The Hindu Business Line : The ground work

Besides affording a feeling of pride and security, the benefits from owing a home include tax deductions, appreciation in asset value and returns from letting out the property in part or full.

Some people argue that it is economical to rent a home rather than invest in one. People who had the resources but still did not buy a home a decade ago find that interest rates on deposits have now dropped nearly 50 per cent on the one hand, and on the other they are forced to pay higher rent. However, investment cannot be the primary criteria for buying a home. There are instances where the real estate prices have remained stagnant for long periods of time and in some rare cases, have even dropped.

The home you buy may be an independent house or a row house or a flat in a building complex. While an independent house has open spaces on all four sides, a row house will not have spaces on the sides, similar to the `street houses' that were once popular in localities like Triplicane, East Mylapore and George Town. The flat is another popular option based on the principle of shared ownership. A house may either be constructed afresh on a vacant plot or rebuilt by modifying or demolishing an existing house.

The decision to buy a house may rest on a person's capacity to afford mortgage payments. Generally, those who have a steady income might opt for mortgage payments, which may be higher than the house rent they pay.

Affordability

Normally the down payment for a house will be a minimum sum equivalent to about 15 per cent of the house value. Considering the loan repayments, interest rate and other family expenses, one should ideally invest in a house whose value does not exceed 2.5 times the individual's gross annual income. When choosing a housing loan, do check for hidden costs and factor in the tax benefits.

Location

Ensure that the site can meet your house plan requirements and has potential for further development. It should be located in a safe neighbourhood with access to facilities such as good schools, hospitals, shops, markets, transportation, recreation centre, post office, police station and so on.

The area should be safe from pollution and flooding.

The layout and the building should be approved by the authorities. Ensure there are no deviations from the approved building plan. The property should have a clear title with no encumbrances. The locality should be fairly developed and the number of vacant plots fewer in number.

Finding a house

Word-of-mouth information, newspaper ads, real estate brokers or simply driving around localities can help one zero in on a property.

As the real estate sector is unorganised in India, ensure that the broker is reliable and never pay the service charge until the deal is finalised.

Guard against brokers who

insist on showing you properties that do not match your requirement or your budget.

do not introduce you to the seller; he may be trying to sell you a sold house!

Third-party dealings

In some cases, a third party would have made an agreement for sale and the third party may negotiate. In other cases, the third party would have paid part or full amount to the owner and would have the power of attorney executed in its favour. The power, however, is not valid if the owner is not alive. Dealings in such properties may involve risk for the buyer.

Try to negotiate with the seller directly. The services of professionals such as advocates, engineers/ valuers and architects can prove beneficial.

Buying a housing site

The site may be in a developed or developing locality. When buying a site located in a new layout outside the city, for construction at a later date, ensure there is no encroachment by neighbours or a third party. Visit the site periodically.

Title document

The seller should have acquired the property through his earnings or through

a. In testate succession under Hindu Successive act or Muslim Law or Indian Succession act.

The succession certificate issued by a competent court or Legal Heirship Certificate issued by the Tahsildar must be verified.

b. If property title is derived by will, examine whether the will has been probated by the court concerned.

c. If the property is derived by gift, partition settlement or exchange, the deed relating to such transfer may be verified.

Note: A minor's (person below 18) property share cannot be mortgaged or charged or transferred through sale, gift, exchange or otherwise without court permission.

The buyer is advised to publish a notice in any newspaper, stating that the title of the specified property is lost and anybody in custody of the same can return it, and anybody with claim in the property must intimate the advertiser within a month of the publication. If nobody responds then the sale can be proceeded with.

Will this safeguard the buyer?

No, it is not mandatory that everybody should read the newspaper notice. The absence of response to the advertisement will not make the title clear.

Check for encumbrance certificate for the last 30 years to ensure that the property is unencumbered on the purchase date.

Verify if there is any proposal to acquire the land/property by any government or statutory body.

Ensure that the property does not attract the provisions of the Urban Land (Ceiling and Regulation) Act. (ULC Act abolished in Tamil Nadu in 1999.)

Verify whether the land has been designated for residential use by the Planning Authorities.

The Development Control Rules has classified different use zones as primary residential, mixed residential, institutional, recreation, open space, commercial, economically weaker section, light industrial, general industrial and non-ban zones. The site can be used only for the purpose designated in the development plan.

Building documents

Check for the following documents:

a) Plan of existing building

b) Property tax receipt

c) Water and sewerage tax receipt

d) Urban land tax receipt

e) Electricity Board card (The seller's name should show in the receipts)

f) Rent agreement, if any

g) Litigation documents, if any

If a piece of land is carved out for sale in an existing property, with or without a building, the subdivision plan is to be approved by the authorities concerned.

Ensure that the plot is not affected by some overriding central laws like the Coastal Regulation Act or restrictions imposed by the Archaeological Department.

It would be safer to have the building plan approved in the seller's name before finalising the transaction.

Remember

The site should not be in the neighbourhood of kilns or lakes or industrial places such as tanneries. It should be at least 300 ft from burial ground and 1,000 ft from mining or quarrying site. The plot should not have easement burden, that is, a right held by local bodies or private parties for laying pipes or erection poles.

The open space requirements specified by the local authorities should be examined carefully as otherwise the built-up area permitted may not be sufficient.

Tax

Wealth tax must be paid when the asset value exceeds the Rs 15-lakh exemption given for some forms of assets. For immovable properties, statutory income capitalisation will work out to be lower than the market value. This concession is not available for vacant plots or wherever the building occupies less than 20 per cent of the land or when the cost of acquisition is more than Rs 50 lakh in metropolitan areas and Rs 25 lakh in other places.

Once you have acquired the plot, apply for transfer of patta or revenue registry, which is a must for building plan sanction.

(The author is former National President, Institution of Valuers, Chennai.)

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