Here’s what you need to know before you buy your first property

Are you purchasing a new property? Here's a list of documents you need to keep handy

Here’s what you need to know before you buy your first property

Buying property is a major decision, so it is necessary to give it a good deal of thought. Unlike the acquisition of movable assets, purchasing immovable property involves more research, adherence to legal formalities, and documentation that demands detailed scrutiny. 

If you are purchasing property for the first time, the experience can be unsettling. There are plenty of instances where buyers had to pay a heavy price for not checking the paperwork properly. Depending on the type of property, here’s a list of documents you must check closely. 

Here’s what you need to know before you buy your first property

Documents relating to property ownership 

These documents serve as proof of ownership of the property of the entity from whom you plan to buy. It is important to verify this, so you are assured you are dealing with the legitimate owner of the property. Additionally, the papers are proof that the property you intend to purchase is free from litigation or other legal complications. 

1. Extract: This is typically called the ‘Khata’, but is known by different names in various states. In layman terms, it is a document that proves the existence of the property in the local land records. This important document is an identifier of the property and lists details such as:

  • Size of property
  • Location of property
  • Built-up area
  • Record of taxes paid

2. Mutation extract: This recorded by the civic authority concerned and refers to the change of title ownership of property. When a property is sold or transferred to a buyer, the buyer receives the title of ownership recorded in the land revenue department. On the basis of this title, the owner is taxed for the property. Mutation extract is therefore an updated record of ownership.

3. GPA (General Power of Attorney): If you are dealing with the owner, you will not come across this document. However, if the owner has conferred the rights/authority to another individual to act on their behalf, you must check the validity of the document. A GPA gives the holder sweeping powers to act on behalf of the seller. However, as per latest ruling of the Supreme Court of India, sale through GPA is illegal as it circumvents taxation laws. Therefore, a sale deed with the seller is necessary when you actually but the property.

4. Property tax receipts: Ensure that the owner of the property has paid all taxes to date. Check that there are no dues or penalties applicable for late or non-payment of taxes. This document also serves as an important document to establish the legal status of the property and the ownership. 

5. Encumbrance certificate: The EC lists liabilities, if any, on the property. It documents details of legal liabilities and all financial transactions on the property – such as a pending loan or mortgage. Without this certificate, you will not be able to avail of a bank loan. Form 15 indicates that there are encumbrances registered against the property, while Form 16 indicates there are none. 

Related: Buying a home in your hometown or in a big city: What makes financial sense? [Premium]

Sale-related documents

1. Sale deed: This is a document that proves ownership of the property. It is registered in the jurisdictional sub-registrar’s office and is effectively one of the most important documents pertaining to the sale. It records the details of the amount paid, the date of transfer of the property, addresses of the buyer and the seller, and details of the property that is being sold. The seller should also furnish a statement that the property is free from encumbrances.

2. Sale agreement: This document identifies both the parties (the seller and the buyer), the details of the property, the mode of payment, various terms and conditions mutually agreed by the parties, details about the agreed possession of the property by the buyer, various penalty clauses, and registration of the sale deed. This document should be attested by at least two witnesses and requires to be produced in original while availing of a home loan or for purchasing the property. 

3. Payment receipts: You should maintain a record of payments made to the developer and collect original receipts for the same. These receipts will form part of the attachments that you submit to the bank while applying for a loan. In the event that you are buying a property from the first owner, collect copies of all the payment receipts.

Possession-related documents

1. Building plan: This refers to the architectural/engineering drawings pertaining to the proposed/ completed building. As a buyer, you need to make sure that the building plan, drawn by an architect, is approved by the statutory body. This is a confirmation that the building complies with the rules/ regulations in force.

2. No objection certificates: A seller/builder typically requires NOCs prior to and during the construction. As a buyer, ensure that the builder shares a copy of the NOCs, which will let you enjoy possession of the property without legal hassles. Some of the NOCs relate to fire, aviation, garden, heritage, road, PWD, forest, development agreement, and irrigation. Depending on the location and the state, a developer may require around 19 NOCs – though some locations and states require fewer. The copies of the NOCs should be in your possession. 

3. Letter of allotment: Another important document, this is issued by the developer and contains details of the property. It is typically issued in favour of the first buyer, and subsequent buyers of the same property generally seek a copy of the original letter of allotment for record purposes/ verification. As the allotment letter contains details of the costs of the project and the construction schedule, it is important when availing of a bank loan for properties under construction.

4. Possession letter: This is executed by the builder in favour of the buyer and is a record of the date of possession of the property. The possession letter is a supporting document; by itself, it does not indicate that the holder of the letter is the owner of the property. 

5. Completion certificate: This is issued by the local development authority or municipal body stating that the building has been completed as per the approved building plans and that it meets the necessary standards of the authority. It indicates that the building is fit for possession. 

6. Occupancy certificate: This is issued by the local development authority or municipal body. It certifies that the building has been constructed as per various rules governing electricity, sanitation, bylaws, and civic amenities. While it may appear that occupancy certificate and completion certificate are the same, they are not. A completion certificate indicates that the property is fit for possession, while the occupancy certificate states that it adheres to governing laws. Income Tax dept. to question cash transactions in real estate deals

 




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