The home-buying process

Posted on June 17, 2008

The home-buying process

INTRO:

This process is broken up to three main sections: budget, home loan and searching for the exact home

Section 1: THE BUDGET

First of all, assess your post-tax monthly income, deduct tax saving contributions. Similarly, do so for other earners in the family.

Next, provide for credit card debt and other loan payouts, as also provide for monthly household expenses. After this, set aside around 5% for contingencies.

Add up the savings you will need to put down your contribution of 10-15% as Housing Finance Companies will fund only between 85-90% of the property value.

Now check if you have enough for the EMIs plus maintenance expenses. Don’t forget to budget for the tax breaks you get on your loan repayment. Typically, lenders will ensure your EMI’s doesn’t exceed 50% of your take-home pay, post-taxes and other deductions.

Section 2: THE HOME LOAN

Screen lenders on total financing cost and convenience.

Get pre-approvals from short-listed lenders.

Check out property fairs for better rates

Check if your employer has a tie-up with a lender, corporate discounts can lop off more than 1% in interest alone

Today, lenders are vying for customers, so play them hard against each other for the best bargain.

Get a list of pre-approved properties from lenders. Borrowing will be a breeze if the property you zero in on is on your lender’s list.

Step 3: THE SEARCH

When you go house-hunting, consider:

How far you’d be from place of work

How far the home would be from your kids’ school

How far you’d be from reliable medical help

The quality of civic amenities (water, electricity, waste disposal etc)

How accessible social amenities like markets, clubs and parks are.

Now, the reality of life is that the ideal in the list given above may not match your budget. So, now you need to match your budget with your requirements and what’s available – and make the necessary trade-offs.

To know what’s available, scour advertisements, ask friends and neighbours, and check out property fairs.

Once you have a short-list of projects, check the past record of the builder and visit their completed projects

Important points to keep in mind while buying your home

INTRO:

These are points that are more from a practical aspect rather than fiscal or legal

About the locality, watch out for proximity to workplace, educational institutions, hospitals, shopping areas, entertainment centres, transportation, and pollution levels etc.
Quoted area of the flat i.e. compare whether it is carpet, built up area or super built up area. Understand the difference – ask your builder/ developer to explain.
Car parking space: whether compulsory to be bought or open to home buyer’s needs, more than one slot required by a family, whether parking slot is stilt/ open/ covered/ podium parking.
Quality of construction
Reputation of the builder or seller
Sufficient water and electric supply, as also other utilities
Cost components: price, stamp duty, registration charges, transfer fees, maintenance charges, any other payments

Appreciation of the property value in terms of resale value, and/ or rental value.

Any other distinguishing features or advantages of the property

Documents and checklist while buying a home

INTRO:

List of all the important documents one should check; and the checklist before buying any property

TEXT:

If you want to purchase a property, you have to look at the approved layout plan, approved building plan, ownership documents, carryout search, etc. Contact an advocate before you purchase a property so that he can advise you.

This is a checklist: when buying commercial or residential property you would need to check for the following documents/ information:

Before you start on documents, you need to understand market trends; identify the exact property you want to buy and formulate the commercial terms.

Market Trends is all about prevalent rates of property in the vicinity and last known transactions, so you do not pay too much for your home.

Identify the property you wish to purchase, from all aspects – funding, requirements in present day as also future.

Formulate commercial terms, put everything in writing as far as possible..

Distinguish between terms and conditions of the contract which are negotiable and those which are fixed – e.g. price, payment schedule, time of completion etc.

Avail of services of a helping hand like My Homes. List your requirements with us.

Ask for photocopies of the all deeds of title related to the property to be purchased.

Examine the deeds to establish the ownership of the property by seller, preferably through an advocate.

Ascertain the survey number, village and registration district of the property as these details are required for registration of the sale.

Previous encumbrances and loans, if any, on the property must be cleared before completion of purchase of the property.

The Title of the Vendor to the property must be clear and marketable.

Finalise commercial terms of purchase of the property. Ascertain transfer fees, stamp duty and registration charges to be paid on purchase of the property.

Ascertain outgoings to be paid for the property i.e. property tax, water and electricity charges, society charges, maintenance charges.

Request Vendor to obtain, if applicable, consent, permission, sanction, no objection certificate of various authorities such as the (a) society (b) the income tax authority (c) Municipal Corporation (d) the competent authority under the Urban Land

Ceiling and Regulation Act (e) any other authority.

If you require a loan for the home, ask for a pre-approval letter from the lending institution.

Permanent Account Number of Vendor and Purchaser is necessary under Income Tax laws
Payment of stamp duty on the formal agreement or document for transfer of the property, signing by both the Vendor and Purchaser and registration
After payment of the entire sale price, take over legal possession of the property along with documents of title in original from the Vendor of the property
Change name of the holder of the property to the purchaser in the records of the society, electric supply company, municipal corporation, Index II etc.

INTRO:

When buying a flat from a builder in a building under construction, you have to check the following

Verify the approved plan of the building, along with the number of sanctioned floors.
Verify whether the floor on which you are buying a home on is approved.

Whether the land on which the builder is building is his; or he has undertaken an agreement with a landlord. If so, check the title of the land ownership with the help of an advocate.

Check the building byelaws as applicable in that area and ensure that the builder is building without any violation of front setback, side setbacks, height, etc.

Check if the specifications given in the agreement to sell of the sale brochure match the ground reality or not.

In locations where Urban Land Ceiling (ULC) NOC is applicable, check whether the same has been obtained.

Whether an NOC from water, electricity and lift authorities have been obtained.

If you are buying a new flat

Firstly the Purchaser has to enter into a Registered Agreement of Sale with the Builder and pay the requisite margin money. Then he has to approach the Financial Institution and collect the necessary details including application form from them.

On application, copy of registered agreement, registration receipt, receipt of payments made and NOC from Builder have to be handed over to the Financial Institution.

In case of purchase of a new flat, loan will be disbursed in instalments depending on stage wise progress of work.

Supporting Documents:

Requirements for Salaried Applicants:

Employer’s salary certificate in requisite format/and latest salary slip.
Photo Identity
TDS certificates, ESIC/ PPF certificate

Requirements for Businessmen / Self-employed

3 years IT returns together with P/L account, etc duly certified by a Chartered Accountant

Loan FAQs

What is an EMI?

You repay the loan in the form of Equated Monthly Instalments (EMIs) which is made up of 2 parts- principal and interest. Loan repayment EMI begins from the month in which you take full disbursement.

What is pre-EMI interest?

Pending final disbursement, you pay interest on the portion of the loan disbursed. This interest called pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement upto the date of commencement of EMI. Some Financial Institutions, on you request, could consider to start the EMI before the loan is fully disbursed.

What are the different interest rate options available?

Floating Rate of Interest- the Rate of Interest is reviewed periodically every six months based on the prevailing market conditions and RBI policies. The revised

Floating Rate of Interest could increase, decrease or remain the same.

Fixed rate of Interest- The Rate of Interest ordinarily remains the same throughout the term of the loan.

2 in 1 rate of interest- This Home Loan provides customers with a choice of breaking up the loan requirement into Floating and Fixed Rate loans.

What is the method of calculation of Interest Rate?

Methods of calculation would include

– Flat Rate – Total interest calculated for the term and then divided by the number of months
– Reducing Balance (monthly/Quarterly/Annually)- Compounded

Can I repay my loan ahead of schedule?

Yes, you can repay the loan ahead of schedule but some companies have prepayment charges.

How much does a Housing Finance company lend?

Loan amount is determined on the basis of the repayment capacity of the applicant/s. Repayment capacity takes into consideration factors such as age, income, dependents, assets, liabilities, stability of occupation and continuity of income, savings etc. The maximum loan varies from company to company. Most companies extend loans upto 85 % of the cost of property (including Stamp duty, Registration charges, and other govt. charges).

What is the period for which one can get a Loan?

The maximum period of the loan is 20 years subject to age of retirement or completion of 70 years whichever is earlier.

What Is Security For The Loan?

The security for the loan is the first mortgage of the property to be financed by way of deposit of the title deeds, subject to local laws. Guarantors are usually asked for.

Does the applicant get a tax benefit on the loan?

Resident Indians are eligible for certain tax benefits on principal and interest components of a loan under the Income Tax Act, 1961. Interest repayment of Rs. 1,50,000 p.a. can get you a tax saving upto about Rs. 50,490 p.a. Moreover, you can get added tax benefits under Sec 80 C on repayment of principal amount upto Rs. 1,00,000 p.a. that can further reduce your tax liability by about Rs. 33,660 p.a.

Market value, Stamp duty, Registration

Market Value means the price at which a property could be bought in the open market on the date of execution of such instrument. The Stamp Duty is payable on the agreement value of the property or the market value, whichever is higher.
Stamp Duty is a tax, similar to sales tax and income tax collected by the government, and must be paid in full and on time. A stamp duty paid instrument/document is considered a proper and legal instrument/document.
The liability of paying stamp duty is that of the buyer unless there is an agreement to the contrary. Section 30 of Bombay Stamp Act, 1958 states the liability for payment of stamp duty.

Registration

Formalities: Formalities and forms may vary from State to State depending on where the property is situated.

Every State has its set forms under the Registration Rules that are required to be filled and filed along with and at the time of Registration of Sale Deed/Transfer Deed.

Time limit for registration: The property agreement should be registered with the Sub-registrar of assurances under the provisions of the Indian Registration Act within four months of the date of its execution.

Taxation Issues

From the point of view of taxation no special formalities are required for completing while buying the property. However, proper Agreement to Sale etc. must be done and the ownership and the title should be verified to ensure that one does not have a problem at a later stage in respect of such property.

PAN

Under the provisions of the Income Tax Act and Rules for a transaction of sale, it is now compulsory for the Purchaser and Seller to give their Permanent Account Number and in the event of either the Seller and/ or the Purchaser would be required to fill Form 60 of the Income-Tax Rules.

CAPITAL GAINS TAX

For the purpose of Real Estate, the Long-term Capital gain would be only if you hold the property for more than three years, then it is subjected to tax @ 20% only.
In case you sell the property in less than three years time then it would become short-term Capital Gain and the same is required to be taxed at the prevailing tax schedule of the rate applicable to the assessee depending on his other incomes.
It may also be noted that if a person has claimed deduction U/s 80C in respect of repayments of Principal on the housing loan or stamp duty registeration charges etc. and such person sells the house within 5 years from the end of the financial year in which such house was purchased then deduction so claimed U/s 80 C in respect of this house will be deemed to be the income the said assessment year in which the house is sold and the same will have to be offered for tax.

EXEMPTIONS:

There are innumerable ways and options available for saving Long capital gains tax. For example, invest the Long term capital gains in a residential house property or a flat to claim complete deduction U/s 54 of the Income Tax Act. Likewise, if a person were to investment the Long Term Capital Gains in REC or NHAI bonds or such bonds as may be specified by the CBDT from time to time U/s 54EC then the amount so invested would be allowed as adeduction from the Long Term Capital Gains.

FORM 60

In case of a person not having taxable income or who is not assessed to Income Tax is required to file Form 60 with the registering authority.

FOREIGN CITIZENS OF INDIAN ORIGIN

Formalities that need to be completed by foreign citizens of Indian origin for purchasing residential immovable property in India under the general permission: they are required to file a declaration in for IPI and with the central office of Reserve Bank at Mumbai within 90 days from the date of purchase of immovable property or final payment of purchase consideration, along with a certified copy of the document evidencing the transaction and the bank certificate regarding the consideration paid.

Leasehold & Freehold properties

Leasehold properties (plot/built-up) are those in which perpetual leasehold has been granted by the title paramount in favour of the lessee. In such properties, the title paramount, i.e. President of India acts through DDA, L&DO, Leasehold properties are not freely transferable. Depending upon the covenants of the lease deed, prior permission of the lessor (DDA/ L & DO) is required to transfer the property.

Freehold properties are those where title paramount has conveyed the property in favour of the purchaser by conveyance/sale deed with no restriction on the right of the holder of the property to further transfer the property. Record of ownership of the freehold property can be ascertained from the office of the sub-registrar. It can be transferred by registration of sale deed.

Income from house property

Broadly speaking, this would be as under:
Actual rent received from property
Less: House Tax to the extent actually paid by the assessee
Balance: i.e. Annual Value
Less:
(1) 30% of the annual values
(2) Actual Interest in respect of loan for the property
Net taxable income from house property
The above-mentioned formula would enable most of readers claim correct deduction in respect of income from house property.

What adds up?

Interest paid during the construction period would enjoy tax benefit in total five years as per Section 24 of the I.T. Act, 1961. The Loan processing fee, the brokerage, the stamp duty can be added to the cost of the property. The misc. expenses if they can be attributed directly to the purchase of the property then they would form part of the cost of the property.

Ownership, as per it laws

Ownership, for Income-Tax purposes, would be when one receives the possession. Even if payment is not made but possession is received, it will be treated as a sale transaction. COMPLETION OF SALE The transfer of a flat is concluded when you have a sale deed/ agreement for sale coupled with actual possession. Generally, in all cases the entire amount is paid simultaneously with the handing over of physical possession and signing of the transfer documents.

Source: http://www.myhome.net.in/buying_home.htm

Buying Property from a builder in India

Posted on June 17, 2008

Buying Property from a builder in India

Today, builders have registered their strong presence in Indian real estate market. Buying property from a builder takes away much of the stress that a buyer faces otherwise. It affords the buyer the luxury of moving into a fully completed home or office. A Builder can be a person or an enterprise that takes on the responsibility of scouting for land, getting permits, buying land, registering it, constructing a building and finally selling it within a fixed timeframe.

Builders’ standing in the Real Estate market:
CREDAI (Confederation of Real Estate Developer’s Associations of India) is the apex body of the organized Real Estate Developers/Builders across India. It represents the Developers/Builders across India and communicates with the Government authorities for the formulation of proactive policies for their profession.

* CREDAI encourages the Developers/Builders to increase their efficiency in the development/construction activities by introducing the latest technology.

* Member Builders/Developers have to abide by its ethical code of conduct, which is self-imposed and mandatory, in order to bring integrity and transparency to their role in Real Estate development.

Many Builders operating in Real Estate India are members of the Builders Association of India, one of the objectives of which is to address the issues that Builders come across from time to time.

Strategies that can work to your advantage:

Builders today, are engaged in the construction of major housing and commercial projects across the country. An awareness of when to buy makes buying from a Builder an attractive proposition for those thinking of buying real estate in India as it entails the below benefits:

* Buying in a slow market: At times, a builder has surplus inventory and would like to sell off at reduced prices. You as a buyer can benefit from it, defying the market trend.

* Buying early in the development stage: Buying during the early stages of construction, at times can assure you a much lower price as the earlier you buy, lesser are the chances of your facing the impact of appreciated property values. Moreover, there is an increased chance of negotiation from your end.

* You can also go for a pre-launch residential project where the Builder raises capital for the project by taking advance bookings from interested buyers after getting the required building permits, but before beginning construction.

* Buying the last home in the locality: As the finance structure of the construction industry affords selling the last home in the locality even at a price below the going rate, the benefit is ultimately passed on to the buyer. Also, the builder wants to sell it readily and quickly.

* Sub-leasing to builder: It is a commercially viable option to buy unit models as they are subject to many levels of upgradation and the best of craftsmanship is employed to attract buyers. If you are contemplating buying a house in India, you have the option to buy one complete with decorated furnishings.

* Buying when the property will be part of a Society: If the Builder has plans of helping form a co-operative society, this may be advantageous for you as members are protected under the Co-operative Housing Society bye-laws. Alternatively, if the builder is going to write the property in favour of the Society at a future date, it will serve your interests to buy such property.

* If you decide to buy from a Builder, make it a point to have a lawyer by your side to seal the deal with success. You can browse through the tips we offer for striking the best deal as well as precautions that should be taken while doing so. Also included is a list of documents that you should seek from a builder during and after your transaction.

Source and for further reading/info, visit:

http://www.indianrealtylaws.com/buying-property-in-india/property-from-builders.aspx

Buying property in a Co-operative Society in India

Posted on June 17, 2008

Buying property in a Co-operative Society in India

Housing Co-operative Societies are autonomous associations of persons who unite voluntarily for meeting their housing needs with economic, social and cultural advantages. Together, they form a not-for-profit Co-operative Corporation.

A Housing Co-operative Society is jointly owned by its members and works on a democratic basis to own or control housing and/or related community facilities. Each month, members simply pay an amount that covers their share of the operating expenses of the Co-operative Society.

Role of Housing Co-operative Societies in India:

In recognition of the importance of Housing Co-operatives in creating good housing conditions, the government and other public authorities have found a major contributor to their efforts for proper housing in the country. In Tamil Nadu, for instance, the Housing Cooperative Societies are playing an important role in achieving the government’s objective of ‘A House For Each Family’. Several Co-operative Societies are functioning to fulfill the housing needs of members in urban and rural areas.

General guidelines for a Co-operative Society:

Formation of a Society is subject to some basic guidelines that are State specific.

Given below is a general overview of the guidelines:

1. Membership is open to all who will co-operate in good faith, irrespective of race, caste or creed. The number of members of a Society is dependent on the directives of the Registrar. Usually, it is ten.
2. Members should not be of the same family.
Members should be eligible to enter into a contract under the Indian Contracts Act, 1872.
3. There is no limitation on who can or cannot join the Society.
4. The Society should be registered under the Societies Registration Act, 1860.
5. It should be financially strong and able to bear the costs of the Co-operative’s development drives.
6. Different types of Housing Societies:
7. Housing cooperatives embrace a range that includes high-rise apartment buildings, garden-style apartments, townhouses, single-family homes, and senior housing.

Flat Owners Society:

It is a Society formed by different purchasers of residential tenements under the State Acts governing ownership of flats. The builder constructs flats and sells them to flat owners.

Such a Society acquires a plot of land with a building from the Board and manages, maintains, and takes responsibility for the administration of the same.

Open Plot Society:

In this, members purchase or take on lease a plot of land and undertake construction of the building.

It is a Society formed by individuals with an objective to buy a plot of free land and construct a tenement thereon to administer, maintain and manage.

City and Industrial Development Corporation (CIDCO), Mumbai besides leasing out plots as tender plots also allots plots to Housing Co-operative Societies (governed by the Maharashtra Cooperative Societies Act, 1960) formed by persons of 15 years of domicile in Maharashtra at concessional rates.

Becoming a Member:

When you buy into a Co-operative Society, it means you are buying shares or a membership in a Co-operative Housing Corporation. The corporation owns or leases Real Estate. Becoming a member will entitle you to an exclusive right to live in a specific unit for as long as you want, provided you do not violate its rules or regulations.

Purchase Price:

The purchase price may vary as it is subject to factors including the kind of neighborhood the property is in, how big the unit is, whether the Co-operative places a restriction on resale prices, and whether the Co-operative has an underlying mortgage for the entire property.

Advantages of buying from a Co-operative Housing Society:

* Affordability: It involves lower down payment, much lower closing costs, and is more affordable than other ownership housing. It grants permanent right of habitation to its members.

* Controlled monthly charges and maintenance costs: Monthly charges remain reasonable, unless taxes or operating costs go up drastically.

* Direct maintenance responsibilities: Since the cooperative association is responsible for insurance and upkeep of common grounds and facilities, direct responsibilities are less.

* Tax Deductions: For income tax purposes, the Co-operative member is usually considered a homeowner and is allowed to deduct his or her share of the real estate taxes and mortgage interest paid by the Co-operative.

* Equity: Co-operatives can provide for accumulation of individual member equity.

* Savings: Encourages savings as Co-operative members can benefit from economies of scale in operating costs as well as from its not-for-profit operation. Transfers of shares involve fewer settlement costs.

* Voting rights: As mutual owners, member residents get to participate at various levels in the decision-making process. They can exercise a vote in the affairs of the corporation.

* Consumer Action: Through their cooperative association, members can jointly act as a consumer advocate to influence tax rate changes and utility prices and obtain improved services from the local government.

* Security: It permits economic self-administration of houses, arrests incidence of abuse of property and promotes improved and shared security arrangements among members.

* Spirit of Co-operation: It nurtures the concept of mutual help and human relations amongst its members. Governed by the principles and practices of Co-operative organisations, Housing Co-operative observe the values of self help, self responsibility, equality, equity and solidarity and encourage promotion of economic interests or general welfare of the members/public.

However, their realization will depend upon the effectiveness of the organisation, the motivation and dedication of the members and competence of the management.

Source:
http://www.indianrealtylaws.com/buying-property-in-india/property-cooperative-societies.aspx