Buying a flat in Under Construction Project can be linked to the Indian psychology of buying a “NEW“. Under Construction Project is a high risk investment as the legal status is yet to be established. It also co-relate to the fact why prices are low during the pre-launch offer. At this stage, nothing is in place. In fact, in many cases builders sold the flats even before he signed the joint development agreement with land owners. I highlighted pros and cons of Resale Flat and Under Construction Project in my post on Resale Flat of Under Construction Flat, Which is better?. It is imperative to go through the basic checklist before committing yourself to Under Construction Project.
Checklist for Under Construction Project
1. Intimation of Disapproval and Commencement Certificate: These 2 documents are must before you invest in Under Construction Project. Intimation of Disapproval or IOD basically enumerate conditions that are to be complied with during different phases of Under Construction Project. Intimation of Disapproval is also known as Building Permit. These conditions are normally divided into 3 parts
(i) Immediately before commencement of construction work
(ii) During the construction period
(iii) After the construction is completed
Commencement Certificate in layman terms, is the permission to start construction from local development authority. Please note that the builder cannot lay the “Foundation Stone” & “Build Boundaries” in the absence of these 2 critical documents.
2. Title Search Report or TSR: Next imp step is to get Title Search Report independently from the local lawyer. There is a famous saying in North India that for any dispute in this world, core reason can be either of 3 i.e. Jar, Joru or Jameen / Money, Women or Land. Almost 60% properties in Bangalore are disputed due to Land title issue. A dispute can be within the family, improper land records or use of force / coercion. In case of joint development agreement between builder and land owners for under construction project, a dispute may arise on financials. The best possible scenario is that the builder should buy the land first and then start the project. In Maharashtra, builders prefer upfront purchase of land whereas in Delhi and Karnataka Joint Development Agreement is preferred route.
The basic check can also be done by the buyer, he can pull out Encumbrance Certificate of land from local sub-registrar office to check ownership / lien status of land.
3. Approved Layout Plan: You should demand Approved layout plan from the builder. It is provided by local development / town planning authority of your city. Approved Layout Plan is as per approved FAR (Floor Area Ratio) or FSI (Floor Space Index). For example, if FAR in Noida is 2.5 and plot area is 80,000 sq ft then the builder cannot construct covered area of more than 2,00,000 sq ft on this plot. Deviation from Approved Layout Plan can have serious implications on the legal status of the Under Construction Project. Deviation of 5% is acceptable from approved layout plan. You should include a clause in your agreement with the builder that construction will be as per approved layout plan with a max deviation of 5%.
The common tendency of builders is to construct extra floors in Under Construction Project. Another soft target is manipulation in the floor numbering in Under Construction Project. The biggest culprit is “Mezzanine floor” or parking on the ground floor. Assuming, builder received approval for Ground + 7 floors. He will construct parking on Ground Floor which will be -1 Floor and “technically” 1st floor will be tagged as Ground Floor. Now he can construct an extra floor therefore floor no 7 will be in reality 8th floor. Buyer will be unaware. This risk is more for top floors.
4. Approval from Govt Departments: In Karnataka builders need approval from min 17 Govt Departments for under construction project. This is one of the key reasons for the delay in under construction project. This delay is both intentional and unintentional. Builders normally keep 2-3 insignificant approvals pending so that they need not pay the compensation / penalty to buyers for delay in the project. You may check with your lawyer, the list of approvals required. Some of the approvals are critical and few can be ignored if not in place. For example, you may ignore the approval from BSNL / MTNL, it is unnecessary. On the other hand, approval from pollution control board is must. Some approvals are location specific. For example, if the property is near Airport then approval from AAI (Airport Authority of India) is must. Some approvals are state specific, for example if the land is acquired by the builder from the specific community then approval from State Government is must under local state laws. You should hire a good local property lawyer who can help with a list of approvals required for under construction project.
5. Project / Land is Mortgaged: Another gray area and most difficult to find out. Small time builder mortgage the property and then sell it to the buyers. It is not the case that if land / mortgaged then the builder cannot sell the flat. The only condition is that he should provide NOC from the bank / lender that the bank does not have any objection in this regard. Any lien on land can be easily found out as i mentioned in point no 2 but if flats in under construction project are mortgaged then you should specifically check with the builder. Also, include the relevant clause in your agreement with the builder even if builder confirms that the project is not mortgaged.
6. Tri-Party Agreement / Confirming Party: Another common problem. If the flat is of land owners quota under JDA then Land Owners insist on bi-party agreement / assignment deed and vice versa. It is very subjective. But whatever be the case / situation, Any agreement signed by the buyer for under construction project wherein builder is not the owner of land should be tri-party agreement. Either builder / land owner should be confirming party in the agreement as the case may be. Sometimes, land owners give marketing rights to the builder and also sell independently. This is financial fraud and in case of bi-party agreement between landowner and buyer, the builder is never aware of this transaction.
7. Completion / Occupancy Certificate: It is critical to take legal commitment from builder that he will provide Completion / Occupancy Certificate on completion of the project. Builder may apply for Completion Certificate and Occupancy Certificate separately / together. Both are issued within 3 months of completion of under construction project. Please note that without Occupancy Certificate in place, project is deemed to be “Illegal”.
I tried to cover all important points which are applicable universally. Each under construction project is different from legal and statutory perspective therefore it is advisable to hire an expert who can check micro details.
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Dear Nitin,
I am Riya. Own a flat at Kolkata. The property age is around 15 years and it is in a good locality (considering communication and market etc.)
I want your advice on two topics:
1) What is Property Insurance and should I require any insurance for the said flat?
2) Let say after 50 Years, in 2065, the building get collapsed. Then what to do? Can the owners reconstruct the building or what?
Please advice..
Regards
Riya Mukherjee
1. In layman terms, property insurance is for the structure (property) against fire, earthquake or natural calamity. It is advisable to opt for it. It will cost only few thousand rupees.
2. It will go for redevelopment where in existing owners at that time will get flat in new apartment depending on terms and condition agreed upon between apartment association and the builder.
Hi Nitin, Request you to please throw some light on buying a ready to move in house vs constructing a house for same size area , considering I am a novice with no experience of dealing with contractor. I have zeroed on two option one is a 80 sqyd plot on which I may strike a deal to get 2 BHK constructed (individual house) & 75 sq yd ready to move in house
The 80 sq yd plot is located in interior compared to ready to move in house (just near an under construction bigger project).
I will have an option to get the house made as pr my wish but the ready to move in house can be made similar to my choice as well.
The plot is located at a place which are inhibited by multiple resident still under development where the ready to move in house is at a place where we have 7-8 family in same pocket, remaining area is still vacant.
both properites are being financed by either HFC or govt banks.
Are there any negative sides of buying a residential house just behind a mega project or beneficial?
Please check my posts under real estate section. Positives or Negatives of a buying a house behind mega project depend on multiple factors. As i have not checked the details of proposed property therefore cannot comment on same.
Thanks for the reply Nitin, The Project is 1000 Trees in Gurgaon Sector 105 , (Rajendra Park) & right behind the boundary walls of this Project there are few ready to move in Individual Houses located ,the houses are hardly 100-200 meters inside the Main Road but the front area from the main road is Vacant , probably the Owner is not yet interested in selling off the Lands Yet, Looking for some insight in case you have come across this scenario. Would really appreaciate your reply
It is subjective and specific query. You may check with local experts.
It seems that there is a deviation from approved layout plan. I suggest to maintain status quo.
This is Vijay. Around
4 years back I Bought flat in kalyan, Thane, Maharashtra. That time builder
showed us that there is parking space at ground floor. Same was mentioned in
Construction Commencement Permission, blue print given to us (layout map) &
also in the brochure of my project. Now Builder started construction at ground
floor saying that he has revised construction permission. As per documents shown by him to us, there is permission
for ground floor same as typical floor plan for 1-7 floors.
We think its fraud & misleading to us.
Can we stop that construction for some of forever?
You may hire a lawyer. if there is any deviation then you can definitely get the construction stopped.
Hi, This is Ashish,
I am planning to buy under construction flat in Dombivli (Thane). I will be paying a booking amount of 5Lacs, can i make a Legal agreement now itself and get it registered, or i need to wait for to be to completely ready to do .
You may execute sale and construction agreement.
Hi Mr. Bhatia, Your posts are brilliant, simple to understand and very precise. I keep jumping from one post to other. Just can’t stop going through them one after the other. Have invested more than 2 hours now on your site I think. You had addressed one my queries earlier in a different thread. Thank you for everything.
I am in bit of a fix at the last moment re the Sale Agreement. The property I am planning to buy is a Joint Development and flat I am interested in is the Owner’s share but the problem is there are multiple owners (They do have a Partition Deed in place, which specifies the allocation of flats between the number of owners)
Concerns for which I need your guidance.
There are two blocks Block 1 and Block 2 (For some reason they had started constructing the Block 2 first before Block 1, when asked, said that for Vastu reasons). Now the Block 2 is almost complete more than 95% done, I think only the painting is left and can see couple of families have already moved in. Whereas, Block 1 is only 60 – 70% completed. I am interested in a flat which is in Block 2.
1. When I received the draft of the Sale Agreement, the agreement was only in the name of the Owner of that particular flat (as per the Partition Deed). Is this fine?
Though the Block 2 is nearing completion but because of Block 1 is still under construction, should all the owners and builders name need to be mentioned in the Sale Agreemnt because there is no Katha or OC in the name of the individual owner yet?
2. The draft sale agreement states the full agreed amount of the property which is 75lacs. whereas I was told that the Sale Deed will be made only on the Guideline value which will be around 40 lacs. Is this fine?
Because my concern is, should the Sale Agreement Value and the Sale Deed Value be the same.
3. I checked the same (point 2) with the bank who are financing it, they said it is ok for it to be like that. Because, at the time of disbursement they will be handing over two different cheques to the owner. One for the Sale Deed value and other no idea for what (they just didnt give an explanation).
Is this good practice or am I getting into some trouble here?
4. I checked with the representative of the owner about two agreements One – Sale Agreement and Two – Construction agreement that way there is no discrepancy between Sale Deed and Sale Agreement. They said that the Construction Agreement is done when we buy it from the builder and not the Owner. Is this true?
What do you suggest I do at this instance and What are your suggested alternatives?
Thank you in advance for your timely and very valuable advice.
Best Regards
Shankar
I can answer these queries only after going through the property documents.
Hello Sir,
I booked flat in Pune in 2013 as under construction building and also done agreement and registration in march 2013.
at the time of booking and as per agreement, the area of flat was 617 sq.ft.after few months builder ask me that we are offering you more built up area of 20 sq ft , but i rejected it as my loan was passes already and agreement also completed.
but after few months at construction work completion, he increased area of 22 sq.feet of all flats in the same building.
but I rejected to pay the extra amount for extra area. Some of buyers in same building paid him some amount and did re-agreement with addition of built up area.
we went through all terms and clauses of agreement, according to that, ” builder should take written permission for modification/alteration of built up area”
Building construction is completed and we are living in the property now, but yet building completion documentation not done.
My question is should i pay for extra area? or at least should i do the registration of this area buy paying stamp duty and registration fee?
or can i keep as it is …on paper area is less than actual built up area?
thanks in advance
Hi Nitin, I have purchased a flat in an redevelopment CHS, already paid 30Lacs to builder and now he is not getting the CC, could you advise what are the option we (other owners) have
As i have not checked the documents therefore cannot comment. You may show your documents to lawyer and then decide the next course of action.
Hi Nitin,
I’ve bought a pre-launch property in Mumbai. Builder has launched the project and have constructed 5-6 floors till date. However, the building plan on IoD (approved) shows it a 9 storied tower whereas I’ve booked flat on 16th floor as per builder marketing plan. When I contacted builder on this, he said that once we have constructed the 9 floors, we will submitting a revised IOD plan for additional floor (through TDR/Fungible FSI) as marketed by them previously.
Given your experience/knowledge about this industry, do you think that it is possible to submit revised IoD as I was under the impression that IoD sanctions at once and CC comes in part. Please help to confirm.
Regards,
Raju
It depends on case to case basis. In my opinion, it is HIGH RISK purchase and personally, i will not BUY in this project.
Hi,
I am planning to purchase an ‘almost’ ready-to-move flat in Bangalore. The project has 2 phases. I am purchasing in Phase-I. Phase II construction is going on which might take about 2 years to complete. Builder is telling that he will provide OC/CC when both phases will get completed as they have combined approval. He told he will mention about OC/CC in sale agreement as well.
I read somewhere that in absence of CC, I can’t get tax exemption on interest component.
Builder can obtain partial OC/CC for Phase 1. You have not mentioned whether phase 1 is accessed for property tax or not.