Resale Under Construction Property is most beneficial but least preferred option for a buyer. This is true for buyers who only want to buy Under Construction Property. Recently, one of my clients bought a property from leading builder of Mumbai. Price quoted by the builder was Rs 5999/- psf. Whereas Resale Under Construction Property in the same complex of same unit size was available for Rs 5350/- psf. Despite the direct monetary benefit of approx 9 lakh, my client decided against it. Honestly, i failed to understand the logic.
As i keep highlighting that Rate card of a builder is always 10%-25% higher compared to the Market Rates. Builder also knows that rates are artificially inflated, but it is a compulsion for him. He has to create a perception among existing buyers that they have made the best decision of their life by investing in his project. Buyer in the project is getting 15%-20% annual appreciation which is far from reality. The second reason is that he has to adjust the increasing project cost in selling price. Project cost inflation is 10%-15% but since the operating margin is up to 30% therefore i personally don’t buy 2nd reason fully.
Now, you must be wondering why Resale Under Construction Property is cheaper compared to rates offered by the builder. The simple reason is that the seller bought it at much lower cost, may be during initial stages of launch. In the above-mentioned case, Seller bought the property at Rs 4300/- psf couple of years back therefore Rs 5350/- psf is a win-win situation for the seller. Normally best rates are offered by the investors or if the seller is under financial distress.
In my post, Resale Flat or Under Construction Flat – Which is better? i highlighted the pros and cons of both types of property transaction. Resale Under Construction Property makes more sense when the project is nearing completion. It should be preferred by the buyers who are planning to buy only in under construction projects. Let’s check out most important points while buying Resale Under Construction Property.
Resale Under Construction Property – 7 Imp Points
1. Assignment Deed/Transfer Deed: At the time of purchase of Resale Under Construction Property, Many buyers directly enter into an agreement with the seller. It is not advisable at all. It can land you in legal / financial trouble. While buying Resale Under Construction Property, you should always enter into a tri-party agreement which is also known as Transfer Deed or Assignment Deed. This deed is signed by the buyer, the seller and the builder. The very simple reason is that till the time builder execute the sale deed in favor of a buyer, Builder is a stakeholder in the property.
2. Break Up of Sale Price: In Resale Under Construction Property, Sale Consideration is divided into 2 parts. Normally seller charge premium on his/her purchase price and at the same time X amount is still due from the seller to the builder. This break up will depend on the agreement between the builder and the seller. Assignment Deed should clearly mention the payment already made, payment due and break up of a sale price.
3. Transfer Fees: Many buyers miss this crucial point at the time of purchase of Resale Under Construction Property. Transfer fees is payable to the Builder for the transfer of property before registration. Transfer fees is normally Rs 200/- psf and may go up to Rs 500/- psf. The cost/price advantage to the buyer will be wiped off if this point is not discussed with the seller before the agreement is signed. It should be clearly mentioned, who will bear the cost of transfer fees. Buyer should calculate final purchase price after including transfer fees.
4. TDS u/s 194IA: Recently, one of my clients received Income Tax Notice for short payment of TDS u/s 194IA. He bought Resale Under Construction Property for 75 lakh. Out of 75 lakh, he paid 30 lakh to the builder and 45 lakh to the seller. Seller already paid 35 lakh to the builder on which the TDS was deducted and deposited. My client paid TDS on 40 Lakh. The justification shared by him was that since the seller has already paid TDS on the amount paid to the builder i.e. 35 lakh and accordingly he paid TDS on balance amount i.e. 40 lakh. It is not correct. For Resale Under Construction Property, TDS u/s 194IA is applicable on total consideration even though it is divided between the seller and the buyer.
5. Home Loan of a Seller: Resale Under Construction Property Transaction is slightly complex if the seller has running Home Loan and buyer is also availing Home Loan. It is critical to include the details of both the Home Loans in Transfer deed/Assignment Deed. In this case, there can be multiple transactions between the buyer and buyer’s Home Loan Provider & the builder, the seller & seller’s Home Loan provider.
6. Title Search: Its a biggest misconception that Title Search is not required for Resale Under Construction Property. Due diligence is equally important for Resale Under Construction Property. It is advisable to carry out independent due diligence. Besides Title Search, you should take care of other imp points while buying under construction property. I highlighted the same in my post Under Construction Property – 7 Important Points
7. Why the Seller is exiting the Project?: Last but not the least, it is imp to check whey the seller is selling his property. In many cases, reasons are a dispute between the builder and the seller, Legal Dispute, Delay in Project or Price appreciation is not as per expectation. If the reason is related to the project then you have to be extra cautious. It is advisable to carry out independent research before you buy Resale Under Construction Property.
To summarize, In most of the cases the cost advantage is the only criterion to buy Resale Under Construction Property. Though you might be getting a good deal but you should not be carried away by the low price. Before deciding you should check with the builder and also check other Resale Under Construction Property available in the same project. It will give a fair idea on the dynamics of the project. Before signing the Deed of Assignment, you should check with the builder whether the builder has any reservations on this transaction. You can clarify your doubts related to property transaction with the builder. Some of the imp points are related to project completion, completion certificate, occupancy certificate etc.
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Gr8 post, Nitin. Could you also add a few points for the seller what he has to consider before selling the under construction appartment?
Sure. I will write a separate post on same.
Nitin, can you share a draft of Transfer Deed/Assignment Deed for re-sale of under construction property from Buyer’s point of view. My email id is rare.viral@gmail.com
Is it ok, if I don’t have a Sale Agreement & execute a Deed of Transfer/Transfer deed.
Draft of Transfer deed is available on paid basis. You can execute transfer deed without sale agreement.
How much will it cost & how do I remit, will their be customisation to capture pecularity of the transaction. Will I be able to consult you.
You can mail me at info@Nitin Bhatia.in for your requirement.
Hi Sir,
I bought a property in resale for Rs. 68 lacs (Sale deed value and no cash was paid except the brokerage to the mediator) in 2011 and now the market value of the property is about Rs. 1.05 Cr.
I got the possession in 2013, and builder has now started the registration of the property. The project as per builder and builder-buyer agreement falls in Gurgaon where the circle rate is Rs. 2600 psf however when we approached the registration office they said this falls in Manesar area and the circle rate is Rs. 4500 psf. The Circle rate of Rs. 4500 psf is infact beyond the actual market price of the property (around Rs. 4000 psf).
builder has already charged the registration amount in 2013 at the time of final payment which was calculated at Rs. 2600 psf the prevailing Gurgaon Circle Rates at that point of time.
Now there is an additional demand from builder for revised stamp duty and registration fee. This is not because of any change in the Gurgaon Circle rate but because builder who misguided all of its customers that the project falls in Gurgaon and not in Manesar. This has in fact depreciated our property value in real terms and increased the value for the registration purpose
Please suggest the ways to save on stamp duty and registration fee. Also suggest any action can be taken against builder for mis-guiding customers about this project which is actually located in Manesar and not in Gurgaon.
Looking forward to your valuable input.
Regards
Naveen
You need to check your agreement copy with builder. If you can prove that builder presented wrong facts to sell the property then you may approach the court to cancel the booking and seek refund.
Hi Nitin,
I had entered into an agreement with a seller for an underconstruction property in Gurgaonnin Feb 2015. the seller had loam from Indiabulls, I took Seller BT home loan from TATA capital ltd and closed the sellers loan. The sellers delayed the transfer for more than 3 months under different excuses. Initially I believed them as they are professors from RBS college Agra. Later I suspected their motives and asked them to expedite without further delay. Now they are refusing to transfer the property. they are not taking any concrete step to close the loan outstanding, to pay the amount I have paid and cost of money as well as the compensation as per agreement. though they have returned the initial token amount of 10% of the property value without speaking to me.
In such a situation I have shown my inability to continue with such home to TATA Capital limited. even requested them to auction off the property as the original papers are with them. they have not taken any action yet. desperate, I have filed a police complaint and same is under process.
Please help me how I can stop the emi without affecting my cibil.
What is the best that I can do in such situation
Your query can be answered only after going through property documents.
Hi Nitin,
Your posts have always been wonderful & with great explanatory.
I’m planning to buy an under-construction flat under resale option. First buyer in 2011 has an agreement Value worth 76 lacs plus service tax. Developer has issued demand upto 90% till date, however he has actually paid only 30% and rest are due on which the developer is charging 18% Interest.
My purchase consideration including all taxes from the buyer is 96 lacs wherein he will be paid the 96 lacs minus amounts due to the developer. 30% of this 96 lacs shall be borne by me while remaining from my bank Home loan.
Please advice how the TDS should be deducted in this case.
Q1. Whether I should deposit TDS in the name of the developer or the seller?
Q2. What if the seller had not deducted TDS on payments done by him to the developer? Can the developer claim the same from me at a later date? Am I liable in Income Tax for such non payments?
Property is still under construction at last 10% shall be paid along with other charges plus Registration charges on possession in March 2017.
Can someone reply?
1. TDS will deducted from both the payments i.e. payment made to seller and to the builder.
2. You should not be concerned. It is sellers problem.
Thanks for replying..
Hi, I’m planning to take a Home loan from HDFC Ltd and presently they are quoting 9.85% Interest rate.
My query is that in future if the rates increase to say 10.50% and further to 11.00%, my loan interest rate would automatically increase. But if these rates again take a recourse to say 10.25% and further to 9.90% in future, will I have to pay HDFC Ltd processing fees @ 0.5% to bring my Interest rates down to rates at which my loan originally started??
Please provide valuable input. Thanks in advance.
Sir, Iam interested in a resale under construction property at Heritage One, sec-62 gurgaon. Do you have any insight about the project or developer? Many thanks in advance
Personalized consultation of specific project is available on paid basis.
Hello Nitin Sir,
I am planning to purchase a resale property in pune (wagholi area) . The builder have just given the possession of the flat to the owner. The owner is having a home loan from HDFC bank and I am also will be availing home loan preferrably from SBI bank. I understand that Bank will only pay 80% of flat cost and remaining 20% I have to contribute.
I have few question regarding how to proceed with the deal.
1. Should I pay 20% of the flat agreement cost when we do the Agreement to Sale is made. I can pay less amount as well.
2. Do I need to pay Stamp Duty and register the property when Agreement to Sale is made Or should it be done when Sale deed is made.
Thanks
Vicky
1. I will not suggest. Please check my following post
https://www.nitinbhatia.in/real-estate/token-money/
2. You need to pay stamp duty and register at the time of sale agreement.
Hello Sir,
I am 35 yrs. old and stay in rented apartment in Powai-Vikhroli. I am
looking to buy 2BHK in budget 80 Lacs- 1.4 Cr. I do not want to move far away
(more than 5 km radius) from Powai as my spouse works in Powai and my kids
school is also in Chandivali. In case I can’t get good property deal in nearby
areas (like Kanjurmarg, Bhandup, Ghatkoper, and Mulund) then I am ok to buy
property in Thane or other locations from 10 -15 years investment perspective. So
if I relocate to other city (which I am planning in couple of years), I can get
good rent on the property that will help in EMI.
I have seen pre-launch/just launched properties in Kanjurmarg, Mulund,
Thane and Dombivali – Shil phata. I am
confused which locality I should go for. I am more interested in nearby Powai,
Mulund, Kanjurmarg but would go by location which can give good returns in
10-15 years duration. I am looking to buy the property from well-known
developers. Below is the 2BHK cost as per my search on few properties.
Thane –> Buy: 90 Lacs – 1.1 Cr, Rent: 16K – 22K
Mulund, Vikhroli –> Buy: 1.3 Cr – 1.6 Cr, Rent: 32K – 40K
Dombivali -> Buy: 60 Lacs – 1.6 Cr, Rent: 8K – 12K
Please advise which location I should buy property?
My preference will be Mulund << Vikhroli << Thane << Dombivali.
Hello Sir, you mean Mulund as First preference and Dombivali as last preference ?
Also Sir, can you please help me to understand the reason of these preference as well.
Connectivity and scope of future development.
Right
Hi , Can you please let me know if we need to pay Service Tax and Vat while buying resale under construction property ?
It depends on your understanding with the seller. If he has already paid then you need not pay again.
Thank you Sir, I have one more question regarding stamp duty .Buyer has bought flat at x amount and did his agreement 8-9 months before .We are purchasing at Y amount (Y > X).Do I need to pay stamp duty on Y amount or (Y-X) amount?
On Y amount
Hi Nitin
I’m buying a resale flat in Raheja Acropolis at Chembur, Mumbai, for which I’m taking a home loan of 1.4 cr from HDFC. My financial position allows me to afford an emi for 10 years tenure, which is approx 1.87 lakh. Would you suggest taking a shorter tenure with high emi or frequent pre payment of the home loan? Doesn’t the pre payment solely reduce the outstanding amount while a high emi get distributed between interest and principle amount components?
I could take a 15 year loan with emi of 1.5 lakh and use whatever extra I save to slice down the outstanding amount frequently, say on a monthly basis.
What would be your recommendation?
I will prefer shorter tenure and high EMI. Reg taxability of rental income, you may consult your CA as some more details are required to answer the query.
I’m paying a total of 2.16 cr for a 2 bhk at raheja acropolis deonar Mumbai including registration and society transfer charges etc. I noticed you advise regarding property rates of different areas as well. Kindly advise if this is a profitable purchase in your opinion.
Maintenance in the colony is exceptionally high (rs 9000 per month) although the amenities are very well maintained and residents are decent and well placed people.
Your comments are welcome.
You have not mentioned area of flat.
Carpet area of the flat is 800 Sq ft and super build up is 1115 Sq ft.
This flat is on 5th floor and very well planned space wise. While I am purchasing this flat with the idea of residing there eventually since it’s a safe and child friendly colony, I was still keen on knowing if the deal is good in your opinion.
A flat on the first floor was sold for 8 lac more than price negotiated by me (this info is confirmed), and there are other flats in the colony on sale for much higher rates. I have also made cross checks with other brokers and online sites to ensure I was not being over charged.
It is a pleasure to read your blog, please continue the great work.
Seems to be decent deal and at market rate only.
Thank you. Your approval means a lot.
Nitin Sir,
I am interested in a Resale under construction flat. Seller has made unregistered agreement with developer. Seller and Developer both agree to make an Assignment Deed (Tri-Party agreement) with me. I want to register this Tri-Party agreement But I checked with A.D.S.R in Sub registar office and he told me Non-Registered agreement has no value in law, So no point of keeping seller in loop. So My questions are below.
Q1. As Assignment Deed refers to a Non-Registered Agreement (Sale agreement between Seller and Developer), So is it valid legally to register Assignment Deed with reference to any Un-registered agreement?
Q2. What is Stamp Duty & Registration cost for Assignment Deed of Under Construction Flat in West Bengal?
Q3. Will this Stamp Duty be adjusted at the time of Sale Deed?
Please advise.
1. Assignment is not registered. A signed copy on stamp paper is legally valid
2. As i mentioned it is not registered. Builder will register property in your name separately after the assignment deed is signed
3. NA
Thank you for your advise. Few follow-up queries below.
1. Should I ask for Original Sale agreement (Between Developer and Seller) & Money receipt from Seller ?
2. Also Should I ask for a New Allotment letter (for change of allotment) from Developer?
3. What more additional documents should I ask in order to support this Assignment Deed?
Please advise.
1. Yes
2. Not required if assignment deed is signed
3. It is subjective and depend on case to case basis
Dear Nitinji, thank you for all informative posts. I am planning to buy a resale just completed villa in bangalore. Seller’s home loan on property still running.
(I) In the latest EC provided by seller, this loan information not there. It means this loan info is not provided to subregistrar office for documenting it. Question is how to track the details of loans/encumbrances/mortgages on property if they are not registered?
(II) seller will not clear his bank loan and asking my banker to provide check directly to his bank towards loan. Will this be in any way not safe on my side in this property transaction?
Regards,
Prasanna
1. It is not necessary for a bank to put lien on the property.
2. I think this is right approach
Dear sir, thank you.
Regarding point 1 above, what is the mechanism to know about all liens/loans/encumbrances on the property? As a buyer what steps I can take to assure no cheating in this case? If I ask seller for an official list from his loaned bank on what all documents they are in possession on this property will it be useful in this case? Is there any other steps I can take? or everything is just the luck of buyer in bangalore (unlike in Maharashtra, you mentioned some other post the additional measure to register EC mandatorily to ensure property fraud)?
I am in the starting phase of loan process from SBI. Now I am in dilemma to go or not for this villa. I need you quick kind guidance here.
Thank you very much.
Best Regards,
Prasanna
Best way to check is to verify whether all the original documents are with seller or not. As a confirmation, you may ask for EC of the property.
Dear Nitin Sir, I am planning to purchase one under construction flat in noida extension. The seller has to pay the last installment to the builder. I have two queries regarding same.
1) The builder in its allotment cum buyer agreement alloted the flat to Mrs. X and Mr. Y. Now Mrs. X is deceased after this the builder executed amendment agreement and transferred the allotment in favour of Mr. Y. Is there any complexity in purchasing the same from Mr. Y only. Obviously the sale deed is not executed.
2) I ll be purchasing the same at some premium since the present buyer had purchased the same almost five years back. When the sale deed will be executed between me and the builder what will be the consideration amount mentioned because I am paying higher amount that what builder has got.
Please clarify my queries.
Mahesh Singh
1. I don’s foresee any issue provided all the legal heirs of couple are confirming witness to your sale deed.
2. Assuming you are buying for 100 Rs and 10 Rs is due to the builder by seller then you will mention that out of 100 Rs, you will pay 90 Rs to seller and 10 Rs directly to the builder. The assignment or transfer deed will be signed in this case.
I am buying a property on resale. The contruction is 90% complete but OC not yet.(2months)
Property said belongs to an investor.
My question is what all taxes are applicable to me and a second buyer i.e. stamp duty,vat,service tax.
What are the percentages.
None of the charges will be applicable to you as these are already paid by the seller.
registration of a resale under construction flat
Hi,
I am under negotiation to buy a flat which is ready but owner has not taken possession and registration is not done.
As per broker/builder/owner an assignment deed would be signed (tri party agreement) and with that builder will transfer the flat to my name. Later builder will give first registration of the flat directly to me.
Now initially when project was launched owner had bought the flat for x. He is selling to me for x+y.
But issue I am facing is that builder is not ready to give registration for x+y. Builder wants to give me registration only for x. I am not sure whether this is correct. Can anyone advise me on it. I am very much confused.
In this case, amount Y is the premium you are paying for the property. This premium will be pocketed by the seller not by the builder. In short, builder will get only Rs X for the property sale therefore property will be registered by builder at Rs X only.
Alternatively, if the property is registered in the name of current seller by the builder and then he sell it to you for Rs X+Y then you can insist for registration at Rs X+Y.
In case the registration takes place at X, stamp duty will be payable on X or on circle rates?
It depends Whether X is more/less than circle rate.
Should the TDS be deducted against seller or builder’s PAN, and for what consideration amount?
TDS should be deducted against PAN to whom the payment is made
Hi Nitin,
1)I intend to buy underconstruction flat 90% is complete all floors complete plaster paint lift work etc left . Will service tax and vat be applicable to me. If yes then is it on complete amount or balance 10% ,
2) i intend to resale underconstruction property. What points should i consider in deciding the prices. The property is 75% complete. I have paid ST on 75% value and vat on full value. How can i or can i recover these from buyer?
1. Service tax will be applicable. The calculation will depend on method used by the builder as i explained in my post.
2. You can include the clause in your agreement that buyer will pay you the service tax amount that you paid to the builder.
Hello sir,
As property prices in Noida extension and greater Noida are relatively less,so is it wise enough to invest in that region or one can hardly expect any further appreciation there..
I will not prefer this area for investment. This area has lot of issues to handle.
Hello Nitin,
I am planning to buy an under construction Resale property in Hyderabad. It’s a Villa. The current owner, reportedly an investor and also a close relative of the builder, has took loan from Bank and has defaulted. The construction was stopped in 2012 and property is ready for sale now. Seller is working with the Bank to release the property and make it ready for me.
Builder is negotiating the deal with me as the Seller is in USA now.
On what Points I need to focus here if I am entering a deal to purchase? Please advise.
Thanks,
Raghava.
Personally i will not suggest you to buy this property.
Thank you Nitin, your insight helps a lot.
Unfortunately, I have given 5% advance amount. 3 lacs of the 60 lacs deal.
Do you suggest to back out (I regret not to read this blog before entering it)
Can you give hints as to what issues could prevail while buying and after ?
Highly appreciate your help.
Thanks,
Raghava.
It’s a fraudulent transaction. If the property is in bank’s possession (symbolic/physical) for payment default then builder or defaulter has NO right/authorized to SELL the property. The title of the property is not clear.
Prima facie, the intent of seller and builder is to commit fraud. The builder sold to seller who is his close relative. They took money from bank and defaulted. Now they again sold the property and will take money from you. Therefore, technically they sold same property twice. It is very common trick to commit fraud i.e. sell the mortgaged/NPA property.
You may ask for refund of advance. If the builder or seller refuse then you may file a police complaint of forgery and cheating against builder and the seller.
Thanks Nitin. I will talk on this point and will back-out based on the response and actions.
Thanks again,
Raghava.
Hi Nitin,
I have backed out on this transaction.
Thanks a lot !!!
Wish you a Happy and Prosperous New Year
Hi,
I have bought a flat in an under Construction project in Mar 2015. Possession is expected in mid of 2017. And I am selling my property before taking possession. I have taken a loan from Bank as well.
In the Transfer Agreement builder has mentioned regarding the Transfer fee that – “The Assignor/s and the Assignee both agree that the above said Transfer fee is non-refundable”.
In case if somehow the transfer didn’t happen so is builder legally bound to return the transfer fees or just by writing that clause he can refuse to return the transfer amount.
Please suggest.
Builder will not refund transfer fee.
* This query was posted by Mr. Amit Kumar and he deleted the query after it was answered. For the benefit of other readers, i am sharing the original/deleted query
Hi,
I have bought a flat in an under Construction project in Mar 2015. Possession is expected in mid of 2017. And I am selling my property before taking possession. I have taken a loan from Bank as well.
In the Transfer Agreement builder has mentioned regarding the Transfer fee that – “The Assignor/s and the Assignee both agree that the above said Transfer fee is non-refundable”.
In case if somehow the transfer didn’t happen so is builder legally bound to return the transfer fees or just by writing that clause he can refuse to return the transfer amount.
Please suggest.
Hello Nitin Sir,
Your articles are really educating and eye openers.
I have a query regading agreement with landowners allocation. I am buying flat from landowners share for an under construction apartment. I insisted on triparty agreement but landowner is not agreeing to it. (Landowner is a construction company again). Reason given is , there is joint development and allocation agreement between developer and landowner company which prescribes detail distribution of flats (upto each flat number) between landowner and developer. So as per landowner he is complete owner of respective flat. Is this OK to have only 2 party agreement?
Also in draft sale agreement there is mention of conveyance charges. Is that same as transfer fees? How much it can be?
1. As i have explained in my post on landowner that tri-party agreement is required in this case.
2. Conveyance charges and transfer fees are different.
Hi Nitin,
I would love to buy resale flat in under-construction property BUT I can only buy if someone is ready-to-sell, right? what if all the people who have bought the flats in that under-construction building are like me who are buying for self-use? Please guide.
It is highly unlikely scenario as currently the market is buyer’s market not the seller’s market. Normally, the flats are cornered by investors to control the supply. You should be careful in your approach.