Unravelling Real Estate

Let’s decode a few jargons and myths about real estate, also let me aware you about the builder’s untold facts, and mainly should you buy a real estate property at this time?

WHAT IS RERA?

RERA is an act to protect home buyers. It acts as a referee in resolving real estate disputes. Earlier every developer or builder had his own norms and there were no standard norms. They followed various practices and structured the builder-buyer deed in a manner that favours them. For the protection of the interests of the home buyers and they are not exploited by the builders, the RERA Act was introduced by the Government in 2016. Make sure you buy only RERA registered property.

Things that you might be unaware about:

1. You can track the status of approvals & progress of the project.

2. Builders can charge only on Carpet areas.

3. RERA flat carpet area is excluding wall thickness, shaft, balcony, and terrace.

Distinguish between Carpet area, Built-up area and Super built-up area

Let’s first understand the term FSI. FSI stands for Floor Space Index which means the maximum area of construction allowed on a particular plot as per the Development Control Rules. E.g.- If a 10,000 sq. ft. plot has the FSI of 2, then you may construct a building with up to 20,000 sq. ft. area.

(FSI modifies with the different region and the form of building)

Carpet area and walls form Built-up area and adding common area to it, will give us Super built-up area.

NO PROJECT CAN START CONSTRUCTION WITHOUT IOD & CC

IOD (Intimation of Disapproval)

It is the first permission given to the builder for constructing on a land. The IOD provides the clearance to the builder for construction after several checks from local authorities like Fire clearance, Permission from Traffic and Coordination Department, Sewerage Department, Tree Department, etc. are done. Total 40 checks are done before IOD is approved.

CC (Commencement Certificate)

It is given by the local authorities to a real estate builder as a sign of commencement of the construction. As a buyer, it’s important that you check CC before investing in a building project. If they don’t have CC, chances are that the project is being developed illegally.

DID YOU ASK THIS TO YOUR BUILDER?

1. Are any litigations pending on the property?

Due to it, many construction projects come to halt because of ongoing litigation. Ensure from the builder that the property is litigation free.

2. Are all the legal permissions are granted?

Major documents to look out for:

1. Title Deed {it will have information about the current owner of property}

2. IOD/CC

3. OC {Occupancy Certificate -for ready property stating construction of the property is completed and it's now fit to be occupied}

4. RERA certificate

5. Building approval plan {to understand how architecture of the property is planned}

3. What is the completion time of the project?

Sometimes, when the project gets delayed indefinitely, it brings a big loss to the buyer in paying EMI.

4. Questioning the quality of construction and materials used:

1. Check if the quality of fixtures and finishing are as promised.

2. If in doubt, get the property audited for quality by third-party agencies.

3. Visit past projects of the builder to understand quality delivered by him.

{Timely maintenance done in the first 10 years decides the life of building for the next 40 years}

5. Is the parking area chargeable?

REMEMBER: Open parking areas cannot be sold, whereas covered parking areas can be sold.

6. What are the hidden costs?

Mostly, only the cost of a flat is discussed Some other charges are: Floor rise charges, stamp duty, GST, registration charges, maintenance charges, document charges, parking charges, and other legal charges.

7. When do I need to make a payment?

Every developer has a different payment plan and the one should plan the payment schedule accordingly. You should be aware that builders may levy penalty interest on late payment.

SUB VENTION SCHEME

In this scheme, the buyer pays the down payment based on the ratio offered by the builder, the additional payments are made by the financial institutions(like a bank) to the builder. {This is same as the Home loan with a small twist that ‘cost of interest subsidy is borne by the builder for limited period.’}

Example: - 10:70:10:10 is special subvention scheme. Under it, the customer will pay 10% of the total property value at the time of booking the property. Registration fees, VAT and stamp duty will be included in it. After that Home Loan provider will pay 70% at various stages of construction. Once 80% amount gets , the buyer will pay 10% and then the bank will pay the balance 10% at the time of possession.

SUBVENTION SCHEMES ARE ONLY FOR UNDER CONSTRUCTION PROJECTS.

Recently, the most popular subvention schemes like 80:20 and 75:25 is banned by RBI.

MISTAKES WHILE PURCHASING HOMES

1. Not deciding the purpose of buying HOME

2. Not questioning why is the flat sold at a lesser cost

3. Not checking the quality of construction

4. Buying a flat without making a financial plan

HOW MUCH SPACE CAN 1 LAKH BUY?

CAPITAL GAIN TAX ON PROPERTY

If you sell a property after holding it for more than TWO years, then the gain from that transaction is considered as a long-term capital gain (LTCG) and it is taxed at 20% after indexation.

Two of the ways to save capital gain tax on property:

1. Section 54 - The exemption is available when the capital gains from sale of a property are invested again into purchasing/developing of maximum two houses. The new reality estates must be purchased either, 1 year before the sale or 2 years after the sale of the property. Or the new reality estate must be constructed within 3 years of the sale of the property. Only one house property can be purchased or constructed. The exemption for 2 properties for capital gains up to Rs 2 crore is only once in a lifetime benefit under Section 54.

2. Section 54EC – It allows exemption of LTCG on sale of land and building if the capital gain amount is invested in certain specified bonds like National Highway Authority of India, Rural Electrification Corporation, etc. Maximum tax benefit u/s 54EC is Rupees 50 Lakh.

RENTAL PROPERTIES

1. Is GST applicable on residential property? NO, if the residential property is rented for the residential use & YES, if the residential property is rented for commercial use. If the total rent received from all properties + Total value of goods supplied by the landlord during the financial year is above 20 Lakhs.

2. Release Clause: A release clause in the agreement enacts what happens if you break your lease, allowing you to vacate early if you reimburse a small fee/additional rent and – in some cases – find another tenant to replace you. You may need to pay extra rent for vacating before the lock-in period and the landlord may delay the release of your deposit.

3. Always register the rent agreement: Signing rent terms & conditions on a stamp paper is not a valid document. You must have to register the rent agreement for validity and should avoid not registering in order to save a little money. Online rent agreements have started in almost all major cities.

4. Subletting: Subletting rental apartment means you split the rent by getting some other mates. Make sure you have landlord’s permission and particular clause is mentioned in your rental agreement. You may land into a legal soup if you sublet without permission.

REAL ESTATE SECTOR POST LOCKDOWN

• Ready to Move properties will be safer as compared to Under construction properties.

• During lockdown people understood the worth of “Dream Homes”, so residential properties will be hotcakes. (Real estate markets will behave according to the various parts of India)

• Buyers will have an advantage to negotiate better price & LOW-interest rates are definitely a bonus.

• Luxury segment will definitely take a hit of the drop in home prices.

• Commercial properties will be the most affected. Businesses, to reduce their costs, will rent out smaller sized offices.

• Fresh commercial deals may not happen or may get delayed.

• Rental housing is mainly proportional to the tenant's salary(most belongs to the working class). If their salaries are reduced, then definitely there would be a reduction in rents.

• Chances of reduction in rentals would be high, mainly in the areas that command high rentals like Mumbai, Bengaluru and Gurugram.

RECENT NEWS AND AMENDMENTS:

(As of 19/07/2020, source: Reality Plus)

1. The flat owners will have to pay GST at 18% if their monthly contribution to resident welfare association (RWA) exceeds Rs. 7500 p.m.

2. Haryana Government permits property registration from any place in the state. They will soon inaugurate a centralized system of land records that will help in registration of properties in the state from any place without going to the concerned district or tehsil. Going ahead this should be implemented by all the states.

3. RERA timeline extension: Because of Covid-19, the deadline for the completion of real estate projects are extended by 6 months. If the RERA project completion date was August 2020, then it will be revised to February 2021.

4. 65% Home Buyers back in the market and out of them, 33% think that it is a good time to buy a new house while the other 32% are in the finalization stage.

5. According to a survey of 99acres.com, out of 100, 53 homebuyers have postponed their purchase decisions. There is an unsold inventory of 6,24,000 units, being worth around Rs. 3.7 lakh crores, is lying in the top 8 metropolitan cities of India. A years-to-sell survey shows an average time to clear this stock has also risen to 3.3 years in the wake of the Covid-19 crisis.

“The best investment on Earth is Earth”

Write-up by: Amit Barad