What Does Due Diligence Mean When You Buy A Property?

In real estate transactions, due diligence is a vital step in the home-buying experience. Due diligence in real estate transactions refers to reasonable measures which every individual should adapt before executing an agreement in relation to the real estate and immovable property.

By conducting due-diligence, you assess the risks associated with the property you are planning to purchase. You review the documents and ensure that there are no legal encumbrances on the property. It basically means to do your homework before actually making the purchase.

Due-diligence is performed by a property lawyer, but it is crucial for you to understand the basic terms used in the report and what do they imply in order to make a wise decision.  

The types

First and foremost you must know that they are two types of due-diligence reports.  

Full search report: When a full search due-diligence report is prepared, it is generally conducted for a title period preceding 30 years from the date on which the seller in question came into existence. This report includes a detailed search of all aspects relating to the history of a property.

Limited search report: Limited search report is prepared generally conducted for the transactions where the property is taken on a lease. It is generally restricted to 15 years.

The significance

Through due diligence, one confirms all facts relating to a property’s history, title, etc.

A title means right in the property. The word title does not always imply ownership in the property. It can also mean the right over the property as owner or possessor permanent lessee and a marketable title mean a title free from all reasonable doubts. The title documents should also have papers showing sanctioned plan layout. This plan should be certified by the officer of the land records.

Things to check in a due-diligence report

Check legal capacity of the seller: A due-diligence report should categorically state the legal capacity of the seller.

*The present owner or any other predecessor title holders should not a minor or a person of unsound mind.

*If the owner of the property is of unsound mind, only a person appointed as a guardian by a competent court under the Mental Health Act, 1987, can sell on behalf of the owner.

*If the current owner is a minor, the property can neither be purchased nor taken on the lease without the permission of the competent authorities.

*The report should also mention the nature of current owner’s right over the property.

*If the property is in joint names, an NOC should be obtained from the co-owners.

*When a property is held by a Hindu Undivided Family, check the family tree and verify facts accordingly.

*When the property belongs to a partnership firm, society or trust, check the copy of the partnership deed.

Ensure all your taxes are paid

You must also check whether all the taxes have been paid or not by the seller. Taxes such as property tax must be paid by the seller till the time he held the property.

Make sure documents are in place

Occupation and completion certificates: Occupation certificate is given to a building by the municipal authority after verification of all supporting documents. The possession of flat is valid only after it receives a completion certificate and an occupation certificate.

Sale deed: You must check the original sale deed which should be in the name of the seller and ensure that property is not mortgaged.

Power of attorney: When the seller is not physically present to sell the property, he might appoint an agent with the power to sell by giving him a power of attorney (PoA).  In case of the owner is an NRI and the PoA is executed in a foreign country, it should be notarised before the Indian Consulate for the purpose of authentication. It needs to be attested by the sub-registrar, too.

Allotment letter and possession letter: When a property is acquired from the State Industrial Area Development Board like the Delhi Development Authority, documents relating to allotment, lease-cum- sale agreement, possession certificate or builder-buyer agreement needs to be checked.

Land records and mutation entries: These are the record of rights, tenancy and cultivation, issued by the registrar of land holdings. They could be obtained from the Tehsildar’s office.

Khata extract and certificate: For any registration obtained after paying the tax, a khata certificate is issued to the owner of the property or to his family members. This certificate is required to apply for water and electricity connection.

Additionally, you should also check whether a green clerance has been given to the project.

What Are Franking Charges?

A property purchase involves several big and small payments that have the potential to substantially jack up rates. For instance, if you are taking a home loan, you have to pay a processing fee to the bank. You may also have to bear the cost of a technical appraisal of the property that the bank would carry out.  Now, to make the purchase legal, a buyer has to pay stamp duty (depending on the state where the transaction takes places, charges may vary from four to 10 per cent of the value) and registration charges (typically, one per cent of the total value). What might not have caught your attention so far is the fact that you may also have to pay a franking charge while stamping the property papers. More importantly, if you thought stamping and franking are the same things, you thought wrong.

Difference between stamping and franking

Stamp duty is a tax you pay to your state to buy a property. Franking, on the other hand, is the process to stamp property documents. Using franking, authorised banks stamp your document or affix a denomination on it, which acts as a proof that the stamp duty for the transaction has been paid. Banks and other authorised agents use a franking machine to affix the documents.

Franking charges

The authority franking your documents would ask you to pay a price for providing its services. While some may do it for free, others may charge as much as 0.1 per cent of the total purchase value as franking charges. So, if you are buying a property worth Rs 50 lakh, you may have to pay franking charges of Rs 5,000. However, you may offset this amount against the stamp duty you pay. For instance, if the stamp duty in your state is 5.2 per cent, you will have to pay only 5.1 per cent as stamp duty if franking charges of 0.1 per cent have been paid.

Source of franking 

Not all banks or agents are authorised to offer franking services. In case they have the official permission, banks often have a limited franking quote and offer the services only for certain hours of a working day. This means prior preparation is needed in case you want to get your property documents franked from a bank or an agent. It is advisable not to entertain them without being certain that an agent is authorised to do the franking.

Franking rules

Not all banks follow the same rules when it comes to franking and the charges involved in the process. Rules and charges could differ from one state to another, from one bank to another and from one agent to another.

Franking is optional

More importantly, it is not a must to go for franking. You could choose to go for e-stamping or could alternatively buy stamp papers to do so. There is also an option to buy papers that are already stamped.

Also read: Going To Buy A Home? Know The Stamp Duty Rate In Your City

Tricks To Save More On Your Home Purchase

Owning a property is a ‘dream’ that most of us nurture. And, as soon as we can, we would want to enter what is perceived as our own personal heaven on earth. The sentimental value attached to owning a home often overshadows the materialistic point of view — that is, the money involved in making this dream come true. When the dream becomes a reality, the rising expenditure starts pinching, often forcing you to think whether the 2-BHK apartment you bought after taking the hefty loan that you will spend your lifetime repaying is worth it. This is why rather than being completely emotionally driven, you should also focus on the money part in the matters of property purchase.

Now, how can you keep the burden as low as possible?

  • Keeping the loan amount low: In the good old days, they used all their retirement money to buy a house. While that phase might be passé, there is a lot you can learn from the old ways. Back then, people did not have to take loans to fund their houses. They certainly did not enjoy the many tax benefits and the luxury of living in their own homes early in their lives, but they also did not struggle with a lifetime of loan burden. They also did not pay huge money as interest on their home loan amount. The logic that you become a house owner while you are still young may also be overrated in a way. Technically speaking, you do not become a house owner till you repay the bank every penny that you have taken as loan. Now, though there is no need to wait till you retire before you buy a house, there can be a middle path. You should try to keep the loan amount as low as possible. For this, you should try to arrange a large part of the property cost from your own savings and take a home loan to only bridge the deficit, if necessary.
  • Family before bank: They tell you the benefits of availing of a home loan are many. The interest rates are low at present, the tax benefits are too attractive to ignore, etc. But even a naïve buyer knows that he has to pay off everything with a huge interest, and what is termed a ‘benefit’ may not actually be that beneficial. So, before you decide to approach a bank with your home loan application, do weight the other possible options that you have. Consider taking a good look at family resources and savings and asking family members if they can help you with a loan. Remember that a borrower is busy paying off only the interest for a large part of the bank loan tenure. If you take the loan from family, it would be much easier to pay the debt.
  • Space or convenience? The benefits of living in bigger cities are many and we all want to have a piece of them. This is why we are willing to pay any price for them. However, often ignored is the fact that in big cities you pay a huge price for a tiny space, which might not serve the purpose as your family expands and your needs change with time. The bad traffic conditions in your large city will bother you more as you grow old. Do think whether the quality of air that you will have to breathe now and, more importantly as an older person, is worth the price you are going to pay. Smaller cities, by comparison, have bigger spaces to offer for the same amount, or even less, their traffic conditions are better and the air is less polluted. 

Renting Your Apartment By Room? Consider These

Renting by room is a strategy that many landlords apply to earn higher rentals every month. Here the landlord has multiple tenants who do not rent the whole property but just one room. A win-win situation for both the landlord and the tenant, this strategy is mostly followed in areas where a large population of students lives.

In such a scenario the rooms are rented out to individuals and all of them together have collective access to the common living area, the kitchen and terrace if any.

While it sounds like a financially enticing strategy, it comes with its share of challenges for the landlords, too. Think about managing not one but three or four tenants together.

MakaaniQ shares certain challenges that you might face and gives you tips that would help you make the most of renting by room:

Too many tenants

The first and the foremost challenge you will face is multiple queries coming to you the moment you put each room on rent. Popular among student or single working tenants, renting by room can call for a wide variety of tenants who would want to rent the room in your property. Get ready to screen each and every tenant with great detail. Understanding that the property will be shared by different individuals, it is important to ensure everyone’s safety and also, temperament. You don’t want to get calls in the middle of the night about the fight two of the tenants had.

Stability

Living in a property where the tenant only has to pay for a room is enticing for many. While the whole process begins with zeal and a positive of saving on rent, it fades away as quickly with many. Some find sharing the space uncomfortable, the other doesn’t like someone else using their grocery kept in the kitchen, or some that want to have friends over for a party but can’t due to other flatmates. In such a scenario, as a landlord, be ready to see frequent coming and going of tenants. And, keep a list of potential tenants ready for replacement. Also, keep hiring an agent who could help you replace a tenant quickly.

Resolving issues

Getting phone calls from tenants will become common. Imagine four individuals who are not related to sharing a common home. Disconnect, discomfort and day-to-day arguments are bound to happen. Be prepared to resolve issues small or big. The complaints can go to extreme levels, too, like stealing, beating or others. Be ready to resolve conflicts. In conflict, situation takes your agent along.

Hidden expenses

In a property meant for two or three individuals, four are living, the property will call for maintenance. Also, the way a student would deal will the property is different from how the property will look when occupied by a family. Imagine a home occupied by a family would only use one or two air conditioners in one go, in a scenario where a property is rented by room, each room will have to have an air-conditioner and also, all of them will be working at a given time. Each amenity in the property will be used more and hence, would call for frequent maintenance. Moreover, here the landlord will have to charge a certain amount in rent for paying bills because you cannot track each of the individual’s usage from a commonly generated bill. What if you are paying a higher bill than what you are taking from the tenants?

DIY Eco-friendly Measures For Homes

The 21st century has us all worried about various environmental issues like climate change and the fear of the melting ice caps. In such a time of mass disarray, we are ready to take drastic measures to ensure that the later generations aren’t born into an Earth as portrayed by most dystopian-era movies or novels. One of these methods is to make the homes eco-friendly. Contrary to popular opinion, making your homes eco-friendly isn’t challenging as there are a plethora of home-made methods to reduce wastage. The government has also come up with various schemes and incentive programs to encourage people to shift tracks and adapt a more eco-friendly way of life. Following are some of the effective ways to make your house more eco-friendly and less hostile to the planet.

 

Rainwater harvesting

Considered to be one of the most effective methods, rainwater harvesting doesn’t require much preparation and yet help when facing an acute water shortage. With serious water shortage problems envisaged, simple hacks like a rainwater harvesting tank in your home will help a lot.

 

Avoid felling of trees

What will you do if there is a fully grown tree in the middle of your property? Do you mow it down to make way for your home? Avoid that. There are various options that don’t involve that inhuman action, like accommodating the branches or other parts of the tree as an integral part of the home decor, or even transplanting the tree. This way, you have the beauty of your home intact and you’ve actively avoided the ruination of the environment.

 

Better quality wiring and appliances

Buying good quality materials for your electrical appliances help reduce wastage and emissions. Worn-out wirings and imperfect insulation increases the chances of fire hazards. Moreover, modern electronics and wires adhere to the environmental norms and thereby, work towards minimising wastage, while improving efficiency and quality provided to the consumer.

 

Installation of solar panels

Although a fairly expensive remedy to the environmental problems, it’s considered to make a big change. Solar panels convert solar energy to electricity. The panels are installed in an open area with direct sunlight, which they absorb all day, charging the cells which re-route the converted electricity to the entire house. In a bid to encourage people to use this method, the government provides a considerable amount of financial support to home-owners.

 

5 Ways To Use Bamboo In Your Décor

Those who love nature, add plants to their home decor. But, there is another element from the nature that can add to the beauty of your abode. It is bamboo. Raw in look, these long and hollow sticks can be easily installed and are known to merge with various elements, including modern and vintage, of your home only to enhance the décor.

MakaaniQ lists five ways in which you could add nature to your home by using bamboo:

Divide and rule

Bamboo separator(Dreamstime)

A perfect fit for those who live in a studio apartment or for those looking to divide their living room into two section, one of lounging and one for dining, bamboo can be a great room divider. Opaque in nature, when placed next to each other, they provide complete privacy, almost like a wall. To further enhance the look, frame these bamboo sticks between two glass walls and lay some stones on the floor between the two glass frames. This would instantly give a walk-in-the-woods look.

A forest in the frontyard

 

Bamboo Garden 1(Dreamstime)

For those planning to create a seating area on their porch or in a spacious frontyard, bring nature amid nature. Create a pergola using bamboo i.e. bamboo flooring, bamboo fence, bamboo roof. To complete the look, add some white chiffon curtains, a seating area with bright-coloured cushions. Want to do something elaborate? Create a small pond around this pergola and you will have your own small forest like garden in your home. A perfect place to lounge and soak up the sun.

On the top

Bamboo Porch(Dreamstime)

Bamboo roofing will not just add to your home’s close-to-the-nature look but also add to your environment-friendly quotient. Use bamboo to roof your porch area and hang some beautiful basket plants. You could also add some cane furniture to the porch to complete the look. This roofing would allow the natural light to seep in along with keeping away the rain water from your porch.

Walk on the bamboo

Bamboo Flooring(Dreamstime)

Along with being an eco-friendly option, bamboo flooring is easy to maintain. A natural material it also doesn’t expand or contract with the rise and fall in temperature or with water spillage. Moreover, this flooring is in vogue and is durable. So, go ahead place this flooring all across your home without thinking twice.

Brighten up by nature

Bamboo Lighting(Dreamstime)

While we all talk about conserving energy with the use of LED, why not couple this with nature’s conservation by using lighting fixtures made of bamboo rather than using plastic ones? And not just conservation, these fixtures add a new level of aesthetic appeal to your décor. Imagine LEDs placed in bamboo sticks and hung on your dining area. While it emits faint light in the room, it ensures focused lighting on the dining table which is an important aspect when designing a dining area. Go ahead, the market is full of some interesting pieces.

What Is A Title Deed?

Those entering the world of property purchase have to enrich their vocabulary before they approach this uncharted territory in order to keep the process commotion-free. While you are at it, it is important to understand the difference between sale deed and title deed, the things that prove your ownership over a property. While you may have assumed the two things to be one and the same, that is not the case. Let us understand what the two terms are and they differ from each other.

Sale deed is a document but title deed is a concept

After a buyer and a seller reach an agreement to carry out a property transaction based on certain terms and conditions, they have to formalise the process in order to prove that the said property has seen change of ownership. They then have to prepare a document, known as sale deed, where every single detail related to the transaction is mentioned. According to the Registration Act, 1908, this document must be registered to become legally valid.  As soon as a sale deed is registered, it becomes a legal proof that the title of the property has been transferred in the name of the buyer. It is in this capacity that sale deed becomes a title deed. That way, a sale deed is also a title deed.

Also Read: How sale deed is executed

Sale deed is an agreement but title deed is statement

Sale deed is an agreement. And, two parties must be involved to make an agreement. This is precisely why all details related to the buyer/ buyers and the seller/sellers are mentioned in a sale deed even though the ultimate purpose of this document is to state that so and so property has been transferred in the name of such and such person. Because this document proves the ownership of the buyer it by default becomes a statement about the title of the property, hence the name title deed. Also, at the time of property registration, the transacting parties have to establish past ownership and title transfer of the asset. A sale deed is a documentary proof of that too. 

How Property Rights Of HUF Members Are Limited

It is painful to see a large chunk of your income go as taxes. You try every trick in the book to save much as possible. Among the many popular tax-saving exercises is the formation of a Hindu Undivided Family (HUF) by people belonging to the faiths of Hinduism, Sikhism, Jainism and Buddhism.

Before we move forward let us quickly understand what an HUF is. An HUF consists of a common ancestor and all of his lineal male children together with their spouses and spinster daughters. This means Ram, his wife Sita, their unmarried daughter Rama, their married son Rahul and his wife Rajni can together form an HUF. Rama would become a part of the HUF of her husband’s family once she gets married. At the same time, she would remain part of her father’s HUF.

Because an HUF is taxed separately from its members, it can claim deductions and exemptions under various sections of the Income Tax Act. As a combined entity, member benefits greatly if the HUF is registered and reports its income as a separate taxpayer. In fact, members will find banks more welcoming in case they are approached for a home loan, etc.

However, members an HUF also have to face certain restrictions.

Your share is constantly diluting

Each member has an equal right to the property owned by an HUF. This means the said property cannot be sold without having each member of the family on board.  New members that get added to the family by way of birth or marriage also have an equal share in the property. In fact, even an unborn child, who is still in the womb of its mother, has a right to the property.

This means the share of the existing members keeps diluting with new additions. While all goes well till there are no disagreements among members, matters might go out of hand in case of any discontent arises. By its very nature, an HUF is an ever-increasing entity as new members keep getting added. In such a scenario, managing the family and its finances might get quite complex.

Separation may turn ugly

In case there is disagreement among the members of an HUF and they decide to part way, they will have to dissolve the entity through a legal process known as a partition. Cases lying with courts across India testify partition process often goes ugly.

It must be noted here that once an HUF is formed it has to keep filing income tax returns until the time it is partitioned. When an HUF is dissolved, assets held by it are sold to be equally divided among all members. Now, each member will have to pay taxes on the profit thus made; the law perceives this gain as their individual income. Even if a new HUF is formed by married people who have exited the previous HUF, the income of the property would be taxed in the hands of new HUF.

Her dilemma

Property owned by women members is known as stridhan (the property of a woman), and income from it is not taxable as income of an HUF. This also means women members of an HUF cannot combine their separate assets with the property of the joint family. However, they can gift their property to the HUF.

5 Mistakes Sellers Should Avoid

Ved Prakash Asthana, 51, bought a 2BHK flat in Delhi but as the size of his family grew, the house couldn’t accommodate all the family members. When Asthana decided to sell the house and buy a bigger unit in the suburbs, he thought it would be much easier being a seller than being at the other end of the spectrum. However, the way things unfolded, he soon realised it’s much tougher being a seller. Despite two years of consistent efforts, he has not been able to sell his property.  

There are many like Asthana whose wait endlessly to find the right buyer. And, the root cause is the many mistakes that sellers often make.

Here are five signs that mean you will have to wait for long before you are able to sell your property:

You have an upper hand

You think that as a seller, you can steer the deal to your advantage. However, if you knew better, you would realise, you, too, in all likelihood, were once a buyer and you did not let your seller have an upper hand. The sooner you realise that both parties are equal in a property transaction, the better.

Also Read: Tips To Make Better Money On Your Property Sale

You have unreasonable hopes

Your neighbour sold his house for a hefty amount last year and you want to sell yours for an amount higher than that. What you do not realise is that your neighbour’s house was bigger in size, better in condition and closer to the main road. You have to quote a price that is suitable for your property.  

You are in such a hurry

You have decided to sell the house because you are in a hurry to arrange fund’s for your daughter’s marriage. You may like to remind yourself that property transactions are highly capital-intensive and buyers will think hundred times before they give you all the money, even if they love your house. Being in a great hurry and pushing buyers may spoil your chances as a seller.

You are such a proud seller

Of course, you are in love with your house. You brag about its features and amenities till you freak the buyer out. What you must realise is that we love our things even if they have any shortcomings. However, a buyer is going to look at your property with the same amount of non-attachment as he would look at your neighbour’s.  

You are taking it easy

While the buyer and your property agent called you several times, you did not feel the need to respond by calling back. You were the seller, you thought, and it was the responsibility of the two to keep you entertained. You have to understand that your city has no dearth of houses, and the buyer will move on. There will certainly be many in the market chasing and entertaining him.

Want To Cancel A Flat Booking? Read This

There are a variety of reasons, because of which homebuyers proceed to cancel after booking flat with his builder. In many cases, this buyer starts having second thoughts about his choice. The buyer’s plans of going ahead with the purchase might also be changed because of sudden changes in his financial position (loss of employment, for instance). The buyer may also want to back out because he finds out problems with the project or the developer. Now, whatever your reason be for cancelling your property purchase plans, here are certain points you must take note of, if you are in such a situation.

The builder is liable to pay you the entire amount if the agreement is not registered

Legally, the developer cannot deduct any money out of the advance payment you have made for the booking till the time a builder-buyer agreement is made and registered with the sub-registrar.

Sample this.

A has given Rs 3 lakh as booking amount for a flat worth Rs 1 crore to B. In case A changes his plans and goes for cancellation, B will have to return him the entire amount.

At this juncture, it is important to note that a builder-buyer agreement is not created until the buyer pays at least 10 per cent of the property value. After that amount is paid and the agreement gets registered, the cancellation gets costly for the buyer.

In case the builder refuses to give back the booking amount

The buyer will have to move the state real estate regulatory authority or the consumer forum to seek relief, in case the developer refuses to pay the booking amount.

The builder will forfeit the entire booking amount if the agreement is registered

In a scenario where the agreement is registered, the builder gains the legal position to forfeit the entire amount. Things to that effect are also mentioned in the builder-buyer agreement. The buyer would lose more than the outstanding money, which might include registration charges and taxes.

While you are at it

Under the provisions of the Real Estate (Regulation & Development) Act, 2016, a buyer does not attain the position of an “allottee” till the time a builder-buyer agreement is registered, and hence enjoys only limited rights. This is why the process to get the refund would get complicated, if due diligence is not shown by the buyer while he is out to book a property.

For instance, it would be a grave mistake to make any payments, no matter how small, without having it documented. Ask the builder to give you a signed receipt for the booking advance. It is also strictly advised that all payments be made to the builder through online channels so that there is a record of the transaction.

What happens to the excess amount? 

When a buyer books and flat and then eventually cancels it, but benefits by receiving a higher amount than he initially paid from the builder, the extra money will be treated as capital gains in the tax parlance. This was laid by the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT). The tribunal also made it clear that the excess income thus earned will not be treated as long term capitals gains and be treated as a tax-free income, unless the holding period conditions and other conditions are satisfied.