Purchasing a residential property: Important points to note
2013 could be a game changer for the real estate industry with some pending bills expected to be passed in Parliament. The passage of two bills, namely Real Estate Regulation Bill and Land Acquisition Bill could be important for the sector.
In an interview to CNBC-TV18, Pankaj Mathpal of Optima Money Managers tells us about the important points to be noted while purchasing a residential property.
He said, it is imperative that a buyer reads the terms and conditions of the sale-purchase agreement thoroughly before signing it.
Below is the edited transcript of his interview on CNBC-TV18
Q: The question today is actually on the real estate side. So what are the features that home buyers should look out for in the builder buyer agreement for purchase of residential properties?
A: Like any other agreement in the sale-purchase agreement all the terms and conditions of sale and purchase are mentioned. Since only one party, that is builder is involved in drafting that agreement, so the buyer must read and understand all the details of those agreements. Usually, builders sell the flat on the basis of super built-up area, which is known as sellable area, it also includes your area of balcony, your lift area, passage and dry area etc.
First, it is important to ensure that in the agreement the breakup of each room size and carpet area is mentioned. Second is delivery of the flat, that should be mentioned there and also the payment schedule. Then what would be the penalties, if there is delay in delivery by the builder because usually there are penalties mentioned or interest mentioned for delay in payment by the buyer. If buyer is not making payment in time then he has pay certain interest on the amount. However, what about the penalty for the builder if he is not giving delivery of the flat in time? That should also be there in the agreement.
Then is the commencement certificate; every builder before starting a building project has to obtain commencement certificate. Now this commencement certificate is given in the part. In the plan, it should be mentioned how many floors have been approved. Suppose, you want to buy a flat on 11th floor and commencement certificate is issued only for seven floors then you should ensure that the floor on which you want to buy the flat should be approved which is also very important.
Apart from these other things like title deed of land, other approvals etc are also important but basically since the builder writes the terms in his favour, you should look for all the above details carefully
Q: But really what bargaining power does a buyer have? You may have a lot of bargaining power demanding the approval for the floor level with respect to a small builder, but when it comes to the bigger names you are not really interacting with the builder, you are interacting with one of the sales minions. Can you really force them to show us that you have this approval because it is a very legitimate fear especially now you have people offering 60 floors and 100 floors in Mumbai, the fear is very much there, but can you really demand because these are very big builders? Secondly, I can tell you for sure that when the buyer is defaulting or is likely to default the penalty is very clearly 18 percent for delayed payment, but when the delivery of the flat is in question usually the builder gives himself a six month or a one year gap from the date he proclaims and then says the penalty is something like the 10-year bond yield. I have seen this in documents, but these are big builders. So really can you negotiate? You don’t even have an access to speak with them?
A: I fully agree with you. First thing as I said since only one party is involved in drafting of the agreement and here all the terms are in favour of the builder. It is not only big builder, or a small builder, you don’t have choice to negotiate with them. So, I suggest you read the agreement and if you don’t agree with the terms and conditions, then it is better you don’t enter in the agreement.
Secondly, when you read the agreement and when you understand at least the builder will think that people are aware and they ask for these things. Right now what happens when somebody goes to buy a house, he simply signs the agreement without reading it.
I know it is an unregulated market and people do not have choice to really negotiate with the builders. However, once the investor or buyers are aware of these things maybe tomorrow situation will be better.
Caller Q: I have purchased a row house in Greater Noida and have paid preferential location charges for the corner plot and all the documents were duly signed. A few days ago, builder has informed me that the area of my plot has been increased by then and therefore I should either pay extra or choose a non-preferential location. I neither want the non-preferential location nor can I afford to pay the extra amount. What are the options to me at this time?
A: Exactly, it is a common complaint actually we hear. These complaints are either about the amenities where the builder promised something and when it comes to delivery the quality sub-standard etc, these types of complaints we keep hearing about.
In the above case because the sale-purchase agreement in India is governed by Registration Act, Indian Contract Act and Transfer of Property Act. So, I would advice that she should go through the agreement. She should see that whether there is any condition, which entitles the builder to change the terms and conditions of the agreement. If the agreement is registered and she finds that builder has violated the terms and conditions of the agreement then she has a choice to approach to the consumer forum.