Important points to remember before buying an under construction property

Precautions to be taken while buying an under-construction apartment - Bangalore, Karnataka

The builder of your selected property sets the terms for payment: 20% advance, 70% for slabs (for a typical G + 3 apartment), and 10% after sale deed registration. After paying the advance (20%), you apply for a bank loan. If your credit score is good, you get immediate loan approval, since in this case, land records (i.e. sale deed, mother deeds, Khata, tax paid receipts etc. for the land in question) are clean.
 
In general, a builder will not let you modify the terms and conditions of either the Sale Agreement or Construction Agreement (or Agreement to Build). The usual option is to buy the property he offers or look for a different flat. Since prospective buyers have already gone through the tiresome process of finalising/searching for a flat, they do not fight the builder on the terms, and agree to everything that the builder says.
 
In some cases, the builder would. have constructed all the slabs (or will complete all slabs within 2 to 3 months) and will raise the Demand Note for 70°x6 of the flat\'s cost as per the Agreement to Build. He will also pressurise the bank to release the payment as per the agreement. So, in this manner, the builder will get sometimes 90% of the flat cost into his kitty within three months of Sale Agreement.
 
This is when the actual problem begins.

Construction of your flat will not be completed in terms of the brickwork, painting, fittings, woodwork etc.

Further, note that the total cost = cost of your flat + lift + generator + electricity meter + common areas + all promised amenities + Registration + OC + Khata. The builder will only complete the brickwork etc. for your flat and raise a Demand Note for the balance 10%.

After the release of this final 10% (you have totally paid 100% of the amount by this time), the builder will ask you to register the Sale Deed without completion of all other amenities (listed above) except your flat.

The builder will promise that he will complete all the common amenities once for all after the flat\'s brickwork is complete. This usually takes anywhere from 12 to 18 months.
 
After Sale Deed registration, the builder will ask you to move into the flat without providing the OC. Once you finish your interior work and move into your flat, you begin noticing all kinds of problems.

I. The electricity connection will be temporary: To obtain a permanent connection, it might take more time. Without a permanent connection, you will not be able to operate your grinder, mixer, fridge, washing machine etc.

II. Other problems usually include peeling of paint, leaking taps, bad finishing of tiles, and patches in the paintwork.

III. The lift will usually not work continuously (it will be operated on a need basis).

IV. Incomplete parking

V. Insufficient generator capacity

VI. Incomplete staircases

VII. Drainage problems

VIII. Poor quality of construction

IX. On-going, noisy construction work

X. Workers using common areas resulting in undue need for extra housekeeping work due to dust, construction material leftovers, spitting etc.

XI. Drainage problems (since the sewage treatment plant or STP will be absent or incomplete)

XII. No clubhouse/ swimming pool and all other promised amenities

As per due process, the BBMP will issue the OC only if the building has been constructed according to the sanctioned plan and meets all by-laws. The BBMP can allow up to a maximum of 5% deviation (subject to certain conditions). If the deviations are more than 5%, the BBMP will not issue the OC.

Without the OC, you will not be able to obtain a Khata (the so-called W Khata). Even if you pay your property tax and other taxes, you will not be able to obtain your A Khata (Khata certificate and Khata extract). Creating an equitable mortgage with a bank if you need a loan on your property will become difficult.

You may wonder why, when the bank has sanctioned the loan and legal opinion is clear, you are unable to obtain the Khata. This is because banks sanction loans based on land records only. Because the property in question is under-construction property, the bank will not recognize any building violations in such cases. Even if they know of violations, they will not raise any objections because everything is legal as per the agreement and payment schedule.

The bank usually releases 80% of the money just for slabs only as per the payment schedule. Banks also understand that the OC and Khata can create legal problems for them; even though the sanction lettermay explicitly state that there should not be any violations, that the builder should obtain an NOC from all the concerned agencies, and that the A Khata is required for creating an equitable mortgage (from the legal opinion submitted to the bank), some banks may ignore these guidelines because they need the business.

The same bank will not accept your documents or sanction mortgage loan since you do not possess the OC and the A Khata. In some cases, the builder may construct one or two floors (such as a penthouse) extra above the topmost sanctioned floor. Such constructions are illegal, and hence, no OC will be given to you.

When you check the BBMPs -website under Know Your Tax Paid Details, you will still see the landowner\'s name against the property and the Khata number. This is because the original Khata has not been bifurcated for the individual flat owners. Again, this is because you have no OC.

The OC and Khata are trivial concerns for the builder because eventually, the bank will hold the buyer responsible for repayment of the loan and not the builder for building violations..

2. Why you must be extra careful while buying under-construction property

I. Risk of the builder violating building by-laws

II. The builder might construct illegal floors (penthouses etc.) because of which the BBMP will not give you the OC.

III. The BBMP has the authority to sanction/clear only up to 5% of violations subject to some restrictions. Beyond this amount of deviation, you have to depend only on the Akrama-Sakrama scheme (See Legal-Illegal section) to regularise your property and obtain the OC.

IV. In the example above, nearly 90% of the payment is collected just before the Sale Deed registration and the fulfilment of other terms and conditions including the completion of amenities such as car parking.

V. Unlike buying an already constructed flat, here, if the quality of the construction turns out to be not as good as promised before the purchase, getting out is not easy, since you have already paid for the flat. Obtaining any penalty from builders is cumbersome.

VI. You may have to shell out an additional sum to the bank as pre-EMI interest.

VII. Note that the penalty for delay from the builder is a trivial amount.
It is around T5/sq. ft./month. If you are buying a 1000-sq. ft. flat, the penalty works out to be ?5000/- per month of delay. On the other hand, for instance, you may pay around T50,000/- per month as pre-EMI interest alone. VIII. In this example, if you paid paid 90% of the cost within a few months of the sale agreement and need to wait for 12 to 18 months before you get possession of your flat, you will be at the mercy of the builder to get your flat completed.
IX. In clauses for cancellation due to any reason, the refund may be around 80% of the total money paid, and the amount is refunded over a period of three to six months.

X. Sometimes, your flat might have less carpet area than what is committed. whole project, and finally, it is the purchasers who will be affected.

3. Advice to buyers

I. Ensure that the builder commits to deliver the OC and W Khata in writing, and include this commitment in the Sale Agreement/ Sale Deed.

II. Make the payment schedule reflect the stages for the actual completion of your flat and also the handing over of all the legal documents such as the OC and `A Khata.

III.Make the bank release payment only after completion of each stage.

IV. Instruct the bank to release payment only after receiving written approval from you (the builder generally sends a demand note to banker for payment release and pressurises the bank for release of payment.)

V. Form an association along with other residents so that the builder can be pressed into delivering as per schedule and commitments.

VI.Be skeptical of builders who say that your flat will appreciate within a year or so and force you to pay more. These are only claims, and are not automatically true for any property anywhere. If you take into account the pre-EMI interest amount you have to pay to the bank for your loan, the extent of property value appreciation, if any, may get neutralised by your added costs.
vii. In actuality, since the apartment construction business is growing and in full swing in and around Bengaluru, availability is also increasing day-by-day. So any new buyer of an apartment will lookfor newer flats constructed using the latest technology and safety methods. So finding a buyer for an old flat might be an issue.

VIII. Check that the builder has all the necessary clearances such as the sanctioned plan, commencement certificate, NOCs from BWSSB and BESCOM. For high-rise apartments (more than 15 m in height) safety clearance certificate from the Fire Department is necessary and in some cases airport NOCs and special height permissions are needed.

IX. After completion of the project, ensure that the builder hands over the whole set of documents to the residents\' association.

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