due diligence - flat/home purchases

5/17/2018 Due Diligence - Flat/Home Purchases - slidepdf.com

http://slidepdf.com/reader/full/due-diligence-flathome-purchases 1/17

Booking a Flat From a Builder? Do the Due First

The prospect of owning a house is appealing, but booking a home that is not

ready to occupy has its own risks

Abrand new home has its own charm, especially when its price is yet to hit the roof. Manyindividuals take the risk of booking a flat in an under-construction building mainly for that

reason. It not only helps you fulfil the dream of owning a house, but is also cheaper than a read-

to-occupy flat.

But, reports about builders failing to complete the project on time have made many prospective

home buyers anxious about booking a flat in an under-construction project. Many also wonder if

they should book a property whose final shape is still not known.

“The biggest advantage of an under -construction flat is a well spread out cash outflow linked tothe construction‟s progress,” says Gulam Zia, national director, research & advisory services,

Knight Frank India. “You can also get the flat customised to your needs.”

You can also choose the location of the flat, direction and floor when the builder is about to start

the project. Locating them is easy, given the large advertisement campaigns that usuallyaccompany a just-launched project and you need not have to go through the brokers. However, it

is always better to ponder over few crucial points before booking a flat in an under-construction

project.

NECESSARY APPROVALS

It is in your interest to ensure the project is completed on time. The builder can commence

construction only when he has intimation of disapproval (IOD) and commencement certificate

(CC) for the project. IOD sets out the conditions based on which the building needs to be

constructed. It is usually valid for a year and needs re-validation after that from competent

authorities. CC is issued by local authorities, and it allows the builder to start the construction.

“You should buy an under -construction flat if and only if the builder has a commencementcertificate for the floor on which you are booking a flat,” says Dhiraj Jain, partner, real estate,

SNG & Partners.

CLEAR TITLE“Due diligence on the title is a must,” says Jain. “The title – ownership right – should be clear of

encumbrances and litigation.” The buyer has the right to verify the title documents. There are

instances where the buyer gets into an agreement with the developer to buy a flat and then

registers it with the competent authorities. If the developer does not have the ownership of the

flat, he cannot transfer its ownership to the new buyer by just registering it. It would make sense

to engage a competent lawyer to conduct the title search. Alternatively, you can also apply for a

home loan. Home finance companies and banks do the necessary „title search‟ and due diligence

before approving the loan. Though they charge loan-processing fee, it is worth the buck since it

ensures a peaceful possession in future.

SAMPLE FLAT

Most reputed builders use it as a marketing tool. “It is a visual pres entation of what the buyer is

going to purchase,” says Rajev Sharma, country head, wealth management, investing banking

and business strategy, Unicon Financial Intermediaries. “Sample flats basically serve the purpose

of giving the purchaser a sense of space and dimension,” he says. “A sample flat can give the

buyer an indication of what his or her own unit may look like once it is completed,” says

Mohammed Aslam, COO - residential services, Jones Lang LaSalle India. “However, one should

ensure that the dimensions and specifications of the purchased unit are the same as those of the



sample flat.”

It is better to check if the amenities in the sample flats are the same as mentioned in the

agreement between you and the builder. There are instances where the builders use chandeliers

or costly bathroom fittings to make the sample flat attractive, but such features may not be

available in the flat for sale.

MORTGAGED PROPERTY

Builders borrow from banks and NBFCs and mortgage the project with the bank. While buying

an under-construction flat, if you are asked to draw a cheque favouring a specific account of the

builder with a specific bank, it is a clear sign that the project is mortgaged with the bank.

While buying a flat in such a project, you need to have a no-objection certificate (NoC) from the

bank. The NoC must state the details of your flat, such as flat number and building. If the builder

cannot repay the funds taken from the bank, the bank can take over the project and ask the buyer

to vacate the flat. An NoC will ensure the buyer does not face trouble, as it vacates the bank‟s

charge on the flat if the buyer pays the entire price for the property.

THE PRICEMany prefer to buy an under-construction flat since the prices are lower when compared with a

ready-to-occupy flats. But one should take into account the cost of stamp duty and registration of

the property, a one-time expense on electric meter, gas connection, cost of furnishing, fittings

and modifications. In large projects and townships, builders charge in advance maintenance

deposits for up to five years.

The buyer of an under-construction flat has to pay service tax at the rate of 2.38% of the property

value. But the levy of service tax has been challenged in court. Hence, builders ask for an escrow

fixed deposit with a bank, the proceeds of which will be used to pay the tax if courts decide in

favour of service tax. But, some builders prefer to go with an indemnity bond where the buyer

takes the responsibility to pay the service tax in future if the courts approve it.

One should factor in all such expenses while compare the price of an under-construction flat withthat of a finished one. The possibility of a delay in the completion of the project is what makes

an under-construction flat cheaper than a finished one.

BUILDER’S TRACK RECORD

“A prospective buyer should ascertain the developer's credibility, past projects, and performance

and delivery record,” says Aslam. It is better to stick with the large players with a good track

record as they have better execution abilities and access to resources. Developers handling only

project or traders jumping on an upcycle in real estate business are best avoided, as they are the

first to get affected in the case of a fall in the real estate market.

INVESTOR’S EXIT If you are an investor in an underconstruction project and intend to sell the flat when the price

rises while the project nears completion, it is better to run thorough the terms of the agreement.

Builders have been inserting the „no-sale‟ clause in sale agreements, which state that the buyers

cannot sell the flat only agter a certain period post completion. If you plan to exit before that,

you may have to seek an NoC from the builder. “The period stipulated in no -sale clause varies

from 1.5 years to three years. There is no specific pricing available for an NoC although it ranges

between . 100 and . 500 psf,” says Sharma. The cost paid to the builder towards the NoC will eat

into your profits.



Ankur Lakia Experience

Most important thing to take note of while buying the home : Costs other than quoted per square

feet rate. Few of costs like floor rise, parking, stamp duty and registration are fairly well-known.

However, I was surprised when asked to pay for value added tax liability and service tax. Since

I bought under construction property and with all payments by cheque, I did not have much option but

to pay for these costs. These are substantial costs and buyer needs to be aware of these additional

costs while budgeting for the property purchase.

Biggest advice of caution will you give to new buyers : While buying under construction property,

buyer needs to do a thorough due diligence on builder‟s track record on completion of property on

time as well as quality of work. It is better to buy from a big name builder like Raheja, Hiranandani,

Lokhandwala like (as far as Mumbai is concerned). Even though one might need to pay a bit higher

rate, it is worth it as it gives peace of mind when someone accepts all payments by cheques and

abide by contractual terms. A good read from Subra on Mumbai vs Navi Mumbai Real estate .

One trick/idea which can help new buyers : One thing which helps, is to buy little old / used

property, may be 3-5 years old property. 3 to 5 years do not make much difference in usable life of

property. However, usually one can get such property at much better rate than normal market price

for new property. More important though, buying little old property has several advantages:

One gets good idea of available infrastructure like nearby groceries, shops, availability of household

help, situation regarding water supply etc which matters more to the lady of the house.

One can see whether building is being maintained or not. When I visited a building just two-year old, I

was quite surprised to see its shabby look. It turned out that many members of society were

quarreling and not paying their dues. One can easily skip such headache if buying slightly old

property.

You can very well see the neighbours. It might be good idea to just meet them and greet them even if

for only little time. It gives good idea on what standard of living is maintained by residents and

whether one can easily fit-in. For example, my brother skipped a building which was really well

maintained, with quite good location and flat available within budget. Surprised, I asked him the

reasons. It turned out that almost every one of the residents was having more than one car in family

and holiday trip abroad was fairly common. My brother did not want to be part of such residency as

he thought it would not be possible for him to fit in with people having such life styles since he could

not afford such life style and, then, he would be odd man out.

There are some buildings where there is only one flat occupied on a floor, others being bought by

“investors”. One can avoid possibility of living on a ghost floor by buying little old property..

Any other learning : I am quite amazed by people stretching themselves on floating rate loans while

buying property. I think people need to be aware that rates could be headed much higher, and higher

enough to make material difference in their EMI obligations. I think there are a lot of people who do

not understand risks of floating rate loans or loans with first couple of years of very low-interest rates.

Meena Sivaram Experience

I will definitely give my inputs based on my experience. My advice will be more geared towards those

who want to buy a house for the first time for self-occupancy and NOT those looking for immediate

gains and make a killing in the real-estate market. I am not the right person to advise those people as

there are experts in that area. Here are my 2 cents:

Affordability - Do not go for over-priced properties which are beyond your means. Do not be

impressed by those fringe attractions that builders dole out to impress the potential buyers like club,

http://www.subramoney.com/2010/02/real-estate-prices-mumbai-and-navi-mumbai/



http://www.jagoinvestor.com/2008/01/how-home-loan-emi-is-calculated.html



http://www.jagoinvestor.com/2010/07/the-emi-desease.html



http://www.jagoinvestor.com/2009/05/difference-between-needs-and-wants.html









swimming pool, golf course, gyms, landscaping and what not…All these so-called benefits inflate the

price of the property. More important than these are the quality of construction and the basic facilities

provided by the builder like earthquake-resistance (the richter scale it can withstand), the ratio of

super area:built-in area, quality of material used within the apartment, 24 hr backup of electricity etc. If

you can manage your cash flow by reducing some other expenses, go for a size which is bigger than

required i.e you need 2 BHK for now, go for 3 BHK and so on.

Location – This is important. I know most people cannot afford to buy a property on a prime locality

like South Mumbai or South Delhi but when you are house-hunting in the suburbs, look for the

development activities in the surrounding areas. If there are metros, malls, highways, office or

commercial and residential building being constructed in the vicinity, such properties have the

potential. Choosing a right property in a right location is like picking up a good stock. Buy when prices

are low but has a potential to go up in the medium to long-term.

Words of Caution to New buyers

1. The land on which the property is being constructed is not under any legal dispute and the papers areclean

2. Make sure the builder has taken all the necessary approvals from the municipal and other bodies

required for the construction of property. Any slack here will delay the possession.

3. Previous track record of the builder on the completion of projects on time. Most builders do not

adhere to the schedules. Of course such a risk is not there when you are buying an already

constructed property but they are more expensive.

One last piece of wisdom: Go for your first property when you are around 30 years of age and do not

DELAY it. Go for a 15 year loan tenure and aim to repay it within 10 to 11 years. So by the time you are

40-42 years, you are out of the loan liability. CAGR % for Meena house is around 12% and Tenure is 14

Years , She lives in Delhi-Ghaziabad Border .

Wasim Sayyadd Experience

1. After identifying the property, look if the builder has constructed any apartment nearby/surrounding

that is already occupied. Go..talk to people find out how genuine this builder is.This gives you a

feedback how genuine and chalu the builder is. That way be prepared based on your questionnaire.

2. Read Agreement carefully before signing it. Eventually, in the process of purchasing Flat we built

mutual trust and the builder promised me to give parking, but this was not included in my agreement.

He called me to sign at registration office without handing over a copy of agreement in advance.(I

also didn‟t question being a good relation) I got the copy after a registration..same day I read carefully

all the lines..and noticed parking is not included..called builder he assured to give parking. Am still

waiting..as parking is not yet alloted to the Flat owners yet. Ratio of parking available to the owners is

less. And I am following it up..to get my part.

Manish Jagtap Experience

I am assuming the target audience to be the end-user who will stay in the house, and not a Real

Estate speculator.

Put max possible down payment. Otherwise Bank interest over long tenure will eat up all price

appreciation of the property.Also do not keep EMI more than 40% of husband‟s salary. Ladies are

most likely to take breaks for kids. Do not consider their income while planning for EMI. If wife

continues her job, you can user her money to do partial pre-payments. (Compare different home

loans)

http://www.jagoinvestor.com/2009/05/video-post-on-basic-formula.html



http://www.jagoinvestor.com/2009/08/review-of-bankbazaarcom-excellent-user.html









Check Builder reputation. Also, if possible go for ready possession. These days builders show some

garden, play area in brochure (you consider such things at the time of buying) and later on build

something else on that land. You don‟t want to see a balcony of some other building that the builder

pops up on such land, to stare right into your leaving room/bed room.

If possible go for group booking since it gives you a negotiating power. Lots of IT guys do these now

a days. Mistake I did was to go for 95% loan even though I had money to pay for the flat. Price

appreciation was eaten up by interest on the loan amount. Also, keep in mind the rising cost of

children education, your retirement funds.

Robin’s Experience

I will start from the first step instead of the zeroth. A buyer has an option to choose from a ready-to-

occupy apartment or an under-construction project. Ready to Occupy projects are priced much higher

as the risk associated is far less. The unit is all ready. An Under Construction on the other hand is

cheaper but other than the risk you also have to wait for the unit to be complete. If one has enough

fund for the Ready to Occupy option, people prefer it. In our case the Under Construction works

better. We did not have enough funds to actually buy a Ready to Occupy unit. A 2 BHK from

a reputed builder was priced upward of 50 lakhs, It would have required a loan of more than 40 lakhs.

An EMI of 45k per month was in the uncomfortable zone, plus it meant very little monthly savings.

Remember we had a car loan too.

Under Construction plan has a silent benefit which most people tend to neglect in their calculation.

While the project is under construction, we are also drawing our salaries. Since the payments are

construction linked, initial EMIs are quite low. This has an advantage. By the time we get the

possession of the flat we would have easily saved more than 10 lacs (we are considering 3 yrs time

frame), something which would have been difficult in the Ready to Occupy plan.Other than the

financial aspect we also have the legal aspect to take care off. The project should be clean and

should have all the necessary permissions from various govt. bodies. SBI seems to have the most

stringent legal policies. So if a project is rejected by SBI, one should show extra caution. If one is

looking for a flat which is Ready to Occupy type, one should consider the second sale option also.

This should be used just before the registration in the original owner‟s name. Most of the original

buyers are investors, they would like to sell the property before the registration to avoid paying

registration fee.

Check Your EMI

Check more Amazing Calculators

Vikram ExperienceMost important thing to take note of while buying the house : The location of the house is quite

important. Are their schools nearby if there what are the standards of the school.What are the standards

of my neighbors and so on are also. How far are the groceries or provisional stores and other amenities.

Biggest advice of caution for new buyers : Look before you leap. Think a million times before you buy

a house. Check the EMI and see if you have enough on your hand to survive. If you are on rent and going

to pay EMI for an unfinished house, check if whatever you are left with is sufficient for you to lead a

decent life. People with kids especially should tirple check before they commit to a 30 or 40 lakh EMI

options. The market never remains the same. Have a backup plan just incase you are not able to pay an

EMI.

Any other learning you want to share : If you are planning to buy a new house by selling an old house,

ensure that you have the new house papers in place before you sell your old house. I personally was

http://www.jagoinvestor.com/calculator





affected by this issue or risk or whatever you wanna call it. Dad had a house and it was planned that that

house will be sold and we will buy two new flats for me and my sister. The sale of the house happened

but we never were able to buy a house because of market boom. It was the worst decision of my life

agreeing with the sale but I am repenting for it and the things I have to do get some extra money to buy a

house is making me die everyday. With an 8 month old baby now I am really not sure how to make things

happen. A single bad decision ruined a lot more than just my finances.

Ashutosh Tewari’s Experience

Most important thing to take note of while buying the home : Connectivity and basic infrastructure

(grocery stores, road/ rail connectivity, safety) , Consider re-sale property (less than 5 yrs old

construction is the ideal bet) as there are several advantages of it :

More carpet area: In most of the new construction the super-buildup to carpet area ratio is barely 60-

65%

Better Infra : Most of the older construction already have shops and amenities established around

them Lesser Maintenance : This is fixed monthly outflow that most people don‟t take into consideration

while decision-making. Newer constructions (especially the ones with exotic “themes”) can have a

pretty high Maintenance outflow. There are some in Mumbai, where it‟s as high as 10,000-12,000 per

month.

Ready to move : You can move into it right away, as against waiting for 2-3 yrs in case of newer

construction. If you stay on rent then this can be an important consideration.

Biggest advice of caution for new buyers:

Before making the buying decision decide on the budget and strictly stick to it.Do not get tempted by

up selling.

The net EMI outflow should not exceed 35% of your net monthly take home, this will help reduce the

stress level substantially. Also set aside a contingency fund which can cover 6-8 months of EMI.

Do not get over excited and limit your spend on furnishing and interior designing. This is an emotional

decision in which usually tend to go overboard very easily. Also for people living in metros there is a

high possibility of their moving to a bigger apartment or a different city, in that case there are things

which may not fetch returns while selling.

Sunil Jaiswani Experience

What is the most important thing to take note of while buying the home : Keeping apart the finance

/ affordability aspect because it has already been discussed, one important aspect while buying a house

is the maintenance expenses,basic amenities and cost of living in the area.Not all places have good

water / electricity availability + distance from workplace.

Biggest advice of caution will you give to new buyers : To be very careful of the person you are

dealing with in case of non branded flats/homes because a new buyer can easily be caught in the nexus

of land mafia which are obviously gundas and if something or the other goes wrong you cannot do a thing

about it.In small towns we even have instances of some properties being sold multiple times and also

illegal land grabs/kabjas. I was lucky enough to escape such a condition but only after facing a lot.

One trick/idea which if implemented properly can save some good money : New to this process but

if you plan to sell the investment flats or homes in some short time you can save the registration money

by holding a POA ( power of attorney ) in your name and save the investment on registration.Later when

you sell you can directly transfer the registry to buyer saving you a good amount. + in case of small town

purchases more u bargain ( and more the upfront money ) more the price reduces.



Other learning : Other than flats /duplex which yield a return of 12-15% CAGR the land prices in tier 2

and tier 3 cities offer much higher and brisk return sometimes.Thus if you are looking to invest

irrespective the location , small cities are a good option to consider.Moreover having been to all major

cities and small towns , trust me that living conditions and resources are still much better in small towns

with respect to electricity , basic cost of living , proper water and food availability.

Raja Panda’s Experience

1. Check out the individual flat plan and match it with the actual size of the flat. Take extra care to

match(measure) the size of balconies. This is where most of the builder do plan violation by

increasing the size of balconies to get extra money. That‟s because the expenditure on the balcony

for construction is the least but the customer pays the price as part of the Super Built Up Area.

2. Again measure the exact size(carpet area) of the flat. Most of the customer take the word of builder

as sacrosanct when it comes to stated size of flat, but on calculation one can many times find a 2-5%

shortfall. Remember that can mean a difference of 80k to 2 lac rupee difference in a 40 lac flat. Now

you get it! right ?3. Check out your undivided share of land. Very simply put an unit of undivided share of land equals

(total super built area of all flats in the complex)/(total size of land for the complex). So, to reach at the

undivided share of land alloted for your flat it should be (your super built up area) * (the unit

calculated above). Lot of times this is overstated by builder to attract customers. But remember, if

there is a natural calamity like earthquake,fire etc and the building gets destroyed it‟s only the

undivided share of land which you really own. Don‟t leave it for later. Builder which do not allot

undivided share of land to buyers are a strict no-no (yes there are such builders).

4. For under construction flats it‟s very common for the builder to give possession of the flat once it‟s

occupation ready. But the amenities (if any) are given after long gap and hassles. My suggestion

would be simply hold the money for the amenities part until it‟s really completed. 5. For ready to occupy building‟s insist on occupancy letter which is issued by the authorities. This

ensures the plan violations has been checked and regularized by authrities when the consturction got

over and it‟s really ready to occupy.

My Comments

First thing I would say is dont rush, learn about things, buying a house is one of the biggest decision

(atleast financial) you will make in your life and you will commit your lifetime of cash flows in it.

Planning things well in advance and doing your investigation will lead to smoother and successful

execution. Your chances of making wrong purchase or a bad purchase will be minimized if you take

time and do your investigation well enough. Just for an example , You buy a house , you do your

basic investigation and the house was available at very very attractive price, and gives you a hope of

making 100% profit in 2-3 yrs and suppose later you come to know that everything was fine, however

the consturction quality is not that great and have beeen compromised. You really dont want to get

into that situation because first point is that if its your first home , you probably be planning to get

settled there and wont move out once you are in your comfort zone and once things settle down like

your office is very near , your children schools are there and you feel good there.

Every decision you take is your decision. Just like Wasim Sayyadd (One of the above), we Indian‟s

are emotional, we shy away from talking direct and think too much about feelings, relations and how

others will think? We make oral promises and also rely on them many times. There is nothing wrong

in asking straight questions and questioning each and every step when you buy anything, because

Damn! , its my money and its me who will suffer if things go wrong . So make sure you go through a



detailed chechlist because you buy a house or any other real estate property . Here are some from

my side.

1. Patta Verification

2. Guideline Value

3. Demand at least EC for minimum 15 years

4. Check the Property Tax recipt till date & name

5. if the Seller is a power Agent check weather he has all the rights to sell the property

6. Check that the plot is approved by Panchayats/CMDA/DTCP/MMDA

7. Check that the property belongs to which zone (Resi/Agri/Comm/Aquifier/Non-

Resi/industrial/Special)

8. Check that the property had undergone any hier purchase, mortgage, loan, if so NOC from the

concern department

9. Check that the plot can be approved for residential purpose in case of unapproved

10. Verify the documents with a legal Advocate

11. Check the documents with a Banker for Loan Possibility (without patta & Approval loan is notpossible)

12. Dont agree for any Oral Agreement , Never !

13. Check that the Layout has been alloted OSR Area ( temple, school, park, shop ) or else the

owner has to pay 10% of the land value to the Government for approval. Only if the layout

exceeds 3000sqm,32258sqft,74Cents .

14. Insure that the Plot is minimum 500 meter away from National Highway, Sewage Cannal, Sea

Shore, River, Pond, Lakes, Dam, Airport, Busstand, Railwaystation, Nuculear Power Station,

industries.

15. The Registeration Stamp Duty charge will be 8% of land value and 1% as Registeration fees

and Misc Charge extra 16. The Road Width defines the no of floor you can build, in case there is Airport near by you can

get only G+1 permit

17. The Zone type and the Road Width defines how much area you can build, in case Aquafier

Recharge Zone you can get only 0.8 FSI wherels in residential Zone you get 1.5 FSI

18. Check the frontage length of the plot.

19. Check the type of ground soil.

20. Check the type of ground water.

21. In case of corner plot check the shortage area

22. Check the roadlevel height and rain water stagnating

23. Check for Vastu ( it will be better if it is east faceing and rectangle in shape ) , if you believe in

it .

24. Check weather Drainage faculty is there.

25. Have a detail conversation with the landowners near by and always have touch with them

26. It is Mandatory to have the complete details of the property seller including his photograph.

27. If the plot is near by Burial Ground the value will get low.

28. Other Essential Facility Nearby & Need to Know are Schools , Collages , Busstand , Railway

Station , Ration shop etc. Understand that you need all these for next many decades , so are

they 2-3 Km away or 10 Km away can become one of the biggest deciding factors

29. Make sure you have address and phone numbers of all the relevent and concerned offices like

Panchayats Office , V.O Office, R.I Office, Tahsildar office , Register Office,EB Office , Court ,Police Station, Post Office



Carpet Area means the net usable floor area within a building excluding that covered by the walls or

any other area specially exempted from Floor space index computation in these regulations [Reg

2(15) of DCR for greater Bombay 1991]

Built up Area ?

Built up area means the area covered by a building on all floors including cantilevered portion, if any

, but excepting the areas excluded specially under these regulations [ Reg 2(13) of DCR for greater

Bombay 1991]

What Is FSI ?

FSI Floor Space Index In Respect Of A Plot Of Land It Denotes The Square Meter Area Which Can

Be Constructed Upon That Plot Of Land. It Is The Ratio Of The Combined Gross Floor Area Of The

Entire Building To The Total Area Of The Plot On Which It‟s Stands It Is To Be Noted That FSI In

Respect Of The Plot Varies Depending Upon The Location And The User Zone Of The Plot.

As Per Regulation 15.2.1(C) Of The Development Control Regulations For Mumbai Metropolitan

Region, 1999, „Floor Space Index‟ Means The Ratio Of The Combined gross Floor Area Of All

Floors To The Gross Area Of The Plot, Viz.:

Total Covered Area On All Floors/ Gross Plot Area = Floor Space Index

Thus, Based On The Permissible FSI, Some Additional Square Feet Of Construction Is Allowed On

Each Plot Of Land

OC Occupation certificate?

OC Occupancy Certificate is a very important document. It evidences the completion of the building

as per the approved plan and compliance of local laws. Local bodies like city corporations / city

municipalities issue occupancy certificates. Without the occupancy certificate, it is difficult to get the

water and sanitary connection. Financial institutions insist on occupancy certificate to sanction

loans.This is given by the BMC

I O D ?

IOD means Intimation of disapproval. It is issued when a builder applies for permission of

redevelopment of a building and it contains a list of conditions which must be complied with before

commencing redevelopment

Development Agreement?

Development Agreement means the final agreement signed by the society with the developers

containing all the terms and conditions for redevelopment scheme before handling over the existing

building to the builder for demolition



Realty TerminologiesArea (Carpet/Built-up/Super Built-up)· Carpet area is the floor area/space of the property/flat which is actually useable orfunctional and does not include the walls.(can be measured physically)· Built-up area is carpet area plus the inside walls and peripheral/outer walls of theflat/property.Super Built-up area is built-up plus the common area of thebuilding/society/complex like lobby, stairs, lifts, compound ground, etc.

FSI/FAR (floor space index/floor area ratio)It is the ratio of total built-up area of the building/complex to total area of the plot on which it isbuilt.It is approved by the planning authority like Town planner, BMC.

TDR (Transferable Development Rights)It is equivalent awarded FSI (instead of monetary compensation) to the owner for surrenderinghis land which is been marked by Planning Authority like BMC, others for developmentalpurpose.This TDR can be utilized by himself or transfer/sold in the market. It can be used asFSI to construct additional floor space over and above the existing FSI (maximum limit 2) & only

north of the land (Mumbai).

Approved planThis is architectural plan of the proposed building/structure which is authenticated / approved bythe planning authority like BMC, with accordance of developmental regulations & conditions.

IOD (Intimation of Disapproval)This is communication/intimation from the authorities to the developer of the plan submitted &correction / rectification recommended.

CC (Certificate of Commencement)This is to certify the commencement of the construction of the building. It is important document

for clients booking flats/apartments under construction.OC (Occupation Certify)This is to certify that the construction of the structure/building is complete according to theapproved plan & fit to be occupied by the respective / prospective owners.TitleIt is an abstract term frequently used to link an individual or entity who owns property to theproperty itself. When a person has “title”, he is said to have all the elements, including the documents, records, and acts, that proves his/her ownership.Title establishes the quantity of rights in real estate being conveyed from seller to buyer.Title certificateThe statement or certificate stating the title of the said land/property is held by the current ownerlegally.Title searchIt is the search carried out by the lawyer/solicitor to ascertain and know the legal owner/heir oftheland/property going back to the desired time say 10/15/20…..50… years to present one. Title insuranceAn insurance policy indemnifying against the loss due to title imperfections, purchased usuallybythe buyer.7/12 Extract (Utara) It is a revenue document of ownership mainly for agricultural and rurallands issued by Talathi of the respective village. It has name of the owner, description ofproperty i.e; Survey No. & Hissa No.; area of the plot and Mutation entry Nos., of any

encumbrances by way of loan, charge, protected tenant, etc, and the tenure of land. Thisdocument is always available in local language of the state. It is valid for 6 months duration fromthe date of issue.



6/12 Extract (Utara) It is a revenue document of the agricultural and rural lands showing detailsof mutations entries like charges or encumbrances of any nature i.e; transfer, assignment,partition, mortgage etc., popularly known as “Pherfar Patrak” in Maharashtra. It is valid for 6 months duration from the date of issue.

EncumbranceAny restrictions that affects/limits the title of a property like mortgages, leases, easements,others.

Property Registered Card This is a revenue document like 7/12 extract but issued by CitySurvey Officer of respective zone, showing ownership, description of property i.e; Survey No. &Hissa No., area of plot in figures & words; and Mutations entry like way of loan, charge, longterm lease and others. It is valid for one year from the date of issue.

City Survey Plan This is a plan issued by City Survey Office with survey no., showing theboundaries of the plot and existing structures if any relation if any thereon.

The Officer on request can carry out survey and demarcate the boundaries of the plot and issueplan of demarcation to the applicant.

Non- Agricultural Permission (N.A Permission) This is the permission issued by the DistrictCollector, when the nature of land is changed from agricultural to non-agricultural land forpurpose of residence, commercial, and industrial use / development. This is issued within aperiod of 30 days and pay the conversion charges & NA assessment taxes to the offices of theTahasildar concern.

Agreement to Sale This is a instrument or document executed duly between the „Vendor” (Seller) and the “Purchaser” wherein the property mentioned is to be sold by “Seller” and purchased by “Purchaser” and described in details like Survey No., C.T.S. No., etc and area of

property with terms, conditions and convenants agreed upon like specifications of construction,scheduled of property giving description, location and area of property; list of amenities, facilitiesand others.It should have the total compensation sum in figures and words with the duration period. Itshouldhave a part payment receipt form the “Purchaser”. Sale Deed This is a document/ instrument/agreement between “Vendor” (Seller) and“Purchaser” wherein the property scheduled is sold by the “Vendor” and purchased by“Purchaser” described in details like Survey No., C.T.S. No., etc and area of property withterms, conditions andconvenants agreed upon like specifications of construction, scheduled of property givingdescription, location and area of property; list of amenities, facilities and others.It should have the receipt from the “Purchaser” of the payment or compensation done in exchange of transfer of titles & rights with possession of the property.ConveyanceThe process of transfer of the title of the property from one party to another.Leave & License agreement This is short term agreement not more than 9 years between“Licensor” (Owner of the property) and “Licensee” (prospective user of the property) with terms and conditions described in details with monthly compensation mentioned. It should have thereceipt of deposit amount paid by Licensee to Licensor as the form of security.Lease Deed This is the long term agreement between “Lessor” (Owner of the property) and “Lessee” (prospective user of property) with terms and conditions mentioned generally for morethan 9 years, varies from 30 years to 99 years; with description of monthly/yearly lease or

compensation along with the premium payable by lessee to the lessor.Freehold property This is the property like plot or land belonging to ownerhimself/herself/themselves not leased out to any other party for long term.



Lease hold property This is the property like plot or land belonging to the lessee (user) whohasobtained the rights to use the property from the lessor (owner) and transfer these rights to neworprospective user.Earnest moneyToken / advance money given by the purchaser to seller as a gesture for not entering with anyother party for the sale of the desired property.Power of attorney (PoA) It is a written instrument empowering a specified person to act for andin the name of a person executing it.In other words, a power of attorney is an authorization to act on someone else‟s behalf in a legal or business matter. (For details see Knowledge Series)Columns & BeamsColumns are vertical pillars & beams are horizontal structure made of RCC(Reinforced cementconcrete) which supports the entire building. They form skeleton of the building/structure.They should not be altered under any circumstances.Slabs

They are flat horizontal platforms which forms the flooring/ceiling of the flat/apartment.Shear wallsThey are load carrying walls (extended columns) of RCC without any beam. They give stabilitytothe structure/building as well as visually esthetic.Appraisal & Valuation (Real Estate)An appraisal is estimation of value of the property.The appraisal process involves some steps which are as follow· Physical & legal identification· Identify the property rights like ownership, leased, others.· Purpose/Aim of appraisal like mortgage, property insurance, others.· Specific date of the valuation as market conditions keeps changing.

· Accumulating & analyzing data from the market.· Valuation of property by different methods.Valuation is actually calculating the value for the property (more information refer knowledgeseries)AdjudicationAdjudication is a procedure done by the stamp duty department to determine the market valueofthe property on payment of nominal fees by the applicant. Applicants have tosubmit certain basic data of the property as well as all the factors affecting the valuation of theproperty.Stamp dutyIt is the tax paid to the revenue department of state government on documents or instrumentsunder the Bombay Stamp Act, 1958 (real estate) & Indian Stamp Act, 1899. It is usually paid bythe buyer unless it is agreed any other way.It is paid as per market value assessed by the Registrar/Sub-registrar Office. The assessmentvalue and amount can be obtained from the Stamp duty Ready Reckonerpublished by the same department annually.RegistrationThe agreement on which stamp duty is paid should be registered with Registrar/Sub-registrar ofthe state department as it forms record with the government.The charges for the same are 1% or Rs.30000/- whichever is less.Special Economic Zone (SEZ) is a geographical region that has economic laws different froma

country‟s typical economic laws. The goal of it is to increase foreign investment, improve infrastructure with the advantage of tax benefits. (refer knowledge series).Coastal regulation zone



In general the land between low tide line and high tide line is the coastal Regulation Zone. Forregulating developmental activities, the coastal stretches within 500 meters of HTL (High TideLine) on the land ward side are classified into the following different categories of coastalregulation zones (CRZ) four categories.Property Assessment Tax (municipal tax) It is revenue earned half yearly or annually by Civicauthority for the services being rendered to public viz; water, sewerage, education, streetsmaintenances, others which is based on Ratable Value decided by the assessment departmentpublished periodically.Society Share Certificate It is the certificate issued by the Co- operative Society Ltd of the flat,unit, plot, tenants or housing board owners to the respective owner stating the ownership in the

form of numbers of shares & Share Certificate No.



How is saleable area calculated? What is super builtup area?

You have come to a very important page of www.nripro.com. There are two main reasons why it is

absolutely important for buyers to understand areas and methods used to calculate saleable areas: (a)

Different interpretations of areas and different methods used for calculation of saleable area can have

more than 20% variation in total price tag and (b) Actual area that you get directly depends on how

saleable area is calculated.

After you are done reading this page, we strongly recommend you read another

related page at this link on our website that shows actual examples of typical

construction cost in Pune, and how much money builders make.

Carpet Area: Area between the walls. Carpet area must have permanent roof (slab) over

it, at normal height. Owner must get exclusive rights to use and resell the carpet area.

Carpet area is calculated by multiplying dimension of room, i.e. length x width. Total carpet

area is calculated by adding carpet areas of all rooms. Generally, in addition to all the

rooms, varandas, passages, area inside the main door (if not included in living room

dimension), balconies are included in carpet area. FSI is applicable to carpet area.

Depending upon builder practice, carpet area may be 50% to 70% of of saleable area. It is

always good to find ratio of carpet area to the saleable area, higher the ratio, better it is.

This is just to give you idea of what you actually can use, in practice it is in interest of the

buyers to find out what is carpet area and then apply loading factor on it (and not do the

other way, i.e. should not arrive at carpet by applying loading factor to saleable area.

The example below will illustrate trick used by builders/developers, when they say you can

find carpet area by applying loading factor on the saleable area.

Saleable Area: 1200 sq ft

Loading Factor: 25% (or 1.25)

Wrong Method (favours seller):

Carpet Area: 1200 x (100-25)% = 1200 x 75% = 900 sq ft

If you apply 1.25 or 25% loading, saleable area should be 900 sq ft + 900 x 25% = 1125

sq ft

As you can see under this method builder is charging you for 1200 - 1125 = 75 sq ft more

Right Method (favours buyer):

Find carpet area first by measuring actual dimensions, and then apply loading factor

Saleable area = 900 sq ft + 900 x 25% = 1125 sq ft

Terrace: Open area without roof, attached to the main unit that buyer gets exclusive rights

to use and resell (with the main unit). Open areas with slab at least double the height of the

floor are also considered terrace area. FSI is not applicable to terrace areas.

Balcony: Open area with roof (slab at floor height), attached to the main unit that buyer

has exclusive rights to use and resell (with the main unit). Generally balcony area is added

to total carpet area. FSI is applicable to balconies.

http://www.nripro.com/



http://nripro.com/dp/what_is_construction_cost_in_pune

http://nripro.com/dp/what_is_construction_cost_in_pune




Dry terrace or dry balcony: Area meant to dry clothes that buyer has exclusive rights to

use and resell (with main unit). If it has roof (slab) at normal height, it should be treated as

balcony. If it does not have roof (slab) at normal height, it should be treated as terrace.

Builtup Area: Carpet Area + area occupied by walls, doors of the unit. Generally builtup

area is not calculated separately, it is included into the loading factor.

Loading factor or loading or load: Loading factor is a number used for purpose of

arriving at saleable area. It is used to add constructed space not exclusively allocated to the

buyer. Such area generally includes shared areas such as lift/elevator area, staircases,

clubhouse, gymnasium, amenities area, etc. Loading factor 1.25 indicates that

developer/builder is applying 25% on the carpet area. Some builders, in addition to carpet

area, include terrace and balcony areas while applying the loading factor. If the project does

not have lot of amenities, the loading factor should be small. In most cases loading factor of

1.3 is more than sufficient. Loading factor also includes parking space (irrespective of it is

covered, open, stilt, sold separately or not).

Superbuiltup Area: Carpet area + terrace + balconies + areas occupied by walls + area

occupied by common/shared construction (e.g. lift, stairs, club house, etc). Generally

builders use loading factor on carpet area to arrive at superbuiltup area. For example, if

carpet area is 500, and loading factor is 1.3, then superbuiltup area is 500 x 1.5 = 750.

Usable Area: This is relatively new term. Technically there is no difference between Usable

Area and Superbuiltup Area. Some builders use this term to justify higher loading factor,

typically in Mumbai where land cost is extremely high.

Saleable Area: Generally superbuiltup area is saleable area.

FSI: Floor Space Index. This is ratio of land to carpet area. Generally it is 1 for residential

plots (much less for agricultural land) For example, if FSI is 1, and land area is 3000 sq ft,

then total carpet area on that land cannot exceed 3000 x 1 = 3000 sq ft. It should be noted

that FSI is not applicable to terraces, balconies. Also, this definition is provided for your

information, enforcement of FSI is taken care of by local authorities, and buyer should not

worry about it (unless there are allegations against the builder of misusing FSI).

Methods used to calculate saleable area

Builders apply different models to arrive at saleable area. The methods used by builder can

result into as high as 20% to 25% increase in the effective rate. We will try to explain

different methods (not all of them) used by developers/builders and their relative impact on

saleable area, total price, and ratio of carpet to saleable area.

In the example below, it is assumed that the rate is Rs. 4000 per sq. ft, loading factor is

1.3, and it is a 1BHK unit with the following dimensions:



Room or area Dimensions (ft) Area (sq ft)

Kitchen 8 x 10 80

Living room 10 x 15 150

Bathroom 4 x 7 28

Bedroom 12 x 10 120

Total Carpet Area (C) 402

Dry terrace 4 x 8 32

Terrace 10 x 13 130

Total terrace area (T) 162

The table below lists different methods/ variations (certainly not all the variations) of

arriving at the saleable area. Please note effect of each variation on saleable area,

total price, carpet to saleable area ratio, and effective carpet rate. Please also note

that calculations done manually don't match 100% with calculations done by

builders/architects because they use CAD software. However the difference in two method

should not be more than +/- 3%. Because of different methods and variations, it is difficult

to "reverse engineer" and find out what method builder has used. It will be good to find outfrom the builder if terraces/balconies are charged at 50% of 100%, and is loading factor

applied on those, and what is the loading factor. Most builders don't answer these questions

in written material, and may not even bother to answer even if you ask. In that case only

option for you is try different variations as given below and "figure out".



ethodCarpet

charged

at

Load

applied to

carpet?

Terrace

charged

at

Load

applied to

terrace?

Calculating

saleable

area

Saleable

area (sq ft)

Total

price, Rs.,

(rate x

saleable

area)

Carpet

to

saleable

area

ratio

Effective

carpet rate,

Rs., (Total

price/C)

1 100% Yes 33% No(C x 1.3) +

(T x 33%)576.06 23,04,240 69.78% 5,732

2 100% Yes 50% No(C x 1.3) +

(T x 50%)603.6 24,14,400 66.60% 6,006

3 100% Yes 50% Yes

(C x 1.3) +

(T x 50% x

1.3)

627.9 25,11,600 64.02% 6,248

4 100% Yes 100% No (C x 1.3) + T 684.6 27,38,400 58.72% 6,812

5 100% Yes 100% Yes (C + T) 1.3 733.2 29,32,800 54.83% 7,296

Method #1 in above table is legal method (because it charges terrace at 33% of the area,

that is maximum allowed for terrace). Method #2 is widely used method.

Summary

a) Bigger saleable area does not mean bigger carpet area

b) Lower rate does not mean good deal because it can result into higher effective rate

because of loading factor, and the way terraces are charged (at 50% or 100% or at some

other %), and if loading factor is applied on top of terraces

c) Method used by builder can cause a big swing in the total price as demonstrated in theexample above

d) Lower loading % does not necessarily mean it is better deal, one needs to look into how

it is applied on terraces, gardens and other areas that are not included in FSI

e) Per square foot rate is meaningless and misleading if not looked in light of the

other factors that influence saleable area

due diligence - flat/home purchases

Documents