the growing needs of your family, you may consider buying a home at some point in time. With home buying being a preferred investment option in India, your personality and lifestyle requirements are quite likely to influence your home buying decision.

Some of the crucial factors that could impact your home buying decision include Evolving Family Structure, Demographics, Affordability and the Debate of Buying Vs Renting.

Today, the family structure has evolved to a great extent. Earlier Indian families were joint families where people used to live together in bigger homes. However, due to economic development, people started relocating to bigger cities for employment/business-related opportunities.

This has resulted in nuclear families opting to stay in compact homes. Additionally, with more women opting to work in order to contribute towards the family’s income, the family’s net disposable income has increased enabling it to choose a better home in terms of size and quality.

When it comes to the ‘Demographics’ aspect, the age, income levels and local culture of a specific area are important factors that influence the housing demands of a given location. For instance, any upcoming business district or financial / Information Technology (IT) hub in a particular area will create the need for value homes that will suit the requirements of a young set people and the growing demand will lead to a greater Return on Investment (ROI) in that particular area.

Your affordability to pay your personal down payment is another critical factor that would affect your home buying decision. How much amount you could afford as EMI will largely influence your home buying decision. If you do not have the necessary income to pay EMIs, you would prefer to rent a home rather than buying one.

The fourth factor that could influence your home buying decision is your view on the debate of Buying Vs Renting. If you do not stay in a particular place for a long period of time and relocate after a short tenure due to work commitments, then renting is an ideal option for you.

However, if you are someone who stays in a particular place for a long tenure, then there are high chances that you will be maintaining the rented property in a way that you are the owner. Hence, in such a scenario it is beneficial to buy a home instead of renting one.

Buying a home gives you stability and security as compared to renting one as you could be asked the vacate the property in the latter situation. In addition, renting does not provide for any ROI but when you buy a home its value appreciates with the passing time even during a recession.

Apart from these factors, various macroeconomic factors can influence your home buying decision. These include Interest Rates, Property Prices, Rising Income Levels and Government of the Day.

Any decline in interest rates leads to lower borrowing costs along with increased affordability and vice-versa. Any reduction in property prices leads to a rise in demand.

A market where the supply of housing units is more than the housing demand and leads to a reduction in property prices is known as a buyers’ market.

On the other hand, a market wherein the supply of housing units is less than the housing demands and leads to an increase in property prices is known as a sellers’ market.

Rising income levels increase the net disposable income of the household and boost the housing demand. The policies implemented by the Government of the Day i.e. the ruling government could also influence your home buying decision. Under the Credit-Linked Subsidy Scheme (CLSS), introduced under the Pradhan Mantri Awas Yojana, wherein the government will pay subsidy on the interest payments on the home loan up to a maximum of INR 2.67 lakh depending upon the income levels of the family & the size of the property.

If you are a first-time home buyer, you can avail of multiple tax benefits as per Section 80 C, Section 24 B and Section 80 EE of the Income Tax Act.