What should I consider when I am buying a house or land?
One of the most critical aspects to consider when buying a land or house is knowing whether:
The price of the property is fair
Since land and property fall under State subjects as per the Constitution of India, laws and transactional rules vary depending on the state where the property is located. Depending on where the property is located and the nature of construction (if applicable), different states have introduced a system of determining a minimum base price for the property, called ‘circle rate’, or ‘ready reckoner rate’. These circle rates are speculative and vary greatly even within the same city- from one area to another- and are frequently updated and notified. The value of a property is also affected by the services it has access to, and the builder/ housing society. So, these circle rates only serve as guides, and the actual price may vary based on the market value of the property, called fair market value.
The ownership of the property is free of disputes
There are various ways in which you can find out if the ownership of the property you want to purchase is disputed. The simplest way is to check the title deeds of the property in question. Before approving the purchase, make sure that you get a lawyer to thoroughly investigate the full chain of the original title deeds. You can also enquire with the local tehsildar’s office or that of the village officer where the property is located. Other documents such as e-records of rights, property tax receipts, and survey documents are also used to establish ownership.
Due diligence to mitigate risks
If you have submitted your paperwork to a bank and are waiting for your house loan to be approved, you can feel at ease knowing that your bank will perform the necessary due diligence. Don’t, however, completely rely on the bank. Before you seal the deal, consider the following points.
The seller must provide you with a number of important property documents in order for the sale to be considered valid. Allotment letters, sale deeds, sanctioned plans, society paperwork, encumbrance certificates, and sale agreements are some of the important documents. Read the sales agreement thoroughly and ensure that there is a penalty clause in case of any delay.
You should make sure the RERA legislation of 2016 is being strictly adhered to. If you are planning to purchase a property covered by the RERA, do confirm that the property has been registered with the authority.
You should also get an estimate of the legal background of the developer whose project you intend to invest in. Information on lawsuits or complaints brought against the project’s developer and any defaults on the developer’s part is also available on the official RERA website for each state. This gives an indication of the credibility of the developer and the project.
It is also important to check with the local authorities that the seller has not fallen behind on their property tax obligations because unpaid property taxes are a charge against the property which impacts its marketability.
Finally, it is always a good practice to physically visit the property site to confirm the measurement and progress of the project/property.
What are my rights and duties as a property buyer?
The Transfer of Property Act confers certain rights and duties on the buyer.
Rights of the buyer
Benefits of increase in value/improvement: If the value of the property increases between the time the seller transfers possession to the buyer and the buyer pays the consideration, the seller cannot demand a price higher than the one previously agreed upon. After ownership of the property has been transferred from the seller to the buyer, the buyer is entitled to any improvements or increases in value as well as the property’s rents and profits. After the sale, the seller cannot claim the benefits of the property.
Proper delivery of the property: The buyer has the entitlement to receive the property’s title and possession in a proper manner upon completion of the purchase. Moreover, if the buyer rightfully declines to accept delivery, they have the right to a refund of any purchase money, including interest, previously paid to the seller in expectation of delivery. Additionally, if the seller fails to deliver the property, the buyer is eligible for compensation for their earnest deposit and any other court-awarded charges related to enforcing the contract’s specific performance.
Duties of the buyer
Disclosure of Material Interest: Any facts about the nature or extent of the seller’s interest in the property that the buyer is aware of but has reason to believe the seller is not aware of and that considerably increase the value of such interest must be disclosed to the seller.
Payment of consideration: The buyer has to pay the seller, or any other person the seller may designate, the agreed-upon price on the completion of the sale. The buyer is permitted to reduce the amount of any encumbrances from the consideration if they are present on the property at the time of sale.
Bear any loss to the property: Any loss resulting from the property’s destruction, damage, or any decline in its value, that was not caused by the seller must be paid for by the buyer once ownership of the property has been transferred to them.
Pay all dues/outgoings: After acquiring ownership of a property, the buyer is now responsible for paying any public charges and rent that may become due on the property as well as any other obligations that arise as a result of the sale.
Who can buy and/or receive immovable property?
Any citizen of India aged 18+ years is eligible to buy property in the country. However, certain states such as Maharashtra, Gujarat, Himachal Pradesh, Karnataka, and Northeastern states like Assam, Nagaland, and Sikkim, among a few others, restrict non-farmers from purchasing agricultural land. Under Indian law, an unborn person can also receive immovable property.
If you’re a Non-Resident Indian (NRI) or Person of Indian Origin (PIO), you cannot purchase agricultural land/plantation property or a farmhouse anywhere in India, but there’s no such restriction when it comes to residential properties. However, you can inherit such land from a resident Indian or other NRIs/PIOs upon receiving special permission from the Reserve Bank of India.
A Person of Indian Origin (PIO)can also acquire immovable property and this is governed by the Foreign Exchange Management Act, 1999 and various circulars notified by the RBI from time to time.
Can NRIs buy property in India?
Yes, an NRI or overseas citizen of India (OCI) can purchase property in India and is not required to obtain a specific permit. However, NRIs are prohibited from purchasing some types of properties under the Reserve Bank of India (RBI) guidelines and Foreign Exchange regulations.
An NRI cannot buy any agricultural land, farmhouse, or plantation property. These properties can only be yours if you have inherited them. The RBI has made it clear that NRIs/OCIs only require its prior approval for the acquisition and transfer of agricultural land, farmhouses, and plantation property.
An Indian resident who already owns property there can continue to own it even after becoming an NRI. NRIs are also permitted to keep the agricultural land, farmhouses, and plantation property they owned prior to becoming an NRI.
How can I find the circle rates for a property?
To find the circle rates for a property, you can go to the respective state government’s website (usually, the Department of Registration and Stamps). For example, in order to find circle rates in Delhi, you can visit https://eval.delhigovt.nic.in/ where you must select the area where your property is located, the type of deed, the type of property, built-up area and then calculate the circle rates.
To find out the market value of a property, one approach could be to contact a government-registered property valuer or a chartered property valuer. Property rates tend to vary greatly due to the changing nature of the real estate market. Parameters like circle rates and fair market value can be a reliable way to determine a fair price for a property.
What is the importance of home insurance?
Property insurance, in general, is of various kinds, depending on the property in question and the specifics of the insurance policy. Since it is a vast category of General Insurance, the type of coverage that you need depends upon the type of property you are seeking to cover. You should get a home insurance policy to protect yourself from future losses caused by any damage to the property. Different kinds of policies are available in the market such as fire insurance, burglary insurance, etc.
It is important to thoroughly check the specific terms of the insurance policy and inquire about the same in the market, before finalizing it.
Make sure you declare every item in your house at the time you purchase the policy. You won’t be compensated for the cost of any goods you omit to list in your house insurance policy. Only insure expensive goods and those whose replacement would be a hassle. Avoid unduly extending the house insurance policy because doing so will result in increased premium payments.
Lastly, Inform the home insurance provider without delay if your residence has experienced any disaster/accident that is covered by your policy.
What are some of the losses usually covered under home insurance?
Home insurance policies in India provide security for homes against a variety of undesirable circumstances, such as fire, terrorist attacks, burglary, theft and natural catastrophes like cyclones, storms, lightning, earthquakes, floods etc. The property insurance coverage will provide protection against these calamities through reimbursements and assistance with property reconstruction.
However, there are also certain losses that are not covered by these policies. For instance, a home insurance policy does not cover the cost of land. Additionally, the organic loss in value of the property is not covered by the home insurance policy. Additionally, insurance companies don’t provide coverage if your property has been damaged as a result of an active war between countries or when property is intentionally destroyed. For a more specific list, it is crucial that you read through your policy document and take note of the scope and extent of the insurance and the coverage it offers to mitigate damage.
How can immovable property be used to raise bank loans?
Land and housing are valuable assets, and as an owner, you can choose to seek a bank loan by using the property as collateral. A ‘collateral’ is a valuable asset that a borrower offers as an assurance against which they can secure a loan. If you are unable to repay the money, you may lose ownership over the asset which you have offered as collateral to the lender. For the lender, the collateral acts as a safety net.
When seeking a bank loan (business, education etc), especially when it is for a higher amount, banks require individuals to offer some asset as collateral for security. For this purpose, you can offer either self-occupied residential or commercial property. You will be required to provide proof of ownership in the form of title deeds at the time of registering for a loan. The banks decide the credibility and the value of the land/house being offered as collateral against the requested amount for the loan. Generally, the chances of approval are high when using a land or housing property as collateral.
Can I get a bank loan to buy a property using the same property as the collateral?
Yes. You can get a loan from the bank to purchase an immovable property by using the same property as the collateral/security. This practice is widespread when people buy residential properties in India. Home loans are generally approved on the basis that the prospective home is the collateral. Such loans fall under the definition of mortgage loans1. Commonly, when someone seeks a mortgage from a bank, they bind themselves to pay the loan, without delivering the possession of the mortgaged property, and agree that if they fail to repay the amount, the bank has the right to claim the mortgaged property and use it to settle the loan.
Can I purchase a foreclosed property?
When the mortgage borrower is unable or unwilling to pay their equated monthly installments (EMIs) under the terms of the loan three times consecutively, the lender has a right to acquire that property and either sell or lease it out. Such foreclosed properties are auctioned off by the lenders and a ‘reserve price’ is set i.e., the minimum amount the lender will accept as a winning bid for the property during an auction. Foreclosed properties are generally expected to be auctioned off at rates lower than their true market values. However, there are often concerns about the quality of such properties as the defaulters are often financially weakened, which would mean that the due repairs and general maintenance of the property are not undertaken regularly. While this is not the standard, it is important to conduct the requisite due diligence about the location, encumbrances, and conditions of such property before investing.
Auctions of foreclosed properties can take place through offline or online modes, depending upon the bank (lender). For an offline auction, prospective buyers should submit their bids with the requisite documents to the bank before the date of the auction; and for the online mode, the buyers are expected to submit the requisite documents along with the bids online on the day of the auction itself.