HOME LOANS

 

At times, getting a home loan to buy a new property could be a daunting task. To make the process easier, we have compiled a comprehensive guide to make the journey of buying a home completely hassle-free.

 

Home Loans for New Borrowers:

 

If you have been planning to buy a house for a while now, this is the most suitable time for its purchase. Even though interest rates are increasing, the rise could be steeper in the near future. Therefore, all new home aspirants are advised not to wait. Now, in case you’d like to opt for a home loan to acquire your dream home, the best thing to do at this time would be to undertake a teaser loan which is offered for this purpose by some banks. This involves fixed EMIs for the initial 13 to 36 months, depending on the bank. Many banks offered teaser loans in the past, but a lot of them have discontinued it and only a few continue to provide it.

Other popular home loan products include Floating and Fixed home loan interest rates. As the name suggests, Floating rates fluctuate in accordance with base rates or the BPLR (whatever the case maybe). As far as Fixed home loan interest rate products go, you can avail any of the two types – fixed for the entire tenure or fixed for a certain period of time. If the interest rate is fixed for the entire tenure of the loan, then the EMI of your housing loan will be fixed for the entire tenure of the loan. But in case the interest rate is fixed only for a specific period of time, say 5 years, the bank can change its interest rate every 5 years.

 

 

Home Loans for Existing Borrowers:

 

If you are an existing home loan borrower with a good track record, you can consider shifting to a teaser rate scheme. The time and effort required to shift your existing loan to the new teaser home loan will definitely be worth it. To do that, the first order of business would be to shift from the old BPLR system to the new base rate regime which is not automatically applicable to the existing users and requires a separate application. For this, you will have to lodge an application with the concerned bank that will change the base rate. This system of setting up the base rate is more transparent than the one of fixing up the BPLR. Thus, converting your existing home loan to a base rate system can prove to be more beneficial to you than to stay in the old BPLR system.

 

Home Loan Application Process:

 

The process of applying for a home loan to getting it approved involves various stages:

Step 1: Filling the application form
Step 2: Personal discussion
Step 3: Bank’s Field Investigation
Step 4: Credit appraisal by the bank and loan sanction
Step 5: Offer letter
Step 6: Submission of legal documents & legal check
Step 7: Technical / Valuation check
Step 8: Valuation
Step 9: Registration of property documents
Step 10: Signing of agreements and submitting post-dated cheques
Step 11: Disbursement

 

Applying for a loan:

The first step is the filling of the application form. The type of the application form may differ from bank to bank but nearly 80 percent of the information they need is similar. Most of it is basically your personal and professional information, details of your financial assets and liabilities and details of the property (if finalized) including the estimated cost and the means of financing the same.

Documents to submit:

While submitting the application form, every bank asks for several documents. Most banks these days offer doorstep service, however, some banks still insist on a personal visit to their office at least once.

1. Proof of income:
This needs to be backed up by copies of last three years’ Income Tax returns (along with copies of Computation of Income/Annual accounts, if any), Form 16/Form 16A, last three months’ salary slips, copies of the last six months’ statements of all your active bank accounts in which your salary/business income details are reflected, etc. Other documents required with your application form include age proof, address proof and identification proof. You may also be asked to dispense your employment details.
2. Age proof:
It could be a copy of your school leaving certificate, Driver’s license, Passport, Ration card, PAN card, Election Commission’s card etc.
3. Address proof:
Similar documents need to be presented to prove that you are actually residing at your current address.
4. Identification proof:
Same as above, but with a photograph. Sometimes, the same document containing a photograph, age and current residential address can be used.
5. Your employment details:
If your company is not well-known, then a short summary about the nature of the company, its business lines, its main customers, its competitors, number of offices, number of employees, turnover, profit, etc may be needed. Usually, the company profile available on the standard website of the company is sufficient.
6. Financial check:
All the income-related documents you submit serve a specific purpose. The lending institution uses them to study your financial status.
The bank statements you submit are scrutinized for:-
1. Level of activity
In the case of self-employed individuals, it gives a very good idea about the extent of business activities.
2. Average bank balance
A cursory glance at the average bank balances maintained in a savings bank account speaks volumes about the spending/saving habits of an individual.
3. Cheque returns
A small charge debited by your bank in the statement indicates that a cheque issued by you was returned by your bank. Many such cheque returns can have a negative impact on your loan sanction.
4. Cheque bounces
If cheques deposited by you are returned by the issuer’s bank, they will be visible in your bank statement and again, banks have specific norms as to how many such returns are acceptable in a period of one year.
5. Regular periodic payments
The existence of periodic payments to other finance companies/banks etc. indicate an existing liability and you will be required to provide full details to the lender.
6. Your investments also come under the scanner
This helps the bank to estimate your ability to pay the down payment along with your savings habit.

Processing Fee:

Along with the application form and the credit documents, banks ask for a processing fee. This fee varies from bank to bank, but is usually around 0.25% to 0.50% of the total loan amount. For instance, if you take a loan of Rs. 10 lakh, you will have to pay around Rs. 2,500 to Rs. 5,000 as processing fee. The agent dealing with you earns a commission from the bank, which to some extent is also affected by the amount of fees paid by you.

Though it is unlikely that a bank agrees to provide a loan without any upfront fee at all, most banks have flexible fee structures and it is advisable that you negotiate well to find out the bank’s minimum possible fee. Some banks do have zero upfront fee loans but that advantage may be negated as their other charges such as “legal charges” and “stamp duty” are normally higher.

This fee is collected to maintain your loan account and includes work like sending Income Tax certificates every year, maintaining post-dated cheques, etc.

Quick Tips:

1. When applying for a loan, it will help to keep copies of your income proof handy:

For self-employed persons, if the income has increased dramatically in the past year, have your explanation ready as to why you think this is a permanent increase in your income rather than just a one-off aberration which might be reversed in later years. If the bank is convinced with your explanation, then the loan eligibility can be considered in relation to the latest income rather than considering the much lower average income.

2. Face to face personal discussion:

After you’ve formally and successfully completed the application process, all you have to do is wait till the home finance institution evaluates your papers.

The wait normally lasts only for a day or two or sometimes even less. However, some banks insist on meeting you after receiving the application form and before the loan sanction. This is to gather more details about you that may have not been mentioned in the application form and to reassure them of your repayment capacity. Again, this stage is insisted upon only in very few cases.

While going for the personal discussion, carry all the original documents pertaining to the information provided in the application form. Avoid submitting fake documents and do not provide any incorrect financial information; banks process home loans only after they are convinced about your credentials.

3. Field Investigation:

Thousands of people apply for loans every day. And however eager a bank is to complete its targets, every loan is a risk. So, it is only natural that it confirms or validates the details you provide. The bank checks all your information including your existing residential address, your place of employment, employer credentials (if you are employed in a small organization), residence and work telephone numbers. Representatives are sent to your workplace or residence to verify the details. Even the references you have provided in the application form are verified.

While this may seem invasive, banks are forced to undertake validation in the absence of any credit bureau. Once your credentials are validated, it helps establish trust between you and the bank.

The address and telephone number verification work is usually outsourced to small firms as the ability of the representatives is often uneven. Hence, interaction with them may not always be smooth. When the validation process starts, expect to reschedule some of your other work for being available to furnish the details required.

4. Credit appraisal and loan sanction – Getting the nod:

This is the make-or-break stage. If the bank is not convinced about your credentials, your application may get rejected and if it is satisfied, your loan is sanctioned.

The bank or the home financier establishes your repayment capacity based on your income, age, qualifications, experience, employer, nature of business (if self-employed), etc. and based on these, they works out your maximum loan eligibility and the final loan amount is communicated to you. The bank then issues a sanction letter. This letter could either be an unconditional letter or may have certain terms and conditions mentioned which have to be fulfilled before the loan disbursement.

The final loan amount and your loan eligibility are two different things. Once you know the amount you’re eligible for, you can decide on the loan amount. Just because you are eligible for a huge sum does not mean you should borrow heavily. The sanction letter is an important piece of document and must be kept safely.

5. Offer letter:

Once the loan is sanctioned, the bank sends you an offer letter mentioning the following details:

1. Loan amount

2. Rate of Interest

3. Whether it’s fixed or variable rate of interest linked to a reference rate

4. Tenure of the loan

5. Mode of repayment

6. If the loan is under some special scheme, then the details of the scheme

7. General terms and conditions of the loan

8. Special conditions, if any

Acceptance copy

If you agree with what is mentioned in the offer letter from the bank, you will be required to sign a duplicate letter of the same for the bank’s records. Earlier, banks used to charge an administrative fee along with the offer letter. However, with rising competition, the administrative fee has virtually disappeared from the home loan market.

Check if the rate of interest and the loan amount mentioned on the letter is the same as was discussed and agreed upon. Home loan rate of interests can be negotiated, use this fact to your advantage.

The legal angle – Property and papers:

Now, the focus of the bank’s activities shifts from you to the property you intend to buy. Once you select your property, you need to hand over the entire set of original documents pertaining to your property to the bank so that it can keep them as security for the loan amount given to you. These normally include:

1. The title documents of your seller which prove the seller’s title including the chain of title documents, if he/she is not the first owner.

2. NOCs from the legal owners such as cooperative housing societies, statutory development authorities, the lessor of the land in the case of leasehold land, etc. NOCs are not required where the property is situated on freehold land and the entire land is being transferred along with the structure.

3. These documents remain in the bank’s custody until the loan is fully repaid.

Legal check:

Every bank conducts a legal check on your documents to validate their authenticity. Even the draft, sale documents that you will be entering into with your seller will be scrutinized.

The documents are sent to a lawyer on their panel (either in-house or outsourced) for a thorough scrutiny. The lawyer’s report either gives a go-ahead if the documents are clear, or it may ask for a further set of documents. In case of the latter, you are expected to hand over the additional documents to the bank for a clear title.

So, if a bank decides to disburse your housing loan, you can safely assume that your property documents are clear and the transaction is safe. Sometimes, the bank may ask you to pay for the legal verification. However, most banks cover this cost in the upfront (processing) fee that you pay. Property documentation in India is non-standard and, in certain cases, non-transparent. Hence, it helps to buy property from a reputed developer since they know the process inside out and keep all the documents ready. Due to the heavy transfer charges on sale of property and/or very heavy stamp duties, some people conduct the sale of property by showing “lower consideration” than agreed for with the balance being paid either on an amenities agreement or in cash. Also, the concept of sale by executing “irrevocable power of attorney” has gained ground, especially in the National Capital Region. All this could restrict the choice of your lenders and may therefore increase the cost of the loan, which you might want to keep in mind while finalizing such properties.

1. Technical / Valuation check – Making Double Sure:

Banks are extremely careful about the property they plan to finance. They send an expert to visit the premises you intend to purchase. This expert could either be a bank employee, a civil engineer or could belong to a firm of architects.

Site visit:

Site visits to your property are conducted to verify the following:

In case of under construction property:

1. Stage of construction is the same as mentioned in the payment notice given to you by the builder.

2. Quality of construction.

3. Satisfactory progress of work.

4. Layout of the flats and area of the property is within permissions granted by the governing authority.

5. The builder has the requisite certificates to start construction at the site. Valuation of the property in relation to other deals in the surrounding areas.

In case the under construction property is ready/resale construction:

1. External / internal maintenance of the property.

2. The age of the building.

3. Will the building last the loan tenure. This has a direct bearing on your loan eligibility since the loan tenure will be restricted to the maximum age of the property as decided by the bank’s engineer which will impact your loan eligibility.

4. Quality of construction.

5. Surrounding area (development).

6. Whether the builder has received the requisite certificates for handing over possession of the flat.

7. There is no existing lien or mortgage on the property.

8. Valuation of the property in relation to other deals in the surrounding areas.

9. These inspections are carried out to protect consumer interests in terms of construction quality, adherence to local laws, approved building plans, etc. A technical inspection also lets the bank understand the progress of construction so as to release the staggered disbursements.

Quick tip
Do not circumvent or skip this stage and ensure that it is completed as early as possible. As a buyer, it gives you confidence that your property has been inspected by experts and that you are buying an asset that is legally clear and technically sound. The fee for this service, like the legal check, may either be absorbed into your upfront fee or be charged separately by the Bank.
Valuation – A Reality check:
Since housing loans are cheaper than other loans, there have been cases where individuals have shown purchase of properties from related entities at inflated prices to obtain loans at a cheaper rate.
Now, because the risk associated with the diversion of funds is higher than if the loan was used for genuine purposes, banks carry out an independent valuation to find out whether the transaction is in line with the existing market price of the area.
Valuation has become a key parameter in determining the loan amount that can be sanctioned by the bank. The valuation process is quite subjective and depends on the quality and ability of the person sent by the bank for valuation.
Valuation of real estate as a profession is still in its infancy in India and is still non-standardized. In many cases, the valuer determines the value of the property at an amount that is lower than the documented cost of the property which would result in the loan amount being lowered because the bank only funds a certain percentage of the cost or valuation of the property, whichever is lower.
This practice has led to severe consumer issues in an increasing number of cases as the valuation is normally done only after the consumer takes a sanction (by paying a fee) and identifies and commits to buy the property.
The valuation issue rarely arises when a property is purchased through a reputed builder directly or if the property is pre-approved. In both the cases, the banks would have already completed the valuation and therefore, you can safely assume that there is no difference between the documented cost of the property and the bank’s valuation amount.
Some banks will charge a special fee to cover these costs or may ask you to pay the valuer directly. Though for most banks, the upfront fee covers this cost as well.
It is advised to approach banks which are willing to do the valuation even before the sanction process and before you pay any fee to the bank.
Registration: Sealing the deal
After the legal and technical/valuation check, the draft documents as cleared by the lawyer need to be finalized and signed and the stamping and registration of the documents needs to be done. If any NOCs are pending, these also need to be obtained in the format approved by the bank’s lawyer.
Signing the home loan agreement- In black & white:
All borrowers need to sign the home loan agreement. You also need to submit post-dated cheques for the first 36 months (if that is the agreed mode of repayment). The original property documents have to be handed over to the bank at this stage. Some banks also create a document recording the handing over of the property documents to them as security for the due repayment of the home loan.
This document is also called a memorandum of entry and attracts significant stamp duty depending on the amount of the loan in some states. The stamp duty payable on such a memorandum is naturally recovered from you.
Not all banks create this memorandum and hence the stamp duty may or may not be payable, depending on the practice of the specific bank. However, even when no such memorandum of entry is created, the State Government concerned may, in the future, demand a stamp duty on the loan transaction, which naturally is recoverable from you as per the home loan agreement signed by you.
Disbursement:
After the bank has ensured that the property is legally and technically clear and all the original documents pertaining to transfer of ownership of property in your favor have been submitted and all the necessary loan agreements have been executed, it is time for disbursement. Before this, you need to submit documents to prove that you have paid your personal contribution towards the property since banks normally finance only up to 85-90 percent of the total cost of the house. In case you are expecting money from other sources to fund your own contribution, you need to provide sufficient evidence for the same. It is only after submitting this proof that the bank will release part-disbursement of the loan.
The cheque will be in the name of the reseller (for resale flats), builder, society or the development authority. It is only in exceptional circumstances, that is, if you provide documents to support that you have made an excess payment from your own account that the cheque will be handed over to you directly by the bank.
All banks charge interest on the loan amount from the day on which the cheque has been made and not from the day on which the cheque is handed over to you/seller. So, take delivery of the cheque the same day or the very next day to avoid paying extra interest on money.
Disbursement in stages
Usually, loans are disbursed on the basis of the stage of construction of the property. So, in case of resale or ready possession properties, the disbursement is full and final. However, in case of under-construction properties, the payment is made in parts, also known as part-disbursement. Each option would have different disbursement processes.
Part disbursement:
When a loan is partly disbursed, the bank does not start EMIs immediately since it is calculated on the total loan amount at a particular rate of interest and for a given tenure. Moreover, it normally does not start breaking up the installments into its principal and interest components until the entire loan amount is disbursed.
To overcome this difficulty, banks charge simple interest on the partly disbursed loan amount. For instance, if you have a sanctioned loan of INR 10 lakh, but the property is under construction and the bank has disbursed only Rs. 4 lakh, you will be charged a simple interest only on the disbursed amount. This process continues until the final disbursement takes place. The simple interest paid is called Pre-EMI interest or Pre-EMI. At this stage, banks may take only around three to six post-dated cheques on account of Pre-EMI.
1. Always ensure that the amount of simple interest is available in your bank account to avoid dishonor of the cheque.
2. The systems of most banks do not track pre-EMI payments as effectively as EMI payments. However, as per the loan agreement, your liability to pay pre-EMI is absolute and without receiving any reminder from the bank. You may have to pay a delayed payment charge if your pre-EMI is delayed. So, it is in your own interest to keep track of the number of postdated cheques given to the bank for pre-EMI and replenish them, should the need arise.
3. Submit the demand letter from the builder as and when raised to ensure that the balance disbursement can take place.
4. Collect the receipt from the builder for the part-disbursement and hand it over to the bank.
5. Ensure all the above are complied with till the final disbursement of the loan.
Full and final disbursement:
If it is a ready-possession property, the bank disburses the entire loan amount in favor of either the reseller or the builder.
Take your time to fill in the loan documents before you sign them. Some columns may have to be kept blank as the exact amounts may not be known, but this should be limited.
The bank is supposed to return a copy of the loan documents signed by its authorized signatory but that rarely happens in practice without sustained follow-up.
Keep photocopies of all documents/agreements/letters submitted to the bank to avoid any misunderstandings later.
The relationship continues…
The final disbursement does not end your relationship with the bank. In fact, it is just the beginning and there are various issues / situations that arise in between the beginning of the relationship and its end. These include:
1. Post-disbursement documents
2. Repayment
3. Income tax certificate
4. Prepayment
5. Loan pre-closure/satisfaction
6. Post-disbursement documents
Payment receipt:
Once the bank hands over the payment order to you, you in return are expected to hand it over to the reseller or the builder. You should get a receipt from them for the payment and hand it back to the bank as it will become a part of your mortgage documentation.
Share certificates: In case your property is part of a society, you will need to get the flat transferred to your name by asking the society to issue the share certificate in your name and recording the transfer of ownership in their books.
This normally happens at the first AGM/EGM after the sale transaction. This transferred share certificate also happens to be a part of the mortgage documentation and is, therefore, to be handed over to the bank after the transfer takes place.
Repayment:
The loan is generally repaid by equated monthly installments using post-dated cheques. Banks usually ask for 12, 24 or 36 postdated cheques after which you need to repeat the process until you have repaid the loan. Some banks may also insist on a cheque for an amount equivalent to the loan outstanding at the end of the PDC period to ensure timely replenishment of PDCs for the next 12, 24 or 36 months, as the case may be.
In case your installments are to be deducted against your salary, you need a letter from your employer accepting this arrangement and directly remitting the amount to the bank every month. This is possible only if your organization has an arrangement with the bank for all employees.
Some banks allow you to give standing instructions to the bank in which you have your savings/current account to deduct money from each month, crediting your home loan account.
Some banks allow the monthly installments to be paid by a convenient ECS facility. Another possible mode of payment is by cash or demand draft (not all banks offer this). You can deposit the EMI every month at the bank’s office.
Income Tax certificate:
Every bank issues an income tax certificate that serves as a requisite proof to let you avail tax benefits that accrue on repayment of a home loan. This will typically contain the total amount of interest and capital repaid during the year. This is mandatory to claim the tax benefit in respect of self-occupied property. You will have to file this with your tax returns and submit this to your employer or chartered accountant to calculate your tax liability.
Prepayment:
You can prepay a loan either in part or in full at any given point of time. You can also prepay it even when it is only partly disbursed. However, most banks have an upper limit on the number of times a person can prepay his/her loan in a year as well as on the minimum amount you can prepay each time. Until recently, banks charged a penalty for part or full pre-payment but increased competition has forced most banks to allow partial pre-payment free of charge. Most banks levy a pre-payment charge if you make full repayment and ask for the release of your property documents.
Loan pre – closure/satisfaction:
You also have the option of completely repaying the loan at any time. Of course, each bank has its conditions for pre-closure. The loan will get completely paid off on the expiry of the tenure of the loan if you have paid all your installments on time.
Once you have completely repaid your loan, ensure that the entire set of original property documents is handed back to you. You should also ask the bank for a No-Objection Certificate saying the account has been cleared. As an option, the bank may issue a consent letter stating that the property is now free from mortgage. If you have guarantors, the bank will issue a separate letter to each of the guarantors stating that their liability has come to an end. Only after you receive these documents, can you say that the property is now completely free of mortgage.
At this stage, in some cases, you may discover that the original documents have not yet been received by the bank from the registrar. In such cases, you will need to follow up with the registrar and get the documents from them directly by showing them a copy of the bank’s clearance certificate.
Sometimes, (and we must stress only sometimes) the bank may misplace your original property documents leading to unavoidable stress. In fact, the bank may claim that these documents were never given to them at all. Hence, it is important to insist on a proper receipt of the title documents at the time of handing them over to the bank. Remember, that receipt will come in very useful when the loan is fully paid off. It is also extremely useful if you want to shift your loan to a new lender.

Every home loan comes with tax benefits. Under Section 24(d) of Income Tax, the deduction of interest payable on the home loan is up to a maximum of INR. 150,000 and under Section 80(c) of Income Tax, Principal amount for the repayment of loan, along with other savings and investments, is eligible for tax deduction of up to a maximum limit of INR. 100,000.

Therefore, you can avail of these benefits on both the Interest paid and the principal amount repaid adding value to your EMI flow and savings.

WHAT IS CARPET AREA?

As per the Real Estate (Regulation and Development) Act, 2016, “Carpet Area” means, the net usable floor area of an apartment excluding the area covered by the external walls, the area under service shafts, exclusive balcony or veranda areas and exclusive open terrace areas, but includes the area covered by the internal partition walls of the apartment.

WHY IS IT CONSIDERED NECESSARY TO REGISTER AGREEMENT FOR SALE? WHAT IS THE PURPOSE OF REGISTRATION?

The Registration Act, 1908, the Transfer of Property Act, 1882 and the Real Estate (Regulation and Development) Act, 2016 mandates the registration of an agreement for sale of an immovable property. By registering for the agreement for sale, it becomes a permanent public record. Further, a person is considered as the legal owner of an immovable property only after he gets the property registered in his/her name.

I HAVE A FLAT WHICH I WANT TO SELL AND BUY A NEW FLAT, BIGGER IN AREA. WHAT ARE MY TAX IMPLICATIONS WITH REGARD TO CAPITAL GAINS?

CAPITAL GAINS ARE EXEMPT IF A PERSON PURCHASES A NEW FLAT WITHIN TWO YEARS OF THE DATE OF SALE OF THE ORIGINAL FLAT AND INVESTS THE ENTIRE AMOUNT OF CAPITAL GAINED INTO THE NEW FLAT. HOWEVER, THE SAME IS SUBJECT TO THE PROVISIONS OF THE INCOME TAX ACT, 1961. CUSTOMERS ARE REQUESTED TO CONSULT HIS/HER CHARTERED ACCOUNTANT IN THIS REGARD.

Buying Tips

The first step towards buying a property starts from being able to identify the one that suits your needs and fits your budget. With best rates and best quality homes, Godrej Properties offers you a perfect home. However, it is important to select the property depending on the following criteria:

In case of a ready/resale property, you need to bear the following additional points in mind while selecting a property

DISCLAIMER

These Frequently Asked Questions (FAQs) have been published for general information purposes only. You are advised to take specific legal/financial/tax advise on the above mentioned matters. The terms and conditions for purchase of an apartment/unit/plot shall be as specified in the final agreement for sale executed between the buyer/consumer and the real estate developer. The FAQs discussed/provided herein are subjected to amendments by the appropriate Government from time to time and interpretation by the courts and concerned authorities. We, including our subsidiaries/affiliates/employees, do not claim any expertise in advise on the same and shall not be responsible for any reliance placed on the materials contained herein.

Prologue

The Real Estate (Regulation and Development) Act, 2016 paves way to empower all stakeholders engaged in the business and consumption of Real Estate, be it consumers, Real Estate Developers or Real Estate agents. All commercial and residential real estate including plots, apartments, shops, offices and other such properties are covered under this Act. While consumer interests seem to have been finally addressed by the adoption of this Act, it can’t be ignored that the Government has codified the best practices in this sector for the first time which could go a long way in defining growth from here on.

A few of the overarching themes in the Act are as follows –

1.Regulatory oversight on real estate developers and real estate agents
2.Purchaser’s rights and duties
3.Real estate developers’ function, duties and obligations
4.Real estate agent’s duties and functions
5.Dispute resolution
The Real Estate (Regulations and Development) Act, 2016 and the rules formulated by the State Governments have set up a much needed framework that will not only empower the consumer but also make the industry more competitive and organized.

Below is a list of FAQs pertaining to the Act.

Definitions often used terms in the following FAQs –

Consumer/Buyer: A person who has booked/agreed to purchase for a consideration plot(s), apartment(s), or building(s) from a Real Estate Developer.However, a consumer does not include a person who has bought goods or who has availed services for commercial purposes.

Real Estate Developer/Promoter: A person who develops and/or constructs building(s) or a township consisting of residential apartments and/or commercial complexes on an independently or a jointly-owned land, which are partially or completely sold to the consumers.

Project: A Real Estate project undertaken by a real estate developer comprising of apartment(s), unit(s), building(s), wing(s), plot(s) for residential or commercial purposes or both with certain amenities and facilities for the use of the purchaser as specified in their agreement for sale.

Real Estate Agent: A Real Estate agent commonly referred to as brokers or channel partners or property dealers, is a person who is registered with the RERA authorities and the real estate developer. Such Real Estate Agent facilitates the sale or purchase, or acts on behalf of any person to facilitate the sale or purchase of any plot, apartment, unit or building, as the case may be, in a registered real estate project and receives remuneration/fees/ any other charges as commission/brokerage from the real estate developer.

Unit: A single apartment, shop or an office which is a part of a building or township being developed.

Carpet Area: It means, the net usable floor area of an apartment excluding the area covered by the external walls, the area under service shafts, exclusive balcony or veranda areas and exclusive open terrace areas, but includes the area covered by the internal partition walls of the apartment.

FREQUENTLY ASKED QUESTIONS

A. Real Estate Regulation and Development Legislation

WHAT IS REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016?

The Real Estate (Regulation and Development) Act, 2016 (“the Act”) is an umbrella legislation designed to provide a framework for both Central and State Government. The Act is a Government of India initiative to bring about the much needed transparency and order in real estate related transactions by creating a systematic and a uniform regulatory environment, thereby protecting consumer interest and making real estate developers accountable for timely completion of projects. The Act paves the way for setting up of Real Estate Regulatory Authority (“Authority”) at every State for regulation and promotion of real estate sector while promoting transparency and equity in real estate transactions.

WHAT WAS THE NEED FOR SETTING UP AUTHORITY?

a.The real estate sector has grown in the recent years but has largely been unregulated from the perspective of consumer protection. Though, consumer protection laws are available, the recourse available therein is only curative, but not preventive. This has affected the overall potential growth of the sector due to the absence of professionalism and standardization.
b.The functions of the Authority includes promotion of real estate sector, advocacy by creating awareness, imparting training about laws relating to the real estate sector and policies, regulating and registering real estate developers and agents, maintaining website, ensuring compliance of obligations cast upon real estate developers and other such functions provided under the Act and State Rules.
c.The Act brings stakeholders like consumers, real estate developers and the real estate agents- under the purview of the Authority in order to ensure compliance of the Act by the stakeholders. The Act empowers the States to introduce its own rules to accommodate the need of its own unique geographies without diluting the provisions of the Act. The Act also provides for appropriate Government of two or more States or Union Territories (UTs) to establish single Authority.

IS THE ACT APPLICABLE TO BOTH RESIDENTIAL AND COMMERCIAL REAL ESTATE?

The Act is applicable to both residential and commercial real estate.

IS THE ACT COVERING ONGOING / INCOMPLETE REAL ESTATE PROJECTS AS WELL?

There is no distinction between an ongoing/incomplete project and both types of projects are covered under the ambit of the Act. Further, any new projects to be launched by the real estate developers are also covered under the ambit of the Act.

WHICH PROJECTS ARE EXEMPTED FROM THE AMBIT OF THE ACT?

As per the relevant provisions of the Act, the following projects do not require registration under the Act:
a.Where area of the land proposed to be developed does not exceed five hundred square meters, or the number of apartments proposed to be developed does not exceed eight inclusive of all phases:
Provided that, the appropriate Government considers it necessary, it may, reduce the threshold below five hundred square meters or eight apartments, as the case may be, inclusive of all phases, for exemption from registration under the Act.
b.Where the real estate developer has received completion certificate for a real estate project prior to commencement of the Act.
c.For the purpose of renovation or repair or re-development which does not involve marketing, advertising selling or new allotment of any apartment, plot or building, as the case may be, under the real estate project.

WHAT ARE THE ACTIONS TO BE TAKEN BY THE AUTHORITY AFTER AN APPLICATION HAS BEEN SUBMITTED FOR PROJECT REGISTRATION?

The Authority set up by every State, is required to either grant registration or reject the application within 30 days of its submission. If the application is not in conformation with the guidelines and Authority finds it worth rejecting, it is mandatory that the applicant/real estate developer be heard in the matter before rejection

WHAT IS THE VALIDITY PERIOD FOR A PARTICULAR PROJECT REGISTRATION?

The registration will be valid for a period specified by the real estate developer in the application form submitted to the Authority. Hence, the real estate developer is accountable to adhere to the timelines. Otherwise, he/she risks suffering losses/ penalties.

IS THERE A COMMON PLATFORM TO ACCESS THE DETAILS OF THE REGISTERED REAL ESTATE DEVELOPERS AND THEIR PROJECTS?

Each State has its own platform which provides access to the details of registered real estate projects, the real estate developers and the real estate agents. For example, a consumer can view the projects registered in Maharashtra on www.maharera.mahaonline.gov.in.

WHAT IS THE ‘AGREEMENT FOR SALE’ AND IS IT BINDING ON THE ‘REAL ESTATE DEVELOPER’ AND THE ‘BUYER/CONSUMER’?

The agreement entered between the developer and the consumer/buyer for the sale of an apartment/flat/unit in the developer’s project is called the Agreement for Sale. Some of the States have specified through its rules for the ‘Agreement for Sale’ to be entered between the real estate developer and the buyer/consumer. The Agreement for Sale is binding on the parties, however, internal flexibility may be provided in the Agreement for Sale for determination/insertion of other provisions as may be required.

WHEN IS THE AGREEMENT FOR SALE REQUIRED TO BE REGISTERED UNDER THE ACT?

Agreement for Sale between the real estate developer and the buyer/consumer is to be registered under the Act before the buyer/consumer makes payment of a sum more than 10% of the consideration.

ARE THERE NORMS ON ADVERTISEMENTS OR PROMOTIONS?

YES, THERE ARE NORMS PROVIDED UNDER THE ACT. EVERY REAL ESTATE DEVELOPER IS RESPONSIBLE FOR THE VERACITY OF ALL INFORMATION CONTAINED IN THE ADVERTISEMENT AND THE PROSPECTUS. IN CASE ANY LOSS IS SUSTAINED BY THE BUYER/CONSUMER DUE TO FALSE INFORMATION CONTAINED THEREIN, THE PROMOTER IS LIABLE TO MAKE GOOD THE LOSS SUSTAINED DUE TO THE SAME. FURTHER, ALL ADVERTISEMENTS / PROSPECTUS ISSUED OR PUBLISHED BY THE REAL ESTATE DEVELOPER SHALL PROMINENTLY MENTION THE WEBSITE ADDRESS OF THE AUTHORITY, WHEREIN ALL THE DETAILS OF THE REGISTERED PROJECT HAVE BEEN ENTERED AND INCLUDE THE REGISTRATION NUMBER OBTAINED FROM THE AUTHORITY AND SUCH OTHER MATTERS INCIDENTAL THERETO.

B. Real Estate Developer

What are the obligations, functions and responsibilities of a real estate developer as stated in the Act?

The following are few of the obligations, functions and responsibilities of a real estate developer:

a.Register its project with the concerned Authority and obtain a valid registration number for each of its projects.
b.Real estate developers are not permitted to market, advertise, offer, invite, book or sell any plot, apartment or building in any real estate project in any planning area without registering the real estate project with the concerned Authority.
c.The real estate developer is required to submit all documents related to the project, which is considered necessary by the Authority.
d.Agreement between the developer and the buyer/consumer to be registered under the Registration Act, 1908 before exceeding 10% of the sale consideration.
e.The real estate developer must deposit 70% of the amount or such other percent as provided under the Act or the rules, received from the consumers in a separate account from time to time and the real estate developer will be able to withdraw the amounts in accordance to the procedure provided under the Act.
f.Adhere to the project plan at all times.
g.To repair structural defects if any, as defined and provided under the Act.
h.Enable the formation of an association or society or co-operative society, as the case may be, of the buyers/consumers or a federation of the same under the applicable laws.

The Act has mandated real estate developers to specify ‘carpet area’ rather than ‘super built-up area’. How will that help?

To ensure that the consumer knows what he is paying for, it has been made mandatory for the real estate developer to specify the carpet area. Carpet area refers to the net usable floor area of an apartment, excluding the area covered by the external walls, areas under service shafts, exclusive balcony or veranda area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment. The Act thereby enacts a straightforward definition to be adopted across the country.

Can a real estate developer modify/amend plans after the same are approved by the competent authority?

The Act provides that modifications/amendments in the plans or specifications can be made in case of minor additions or alterations–
However, in case of major modifications / alterations, the real estate developer can modify the sanctioned plans or project specifications only in terms of the provisions of the Act. Also, irrespective of the number of apartments held by a buyer/consumer, he/she shall only be entitled to one vote.

Does a real estate developer need to register the complete project even if he is launching a part of the project on a part of the entire land?

The real estate developer is free to decide the manner in which he/she wishes to develop the project on his/her land and the same could be done in various phases. The developer is, however, required to provide/submit all the requisite details of the phase it proposes to register with the Authority post which, the real estate developer could either be granted registration or the application could be rejected.

What are the penalties that a real estate developer would face if he fails to adhere to the registration?

If the real estate developer violates the registration procedures prescribed by the Act, the real estate developer will be liable to pay a penalty as prescribed under the Act. However, in case the real estate developer consistently defaults or does not comply with the directions / orders of the Authority with regards to registration of the project with the Authority, the real estate developer shall be liable to additional fine or imprisonment or both, as may be prescribed under the Act.

Can a real estate developer exit the project midway by transferring to a third party?

The real estate developer is allowed to transfer the project to a third party provided that the real estate developer has obtained the consent of the buyers/consumers as well as the Authority in accordance to the provisions as prescribed in the Act.

C. Real Estate Agents

On what grounds can the registration of real estate agent be revoked by the Authority?

The Authority may revoke the registration of the real estate agent in case of breach of any of the conditions laid down by the Act is committed by a real estate agent or the Authority is satisfied that the registration has been secured by the real estate agent through misrepresentation or fraud, breach of any terms and conditions of the Act, and any sort of unfair practice can cause the registration of the real estate agent to be revoked; but not before the real estate agent is given a chance to be heard. The Act makes it tougher for the real estate agents to conduct business in an unprofessional manner and in a way prompts them to adopt ethical means of dealing with consumers.

D. Consumers

What are the novel measures taken to secure consumer interest and empower him?

a.The consumer is entitled to receive information about the sanctioned plan, layout plan as approved by the competent authority, stage-wise time schedule of the project completion and the services promised by the real estate developer. After receiving the physical possession of the unit, the consumer has the right to obtain the necessary documents.
b.The consumers can claim possession of the unit and the association of consumers can collectively claim possession of the common areas as declared by the real estate developer as per the provisions prescribed under the Act.
c.If the real estate developer fails to meet the timeline or does not deliver what was promised, the consumer has the right to claim refund of amount paid along with prescribed interest for the same. Also, consumers/buyers will have to be updated about project progress, sales and construction status by the real estate developer.

What are the responsibilities of a consumer?

a.It is mandatory for a consumer to make timely payments to the real estate developer as per the registered agreement for sale. He will also have to pay stamp duty and registration charges along with his share of taxes including but not limited to goods and services tax, maintenance charges, electricity charges, water supply charges, and any other applicable charges, taxes, duties, levies, etc. from time to time.
b.Once the occupancy certificate is issued to the real estate developer by the statutory authority, the consumer is required to take possession within the timelines prescribed under the Act.
c.If the consumer is not able to make timely payments for his purchase, he/she is required to pay interest at the rate prescribed by the competent authority/Government from time to time.
d.It is compulsory for a consumer to exhibit active participation in the formation of an association, a co-operative society, or any federation of consumers.
e.A consumer shall participate towards the registration of the conveyance deed of the unit.

What actions are taken by the Authority after the registration of any real estate developer is revoked? How will the project be completed then?

The Authority may instead of revoking the registration, permit it to remain in force subject to such further terms and conditions as it thinks fit to impose in the interest of the buyers/consumers and any such terms and conditions so imposed shall be binding upon the real estate developer.
Further, in case of revocation of registration, the Authority,

a.Shall debar the real estate developer from accessing the website for the project in which he has defaulted and list him under the defaulters list and also inform Authority in other States and UTs.
b.Shall facilitate the remaining development works to be carried out in accordance with the provisions of the Act.
c.Shall direct the bank to freeze the bank account for the particular project and consequently de-freeze it to facilitate further development of project in terms of the Act.
d.May, to protect the interest of buyers/consumers or in the public interest, issue such directions as it may deem necessary.

DISCLAIMER:

This Frequently Asked Questions (FAQs) / material has been published for general information purpose only. You are advised to take specific legal advice on the matter in which the Central Act and State Rules apply to you. The terms and conditions for the purchase of the apartment/unit/plot shall be as specified in the final agreement for sale executed between the buyer/consumer and the real estate developer. The FAQs pertaining to the Central Act and the rules, if any, discussed/provided herein are subject to amendments by the appropriate Government from time to time and interpretation by Courts and concerned authorities. We including our subsidiaries/affiliates/employees do not claim any expertise in advice on the same. We including our subsidiaries/affiliates/employees shall not be responsible for any reliance placed on the materials contained herein.