Flat Buyer's Guide - Chapter 7 Miscellaneous

Recent Belleza Blue case in Pune (2^nd Campa Cola like case in Maharashtra) where high court has asked the residents to vacate the illegally constructed 3 floors of the building, is quite a shock to all the flat buyers. 

I am working with one of the very few trust worthy real estate companies in India from past 6 years and thus thought of coming up with this guide for buyers of residential apartments.

I hope to cover all the necessary points / information so that technical or legal terms used in the real estate filed do not sound Greek to a lay flat buyer and he is not lost while speaking with the builder. **While doing so I have tried to furnish as accurate information as possible to best of my knowledge but e & oe (errors & omissions expected).

Index
Chapter	Synopsis
1. Basic concepts & definitions	Carpet, Built-up, Saleable etc areas & more
2. Units & Measurements	Sq. ft., Sq. Mtrs., Guntha, Acres, hectares etc & more
3. Legal Documents	Title & Search Report, NA, 7/12, PR, Blue Print, CC, Index – II, OC, POA etc
4. Material & Specifications	Tiles, Doors, Windows, Painting etc
5. Home Loan	Eligibility, EMI, Tenure, Loan Transfer etc
6. Government Duties & Taxes	Stamp Duty & registration, TDS, ST, VAT etc
7. Miscellaneous	RERA, Flat Inspection, Project Reviews etc

Chapter 7: Miscellaneous

1. RERA: stands for the Real Estate Regulatory Authority of India.

a.     It aims to regularize the real estate sector and make it more responsible and reasonable towards the buyers.

b.     It is a constitutional amendment (The Real Estate Regulation & Development Act of India) passed in 2016 and will be made applicable in phased manner.

c.      I shall hereby list the provisions as and when they come in to force:

d.     June 2016

                                i.      Rate of interest for a delayed payment from a buyer should be same as the rate of interest paid to the buyer for delayed possession.

                              ii.      Government of India has suggested to fix this rate of interest for delayed possession (and hence for delayed payment too) at 2% higher than the Prime Lending Rate (PLR) of SBI. Thus currently if approved by State governments and union territories (real estate sector comes under the preview of state government), it would be at around 11.2%.

                            iii.      Builder has to clearly mention the carpet area while selling the flat.

2. Inspection:

a.     Unfinished flat will look smaller than the sample flat or any other finished flat of the same size, if you are going for an inspection before flooring, plastering & painting is done.

Simple principal of color theory is behind this phenomenon (you look slim in black clothes than in light colored clothes). Thus dark color of the cement makes the flat look small where as bright white color of the finished flat makes it look big.

b.     If you are going for an inspection of your flat just before taking the possession, please have a check list of below mentioned points:

                                      i.            Are all the switch and light points working? (You may carry a tester for the same)

                                    ii.            Are all taps and toilet flushes working and free of leakages?

                                  iii.            Are all the sliding doors and windows moving smoothly?

                                 iv.            Are there any cracks / stains in / on walls / tiles / basins / sinks / toilet pots / kitchen plat form etc?

                                   v.            Are all the door & window locks & latches working fine?

                                 vi.            Are all the drainage outlets free of clutter & clogging?

3.      Before deciding on buying a flat in a big project or mega township, with club house /swimming pool / gym etc, make sure you really need these amenities and you are going to continuously use them till the time are staying in that complex. Disadvantage of having these amenities is as below:

a.     High rates / infrastructure costs are charged / taken from customers for this

b.     High society maintenance charges so as to maintain these amenities (recurring cost till you are staying in that complex)

c.      Society might not be able to maintain it once builder has handed over the project.

If you don’t think above costs are justified, then go for a project with stand alone buildings or small project with no extra amenities

4.      If may check out Google and various property portals like 99 99 Acres, Magic Bricks, Common Floor, Housing, etc  to do a basic survey and to get the first hand information.

5.      You can also get an average / sq. ft. rates in a particular locality of big cities through these property portals. You just have to type ‘rates in XYZ area in ABC city’ on Google.

6.      If you want to go for a resale flat then check out these portals as well as classified ads in popular newspapers in your city.

7.      If want to get some opinion of some knowledgeable person or to check out the review of a particular real estate project in Pune, you may please checkout a blog of Mr. Ravi Karandeekar – a well known real estate critique in Pune at Ravi Karandeekar's Blog

 Previous: Chapter 6 Government Duties & Taxes 

END

Flat Buyer's Guide - Chapter 6 Government Duties & Taxes

Recent Belleza Blue case in Pune (2^nd Campa Cola like case in Maharashtra) where high court has asked the residents to vacate the illegally constructed 3 floors of the building, is quite a shock to all the flat buyers. 

I am working with one of the very few trust worthy real estate companies in India from past 6 years and thus thought of coming up with this guide for buyers of residential apartments.

I hope to cover all the necessary points / information so that technical or legal terms used in the real estate filed do not sound Greek to a lay flat buyer and he is not lost while speaking with the builder. **While doing so I have tried to furnish as accurate information as possible to best of my knowledge but e & oe (errors & omissions expected).

Index
Chapter	Synopsis
1. Basic concepts & definitions	Carpet, Built-up, Saleable etc areas & more
2. Units & Measurements	Sq. ft., Sq. Mtrs., Guntha, Acres, hectares etc & more
3. Legal Documents	Title & Search Report, NA, 7/12, PR, Blue Print, CC, Index – II, OC, POA etc
4. Material & Specifications	Tiles, Doors, Windows, Painting etc
5. Home Loan	Eligibility, EMI, Tenure, Loan Transfer etc
6. Government Duties & Taxes	Stamp Duty & registration, TDS, ST, VAT etc
7. Miscellaneous	RERA, Flat Inspection, Project Reviews etc

Chapter 6: Government Duties & Taxes

1.     Stamp Duty & Registration:

a.     Right now, in Maharashtra stamp duty is 6% of your total flat cost (generally excluding club house society formation, advance maintenance charges) or ready reckoner value, whichever is higher.

b.     Ready reckoner rate as decided by the revenue department of a city is the average rate prevalent in the particular area. This is the minimum rate at which a government should earn the stamp duty. Even if you have bought a flat at cost less than that of the ready reckoner cost; you will still have to bear the stamp duty on the ready reckoner cost.

This is to curb the losses of the government due to rampant cash transactions in real estate which tend to reduce on paper cost of the property and thus in turn revenues from the stamp duty.

You may please check the ready reckoner rate (per sq. mtrs.) in Pune at Pune Ready Reckoner.

c.      Whereas registration is 1% of your total flat cost (as above) or Rs. 30 Thousand whichever is less.

i.e. if your total flat cost is Rs. 29 Lakhs then registration charges would be Rs. 29 Thousand. And if it’s 31 Lakhs and more it will be Rs. 30 Thousand.

d.     You may pay stamp duty and registration charges by cash / cheque / DD or RTGS depending upon the builder or your lawyer.

2.     Other government taxes:

a.     TDS: Tax Deductible at Source.

                                                        i.            This is the biggest headache a flat owner has these days.

                                                      ii.            As per the law, it is a responsibility of a buyer of an immovable property (flat / land / bungalow etc) of a value exceeding Rs. 50 Lakhs to deduct & pay 1% of the amount paid that has to be to the builder as an advance tax to the Income Tax department before 7^th of a next month in which he has paid to the builder.

i.e. if you have to pay Rs. 100 to a builder say on 21^st of July then pay only Rs. 99/- to the builder and remaining Rs. 1 to the IT department before 7^th of August.

                                                    iii.            Thus TDS is in no way an extra financial burden on buyer but a mechanism to curb the tax invasion from builders.

                                                   iv.            A buyer has to fill up form no. 26QB online at Form 26QB.

At the end of this form, there is a link to pay the TDS online or you may opt for the payment across the bank counter.

Be quick and accurate while filling this form and save your data whenever an information pops up saying that session is expiring.

                                                     v.            4 -5 days after you have paid the TDS, create a long-in on traces website of IT department Traces Login & Form 16B.

                                                   vi.            By this time, form 16B is generated in the system which has to be downloaded, printed, signed and should be submitted to the builder.

                                                 vii.            This form 16B acts as balance 1% of your cost.

                                               viii.            If you are paying the entire cost in phases as per the construction stage then will you have to repeat this entire exercise (except log in creation) with every payment made to the builder.

Thus making ‘TDS’ tedious.

                                                    ix.            TDS being entirely a buyer’s responsibility, an insensitive builder might not even inform you about this and soon enough you will get a notice from IT department.

They charge Rs. 200 fine for a day’s delay in payment, which amounts to a huge sum if you don’t pay or get this notice for year or so.

                                                      x.            Also, please make sure that you submit all the form 16B’s to the builder. In absence of which, builder will demand 100% money from you and you will end up paying additional TDS and or penalty for the same.

                                                    xi.            TDS is not applicable if you are buying a flat from an individual owner (resale)

b.     ST: Service Tax –

                                                        i.            Since 2012, ST is applicable on flat purchased from a builder in an under construction project.

                                                      ii.            Please see below the ST rates applicable as on July 2016

Component	ST	Swachh Bharat Cess	Krishi Kalyan Cess	Total
Agreement Value (Cost mentioned in your agreement)	3.5% of the agreement value	0.5% of the agreement value	0.5% of the agreement value	4.5% of the agreement value
Other charges (Club house, society formation etc)	14% of the other charges	0.5% of the other charges	0.5% of the other charges	15% of the other charges

                                                    iii.            There is no uniform opinion of tax consultants on high court ruling on whether service tax has to be charged on Advance Maintenance payment made to the builder or not. So few builders will charge you service tax on maintenance while majority of them won’t.

                                                   iv.            A recent High court ruling says that buying and selling of flats (immovable property in general) is not a service and thus ST cannot be charged on such transaction.

                                                     v.            It also states that ST department has to return all the tax collected so far with an interest of 6%/annum.

                                                   vi.            But sure there will be appeals and re-appeals from government in the Supreme Court to change this ruling and if needed constitutional amendment as well.

                                                 vii.            So in my opinion, ST is here to stay.

                                               viii.            ST has to be paid every time and in proportion to the payment made to the builder at each stage of construction.

                                                    ix.            ST has been exempted if you are buying a resale property or a property for which occupancy certificate has been received by the builder (ready possession property).

This also means that you will have to pay the service tax for a ready possession property for which builder is not in possession of the occupancy certificate.

                                                      x.            Also, even if you are buying a ready possession property from a builder, ST will be applicable on other charges excluding agreement value.

Thus in short, ST is applicable on other charges but not on agreement value for a ready possession property bought from a builder.

c.      VAT: Value Added Tax

                                                              i.      This is the simplest of all taxes.

                                                            ii.      It’s 1% of the entire flat cost (excluding advance maintenance).

                                                          iii.      Like ST, VAT is not applicable on ready possession or resale properties.

                                                         iv.      VAT has to be paid immediately after you have registered the agreement.

d.     Thus on broad terms, a buyer ends up paying (6% stamp duty + 1% registration + 1% VAT + 4.5% ST =) 12.5% extra than the actual flat cost.

Previous: Chapter 5 Home Loan                                                     Next: Chapter 7 Miscellaneous

Flat Buyer's Guide - Chapter 5 Home Loan

Recent Belleza Blue case in Pune (2^nd Campa Cola like case in Maharashtra) where high court has asked the residents to vacate the illegally constructed 3 floors of the building, is quite a shock to all the flat buyers. 

I am working with one of the very few trust worthy real estate companies in India from past 6 years and thus thought of coming up with this guide for buyers of residential apartments.

I hope to cover all the necessary points / information so that technical or legal terms used in the real estate filed do not sound Greek to a lay flat buyer and he is not lost while speaking with the builder. **While doing so I have tried to furnish as accurate information as possible to best of my knowledge but e & oe (errors & omissions expected).

Index
Chapter	Synopsis
1. Basic concepts & definitions	Carpet, Built-up, Saleable etc areas & more
2. Units & Measurements	Sq. ft., Sq. Mtrs., Guntha, Acres, hectares etc & more
3. Legal Documents	Title & Search Report, NA, 7/12, PR, Blue Print, CC, Index – II, OC, POA etc
4. Material & Specifications	Tiles, Doors, Windows, Painting etc
5. Home Loan	Eligibility, EMI, Tenure, Loan Transfer etc
6. Government Duties & Taxes	Stamp Duty & registration, TDS, ST, VAT etc
7. Miscellaneous	RERA, Flat Inspection, Project Reviews etc

Chapter 5: Home Loan

1.     As far as you can; always go for a loan from well known banks like SBI, HDFC, Axis, ICICI, LIC etc. They are fair in their dealings (especially when it comes to interest rates), and they put up a through legal check on the project.

2.     Go for co-operative banks only if your loan eligibility is a problem with above stated well known banks. Avoid them even if you have an a/c with that bank since its inception as these co-operative banks start a home loan with rate of interest as low as any Public Sector Bank (say SBI) but increase it unjustifiably during the tenure of loan.

3.     If you are a regular salaried employee it’s better to completely avoid the micro housing finance companies, credit societies etc for home loans because they charge exorbitantly high interest rates and there is a scope of doubt on their legal checks.

4.     Your loan eligibility is decided on following factors:

a.     Your credit history - if you are regular in paying your credit card bills and loan installments of previously taken loans, none of your cheque is dishonored, you have not defaulted on income tax payments etc then you have a great credit rating.

b.     Present Earning - Generally, your loan amount is half of the combined per month take home salary of all the applicants in thousands multiplied by 1 Lakh.

i.e. if a per month take home salary of you, your spouse and a parent of yours (your house is registered in the name of all 3) is say Rs. 50 thousand then,

Your loan sanction amount = [(50 / 2) X 1 Lakh] = 25 Lakhs

Or to simplify,

Loan amount = [(50 thousand / 2 thousand) X 1 Lakh] = 25 Lakhs

No. of years of your service will also play an important role in this calculation. Higher the better.

c.      Cost of your property - As per the present RBI guidelines, banks can not sanction loans for more than 80% of the property cost (even though you are eligible for more loan as per your present earning and) provided you have already paid balanced 20% of the property cost. This 20% of the property cost is called as ‘own contribution’

i.e. if you are eligible for a loan of 25 Lakhs as per your present earning, and your property costs just Rs. 10 Lakhs, you will get loan of Rs. (10 Lakhs * 80% =) 8 Lakhs only and that too after you have paid Rs. 2 Lakhs to the builder.

5.     Tenure & Monthly installment:

a.     Generally, depending upon the no. of years of service left of the owner with highest income, bank sanctions loan with a maximum tenure of 20 years to 30 years.

b.     As a thumb rule for every lakh of rupees of a 20 years home loan, monthly installment works out to be one thousand rupees.

i.e. for a 20 years loan of Rs. 25 Lakh, you will end up paying Rs. 25 thousand as an EMI.

c.      Also, Higher the tenure::Lesser is a per month installment

But, Higher the tenure::Costlier is the loan

d.     At the end of 20 years of your home loan tenure, you end up paying double the cost of property.

e.     Thus it’s always better to pay off the loan as early as possible. This could be done by paying more than your monthly / yearly installment. The extra amount you have paid is deducted from the interest amount and thus proportionately reduces the interest component.

Few banks come up with a scheme that ‘pay so and so amount extra and get 0.05% reduction in your interest rate or so many months reduction in your total loan tenure’.  

f.       As per the present RBI guidelines, there is no penalty / charge / fees for preclosure (i.e. paying off your loan from your own funds, earlier than the sanctioned period).

g.     But there might be some charge or penalty, if you transfer your loan from present bank to another.

6.     Loan Transfer:

a.     Your EMI (Equated Monthly Installment) is a disproportionate combination of interest component and principal amount component.

i.e. in the initial years of your loan payment, interest component could be as high as 80% of the EMI which reduces with time and at the fag end of your tenure principal component will be much higher than the interest component. (Interest component is what banks earn out of home loan funding and thus they are obviously keen on recovering it as early as possible).

b.     Considering this, transfer of the home loan from one bank to another is advisable only if:

                                                                                i.            Still more than half of your loan tenure is left or

                                                                              ii.            There is a considerable difference in the interest rate (if there is not much of a difference in the rates then processing fee of the new bank will eat into the gains because of the rate difference).

7.     If you know the interest rate, you may find out your EMI for the desired amount of loan at: EMI Calculator

Here is some info from ET: HowToApplySwitchCloseHomeLoan

Previous: Chapter 4 Material & Specifications                           Next: Chapter 6 Government Duties & Taxes