The economy is inching up, and buyers are once again looking cautiously at property investments. As the market is flooded with lucrative ads, the need for buyers to be diligent about home purchases has never been more important. The important thing to realise is that you cannot rely solely on the verification done by the bank from whom you get the home loan. So, what is due diligence? Basically, it is a thorough investigation that determines the legitimacy of the property you want to buy. The process and the elements that need checking change depending on the kind of property you are buying — ready-to-occupy, under construction, or redeveloped home.
Ready-to-occupy properties: Get all the details pertaining to the developer’s credibility. Of particular importance is the developer’s track record in delivery. There are aspects that directly affect the level of risk but are never revealed to buyers. The information must be found at a local level, by talking to people who have lived in the area for some years.
Ask the developer for the approved project drawings, a copy of the IOD (intimation of disapproval), completion certificate and a clear land title. Ensure that the property is free of litigation and any kind of associated debt. Establish the existence of a proper society. If you are buying a second-hand property, proper transfer and re-registration should be done before the handover. The documents required for registration of a residential flat, apart from the sale deed, will include a letter from the society that reflects the number of floors in the building, the year in which the building was constructed, the apartment's built-up area and the number of lifts in the building.
The buyer should have a proper check list — the approved use of the property, notices of pending or threatened litigation or governmental action relating to the real estate or seller, any applicable condominium documents, service contracts, all construction-related documents including warranties, as-built plans and specifications etc.
Under-construction properties: First, get an accurate idea of the project’s progress, especially if the property is being bought directly from the developer. Second, establish whether the builder has free and clear ownership of the land. Just an agreement between builder and original landowner is not sufficient; the project also needs an IOD. This is a set of instructions that a developer must follow to legally construct there. The IOD is valid for one year and needs to be reissued if not completed in that time. It also needs a commencement certificate in place. While considering a pre-launch project, it becomes more necessary to establish the builder’s trustworthiness, especially his track record in transparency and legal compliance.
Redeveloped properties: For redeveloped property, the paperwork is the same as for a new one. In the case of redeveloped properties, there are two possible scenarios. First, if redevelopment plans are going on between the society and developer, but no agreement has been signed: In such a case, it is just like buying a normal resale property. In the second scenario, an agreement is already in place between society and developer. If one society member wants to sell his property and has found a buyer, there are three parties involved in the transaction — the seller, the buyer and the developer.
The developer must be informed, so that the rights of the member selling the property are properly transferred to the buyer with the knowledge of the society.
In case an agreement exists between society and developer, two situations are possible. First, the building has yet to be demolished, in which case the process is simple. The buyer moves in, and vacates along with other members at the time of redevelopment. However, if the building has been demolished, and the new one is yet to be constructed, then the permission of both society and developer are required since, although money has changed hands, the transaction is incomplete until the property has been reconstructed and registered in the new owner’s name. The agreement needs to mention this appropriately.
In the case of redeveloped property, apart from the usual due diligence, the development agreement between society and developer must be checked. The new buyer must ensure that the seller is surrendering all rights and claims after the property is reconstructed.
The writer is CEO - Operations & International Director, JLL India
