Due Diligence for buying a property

Property dealings are complex in nature involving legal, technical and financial matters of intricate nature. Once it comes to buying an immovable property, everyone needs proper guidance from a professional exposed in matters pertaining legal, technical, financial and other related matters.

Once you plan to buy a property, it is necessary to seek overall guidance on matters covering need to purchase, planning the entire cycle of events, such as shaping the concepts, getting consent of all family members and financial aspects etc. Guidance should be availed on verifying property documents, including legal documents, technical documents, approvals from Govt. authorities, insurance, taxation issues etc., along with post purchase compliance.

Legal Verification:

  1. Title Verification: Tracing the ownership trails of the particular property (under purchase) is the most important aspect of legal verification to find whether present owner has derived valid marketable title to the property. Title verification needs to be carried out by a well versed Property Advocate, who will thoroughly study the flow of title by going through the property documents and issues a Title Report.
  2. Original Verification: If Title Report is issued based on photo copies of property documents, verification of original title deeds becomes necessary to compare photo copies (to avoid fake/fabricated documents) and to ensure property is not mortgaged by way of deposit of title deeds to avail financial assistance from any Bank/Lender.
  3. Drafting of Sale Agreement and Sale Deed: Sale agreement is an important legal contract, which needs to be properly drafted by a Property Advocate, covering all terms and conditions of sale and needs to be executed on suitable stamp paper.

 Similarly drafting of Sale deed is of paramount importance, as title flow, conveyance terms will have to be properly recited and all persons who have share, right, title, interest in the property needs to join the conveyance deed.

  1. Registration of Sale Deed: It is mandatory to register the Sale deed at the jurisdictional Sub Registrar’s office by paying requisite stamp duty and registration fees. It is advisable to take the help of Property Advocate for supervising the registration process.  Any mistake or omission in sale deed will cost heavily to both purchasers and sellers as correction at later stage needs Rectification Deed to be registered involving all parties to join hands and again registering the document.

Technical Aspects:

Depending on the type of property, the significance of surveying varies. If you are buying land (plot), built house/building, it is extremely necessary to  identify the property, understand the terrain, extent of land and measurement of building and match with Govt. records., which is known as Surveying, carried out by a qualified Surveyor (Chartered Engineer) in association with Govt. authorities.

If you are buying an apartment in a residential complex, then the Valuation of the property becomes important. Detailed valuation issued by an eminent Valuer, not only provide the present value of undivided share of land but also the value of built-up area (after measuring carpet area and super built-up area). The report also provides details common facilities, neighborhood, locality, approach roads and all approvals obtained etc.

If property intended to buy is under construction, there is necessity to verify working plans and approved plans by experienced Architect/Chartered Engineer and supervise the construction periodically to verify whether quality of construction, materials used and workmanship is as per construction agreement.

 Financial Planning:

The importance of Financial Planning can be gauged from the fact that most of us, not only tend to exhaust life time savings to acquire a property, but invariably end up in creating life time debt by way of Home Loan.

Before planning to buy a property, one has to prepare a realistic budget by considering number of related parameters and finalize the budget at the time of inking the deal. It is prudent to seek advice from a qualified financial advisor /wealth manager/mortgage banker who will guide on how to arrange the required funds from savings (Fixed Deposits, RDs, Provident Fund account etc.) and investments (liquidating Shares, Bonds, Debentures, Gold, sale/mortgage of properties, etc.). If looking for funding, first thing is to plan for margin money (possible loan amount less the acquisition cost of property), then to opt most suited loan option, after thoroughly considering parameters such as loan amount, tenure, interest, EMI, one time fees, prepayment charges and insurance charges etc. One needs to plan for life insurance (term insurance/mortgage redemption insurance) and the property insurance.

If purchase of property is purely for investment, financial planning needs to be on a different footing. The planning would concentrate on safety, liquidity, returns, keeping in mind the fact that real estate assets have capital appreciation, apart from periodical returns by way of rent/lease, which will also hedge the inflation.

It is equally important to plan for repayment, as home loans are to be repaid over long term and also borrowers need to maximise the incentives available under subsidy schemes and towards deductions available under Income Tax rules.

Post purchase compliances:

After purchasing a property, there are number of formalities to comply.

After purchase of built property, most of the time the owner needs to arrange for interiors, furniture and fittings. Proper planning, designing and execution of interiors needs to be carried out, depending on the property, usage (self use or to be let out) and other parameters.

It is mandatory to apply for change of Khata with concerned civic authority (like BBMP). Apart from paying requisite fee, owner has to produce notarized copies of updated property documents, such as sale deed, prior deed, latest EC, approved plan, existing Khata certificate and extract etc. Similarly electricity, water and sewage connections need to be changed from seller’s name to new owner’s name.

If you buying an apartment from Builder, although Builder is supposed to form Association of Apartment Owners, many times, it is found, it is left to Owners to form the association, which requires Deed of Declaration by all owners (to be registered), NOC from Builder,  Byelaws of Association and registration of Apartment Owners’ Association, under Karnataka Apartment Ownership Act 1971.

There are mandatory periodical compliance like paying property taxes once in a year, making payments for electricity and water and sewage connections on a monthly basis.