Monday, January 15, 2018

Due - Diligence: A must do exercise before investing in a property

Author: Sachin Gupta | Find me on Twitter
 
Sumit Sharma was ecstatic having done renting vs. owning and home loan analysis and was now all set and ready to go for his dream home. All of a sudden he got to know from various sources such as newspapers, radio and his colleagues about some cases where builders have failed to deliver the project on time, or there were litigation issues and deviations in homes from what was promised. That was a cause of concern and since, buying a home is a lifelong decision and therefore nothing should be left to luck. He decided to go for a comprehensive check with the help of a real estate agency. The agency adopted the L BID (Lets Break It Down) approach and came out with following verification:

Verification of the Project:

1. The agency got the copy of most important documents in verification of a new project such as Copy of intimation of disapproval (IOD) and commencement certificate (CC) from builders. Only after complete verification, they recommended the client.
2. They asked for and studied the copy of approved drawings of the project for an under construction project and recommendations were made accordingly.
3. Land title verification is crucial in a sense that land should be free of litigation and any kind of associated debt. The agency with a team of legal professionals verified the land documents.
4. They also checked the copy of functional water connection, electricity connection, and occupation certificate in order to make sure that deal was hassle free and transparent.
5. The agency also checked if the property to be bought is mortgaged with the lender (such as bank, or housing finance companies). If that was the case, they asked for a NOC (no objection certificate) from the lender.

Verification of the price of home:

1. In addition to the base selling price, there are other additional costs associated with the project. The agency hired by Sumit Sharma also verified the total cost of home in addition to project verification.
2. Stamp duty verification: to check if the rates quoted by builder are on the super built up area or carpet area.
3. Registration Fee: to check if the rates quoted by builder are on super built up area or carpet area.
4. Floor rise: to check for the prices with the builder
5. PLC charges: to check for the prices with the builder
6. Infrastructure development cost (IDC): to check for the prices with the builder
7. External development charges (EDC): to check for the prices with the builder
8. Car parking charges: to check for the prices with the builder
9. Society and club membership: to check for the prices with the builder
10.Electricity and water charges: to check for the prices with the builder
11.Power Backup charges: to check for the prices with the builder
12.Lease Rent one time: to check for the prices with the builder
13.Interest Free Maintenance Security (IFMS): to check for the prices with the builder
14.Fire Fighting Charges (FFC): to check for the prices with the builder
15.EEC: to check for the prices with the builder
16.Extra space in storage rooms and lawns: to check the prices with the builder

The agency verified all these charges with the builder and asked for them to be included in the builder buyer agreement in order to avoid future escalation of the price.

Verification of other important elements:

1. Monthly maintenance charges
2. Ratio of carpet area to super area
3. Delivery date and what are the penalties if project is delayed?
4. Penalties for deviation in size of the house
5. Who is the supervisory authority and legal dispute authority?
6. Possibility and ratio of loan availability.

The bottom-line is to carry out property & builder assessment, verify the charges, legal terms and get them included in the sale agreement.

So friends, have a look at this checklist and if need be take the services of a professional real estate agency or lending institutions in order to make sure that your lifelong savings are being invested in the right property.


Have any Questions?
 

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