This article is written by Sudiksha Rawlani, pursuing a Certificate Course in Introduction to Legal Drafting: Contracts, Petitions, Opinions & Articles from LawSikho.
Recently, I got an opportunity to assist in a matter where the plaintiff (buyer of a flat) had paid the entire sale price of a flat only on one assurance that was: Letter of Allotment. I was shook to know how one could part away with their hard earned money without even entering into a Sale Agreement. While it is good to have faith in the builder, paying the entire sale amount without even entering into a legally bound Sale Agreement sounded foolish to me and that’s when I decided to write this article.
Buying a property is no peanuts. When you buy a house, you part away with a huge amount of your income. It is very important for one to have knowledge and to be aware of the nitty-gritty of buying a property to get themselves a good deal. You must take informed decisions to avoid future shocks. This Article will make you aware of everything you need to know before buying a property with an under construction status.
Things to be aware of before purchasing an under construction property
Builder’s track record: When one buys a flat with an under construction status it is very important for a person to know whether or not the builder is trustworthy. You must do your research on the track record of the developer you are buying your flat from. You may compile all information about the developer before parting away with your money – either from reviews, online ratings, social media pages, news or any other source. Once you have done your due diligence on the builder’s track record, it is also essential to ask for the Title of the property, Deed of Conveyance and Title Certificate from the builder.
Check for approvals: To carry out construction on a property, a builder must have the following approvals:
- Approved Plans: Once the structure of the building has been made by the Architect of the project, it needs to be approved by the local municipal corporation to ensure that the foundation of the building is strong, construction is environmentally safe and many other reasons. A builder is expected to carry out construction exactly as per the approved plans and any changes must be approved before implementation.
- Commencement Certificate: The Local Municipal Corporation issues a Commencement Certificate (CC) to the builder which certifies him to start construction on his site. Usually, the Commencement Certificate is issued only for a part of the project i.e. the plinth of the project, following which it gets extended floor wise.
Ask for APF number: Today, every project is expected to have an APF (Approved Project Financial) Number or code. It denotes that the project has received all necessary approvals. An APF Number is an assurance of the credibility of the developer. It is provided to the developer by banks or housing finance companies. An APF Number makes it easier for one to get a home loan as it saves them from the tiresome work of collecting legal documents of the project from the developer.
RERA registration: Any property with Occupancy Certificate (OC) as on 1 May 2017 is mandated to be registered under their state’s RERA. Hence, a buyer must check whether or not the project they are willing to invest in is registered under RERA.
Don’t pay any percentage of the Sale Price through ‘black money’: It is very important for you to not pay any percentage of the sale price through ‘black money’. This is because you might end up digging up your own grave. Let’s assume you bought a flat for Amount Rs. 50,00,000/- (Rupees Fifty Lakh) and you and the developer agreed that you would pay Rs. 40,00,000/- (Rupees Forty Lakh) via cheque whereas the remaining Rs. 10,00,000/- (Rupees Ten Lakh) would be paid by you through ‘black money’. This will illegally save your tax but the plot twist here is what if you get into dispute with the builder? What if the builder does not hand over possession of the flat to you for years and hence you decide to claim all your money back? In this case, it is essential for you to know that the builder will be bound to pay only Rs. 40,00,000/- (Rupees Forty Lakh) to you because that’s what you paid officially.
Read the sale agreement thoroughly: One of the very basic yet most ignored practices is reading the Agreement for Sale thoroughly. It is essential to read and understand the Sale Agreement carefully. There are chances your Sale Agreement has loopholes which may later get you in trouble. You may check the difference in percentage of interest to be paid by the builder in case of delay in possession and the percentage of interest to be paid by you in case of delay in payment for flat. It can also be beneficial for you to go through the list of amenities mentioned in the Sale Agreement to know whether they are the same as those mentioned by the builder verbally or not. One may hire a lawyer to look for loopholes, if any, in the Sale Agreement.
What disputes can arise in buying an under construction property
Delayed possession: The most common dispute arising out of buying an under construction property is delayed possession. The Supreme Court, in the landmark judgement of Lucknow Development Authority vs MK Gupta, AIR 1994 SC 787, stated that when possession of property is not delivered within the stipulated period, then the delay caused is denial of service and the complainant is entitled to compensation in such cases.
What are the remedies that a homebuyer has in this regard?
- Send a Legal Notice: You must send a Legal Notice to the Builder for delay in handing over the possession of the property through a property lawyer.
- File a complaint with RERA: You can file a complaint with RERA under section 18 of the RERA Act, 2016 claiming compensation for the delay in possession. If the builder fails to hand over possession of the flat, the buyer has two options, either continue with the project and claim compensation or terminate the Sale Agreement and seek refund with interest. Under section 18 of the RERA Act 2016 the builder will be liable to refund the entire amount paid by you for the flat with interest if you decide to exit the project whereas if you choose to continue with the project, you can claim interest for every month of delay till the time the apartment is handed over to you.
Fraud committed by the builder: There are plenty of possibilities in which a builder can commit the offence of cheating and one needs to be aware and alert about them. One of ways could be that the builder does not provide you with the area committed by him. It is important for one to check the area of the flat they receive. Another possibility could be that the builder might skip out on any of the amenities stated in the Sale Agreement. There are n- number of such ways you might get defrauded by, hence, it is important for one to be alert at all times! In such cases, one can either go to consumer court or initiate criminal proceedings against the builder.
Buying a flat with an under construction status vis a vis a ready to move in flat
While buying a house is no easy task, another decision that confuses a buyer is whether to buy a ready to move in house or a flat in an under construction property?
- The most obvious advantage of buying a ready to move property is that there is no risk of discrepancies with the promised layout, features, and amenities. Unlike in the case of an under construction property, one actually gets to see what he is paying for.
- However, both, buying a ready to move in flat or a flat with an under-construction status have their own risks. In a ready to move in flat there are chances of the property being sold to more than one buyer whereas a buyer who chooses to buy a flat with an under construction status might never receive possession of the same. Due diligence of a property is the crux of buying one.
- When buying an under construction property, the extended window period between the buying stage and the delivery time usually yields high returns. There are chances you earn a healthy appreciation on your investment if you sell your house near or after possession. However, this is not the case when one buys a ready flat.
- The goods and services tax (GST) levies a 5 (five) percent tax on under construction properties whereas ready to move in properties are left out of the ambit of GST.
- While a ready to move in flat requires a buyer to have his payments arranged, a flat with an under construction status allows a buyer more time to spread his payment.
In conclusion, whether buying a flat with an under-construction status is beneficial or a ready to move in flat, is an endless debate. It entirely depends on the requirement and financial situation of an individual. If one opts for buying an under-construction property, it is very important they be alert about everything at all times and take informed decisions.
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