The acquisition of property always follows a great deal of deliberation. It helps to
know that you have covered all bases, and there will be no surprises later.
First, check the credentials of the builder. An established company with a history
of sound construction and above-board policies would be the right place to start.
The next step is to ascertain the delivery record of the company. Consider the
time taken for completion of the company’s projects. If there are delays, look for
a pattern to these delays.
Finally, ascertain whether there are litigations in any court in India against the
builder and if there are any criminal cases against any of the directors of the
Once you are assured of the reputation of the company, it is time to look through
the specifics of the project of your choice.
List out the amenities that you require in an apartment. Match these to the
specifications of the project at hand. There is a lot more to consider besides the
specifications of the apartment itself.
Most quality projects come with a built-in set of amenities like swimming pool,
gym and common recreation areas. There may be other amenities that can be
added at a cost. Look for features that are taken for granted, like pre-connected
telephone, TV and Internet cables, security systems, interior design etc.
Besides the amenities, familiarize yourself with the actual measurements of the
project. Understand the ratio between carpet and the built-up area.
Balconies are usually included as part of the carpet area. Analyze the plans to
understand how much of the carpet area is being taken up by spaces that are
unroofed. Also, understand the common areas that are shared between apartments
and regulations regarding their use.
Title the Property
Obtain a title report by the solicitor of the property and put it through a close
inspection. Make sure that there are no encroachments of any kind, or specific
reservations by the MCGM (in Mumbai) or the state government.
If the construction is near a seafront, you may need to check for a Coastal
Regulation Zone (CRZ) clearance. This is an environmental regulation body.
If the construction is being constructed over or in the vicinity of a heritage
building, there may be issues with the Heritage Department. Check for any
heritage reservations for the premises.
Inspection of plans and permissions
Several legal requirements must be met before a construction can get underway.
Without the clearances, the construction may come under litigation. Here is a
checklist of documents and approvals that are necessary for all building work in
IOD and CC of the project
MCGM Approved plans
Municipal tax dues
A condominium must be formed as per the provisions of the Maharashtra
Apartment Ownership Act, 1970. A Deed of Apartment would be executed in
respect of each flat in favour of its purchaser.
The bye-laws of the condominium are created for the protection of rights of flat
owners. Every flat-owner should abide by them.
Some projects may be reserved for a specific community. Also, certain areas have
specific commercial or residential reservations. Make sure you have all the details
before you commit to a purchase.
When making the decision of buying your dream house, the one aspect that plays
the most dominating role is finance. The important issues that are to be considered
include modes of arranging finance and its implication on taxation.
Using your own Funds
If the house is being acquired out of the sales proceeds of an earlier house, the
exemption from the long-term capital gain tax on the sale of the earlier house can
be claimed under u/s. 54. To claim this benefit, the new property should be
acquired one year prior to selling or two years after the date on which the transfer
of the earlier house takes place.
If the new house could not be acquired within a period of one year from the sale
of the earlier house, the sales proceeds should be deposited in a bank or
institution, which runs Capital Gain Accounts Scheme approved for this purpose.
Other issues also need to be considered like if the person acquiring a house
already holds another house, then every year, one of the two house property
would be deemed to be let out (u/s. 24) of income tax act and the let-out value
shall be treated as income. Hence, appropriate tax planning should be considered.
Further, in the case of individual or HUF (Hindu Undivided Family), exemption is
provided from long term capital gain tax u/s. 54F on sale of any long term capital
asset, if sale proceeds are invested in acquiring a house within prescribed period.
So, a house can be acquired to save on long term capital gain on sale of long term
Taking a bank loan
Interest paid on housing loan can be claimed as deduction under u/s. 24(b) to the
maximum extent of Rs. 1,50,000 per year. Such limit is per person and not for one
property. Hence, a loan can be taken in two joint names for one house to claim
deduction of Rs. 1.5 lakhs each for both the persons repaying the loan.
Repayment of the principal amount of housing loan is also eligible for the rebate
u/s. 88 subject to a maximum sum of Rs. 20,000/- per year.
In taking a housing loan, the following issues need to be considered:
1) Bank or financial institution offering loan: It is generally safe to take a loan
from one of the leading financial institutions.
2) Rate of Interest: The rate of interest on housing loans is currently (2004-2005)
between 7.25% to 8.25% depending on the tenure of the loan, fixed/floating rate,
credit profile of the borrower etc.
3) Fixed/floating: You can either opt for a fixed or floating rate of interest. The
fixed rate is generally 50-75 basis points higher than the floating rate. The floating
rate is linked to the PLR of the lending institution.
4) Processing fees: A processing fee is charged by financial institutions for
verifying the title report, financial performance, valuation of flat and so on. This
fee can be up to 1% of the loan amount. During special periods like prperty
exhibitions, banks and financial institutions offer special interest rates and
waivers/concessions in processing fees, so buyers can benefit from such offers.
5) Tenure of the loan: The tenure of the loan should be decided by the buyer after
taking into consideration various things like repayment capacity per month,
earning potential over the next few years, other financial commitments like
weddings, children’s education etc. The expected outflow on property
maintenance should also be considered.
Generally, housing loans are available ranging from 5 years to 25 years. Some
banks also offer step-up housing loans which charge a lower EMI for the initial
years which gets increased for the later period. Such loans are generally
considered favorably by those house buyers who are in the early stage of their
careers and who expect earnings to improve significantly over a period of time.
6) Other aspects: Consider the percentage of the cost of house that is available as
loan etc. Some banks offer up to 95% cost of the house by way of loan. Another
important factor is financing for the interior work, furniture etc. Some institutions
have started providing a composite loan that extends over the cost of interiors and
Different banks require different sets of documents for processing a housing loan.
Broadly, following documents are required by the banks:
1) Proof of Income
a. Copies of balance sheet, profit and loss accounts, computation of
income and income tax returns for last 3 years
b. Salary certificates and form No. 16 for last three years
c. TDS certificate for last 3 years
d. Bank statements showing credit entries for salary/ professional fees
received for past 12 months
e. Professional qualification certificates etc.
2) Title of the flat
a. Copy of the flat sale deed
b. Title report by a solicitor
c. Valuation report
d. NOC from the builder/condominium/society
e. Amenities agreement, if any
3) Other Documents
a. Proof of age – copy of passport, driving license etc.
b. Proof of residence – Copy of ration card, passport, society letter etc.
c. Photographs with signature.
d. Documentation required for guarantor, if any.
Foreigners and NRIs
As an NRI, you need no permissions to buy property in India. You can also rent
out the property and repatriate your rental proceeds, subject to payment of taxes.
Please remember that an NRI who is an Indian Citizen can sell his Immovable
Property (other than agricultural or plantation property or farmhouse) to another
NRI. However, the transaction has to be routed through India only. In other
words, the buyer has to invest in India by way of remittance from abroad through
normal banking channels or by debit to his account maintained with an authorized
The Sale proceeds of the property must be credited to your bank accounts
maintained with an authorized dealer in India.
NRI investment in Real Estate regulated by FEMA
All NRI investments in real estate or immovable properties are considered as
transactions that gets regulated under the FEMA. This is essentially because an
NRI would be dealing with foreign exchange. It is considered to be a type of
transaction which is bound to have some international financial implication. The
current account transactions or capital account transactions of the NRI which are
used to make investments in real estate thus gets automatically regulated under
FEMA. Current Account Transaction consists of payments due as interest on
loans and net income from investments.
Capital Account Transactions:
Capital Account Transactions means transactions which alters the assets or
liabilities, including contingent liabilities outside India of an NRI. It includes
transactions involving acquisitions or transfers of immovable property outside
India, other than a lease not exceeding five years by an NRI or a resident,
remittances outside India of capital assets of an NRI and foreign currency
accounts in India of a person resident outside India. Even deposits between a
person resident in India and a person resident outside India are considered as
capital account transactions.
NRI regulations for purchase of property:
The Reserve Bank has granted a blanket permission to NRIs to purchase property
in India for their residential and commercial purposes. There is also no limit on
the number of investments or the quantity of investments that can be made in real
estate. The immovable property can be purchased by inward remittances from any
place outside India or through funds maintained in NRI accounts in the banks
within the country.
FEMA stipulates that before making a purchase a specified form called the IPI 7
needs to be filed with the central office of the RBI along with the title deed or any
other certified copy of the document proving that the NRI has executed an
agreement to purchase property within the country. The form has to he filed
within 90 days of the purchase of property and has to be accompanied with a bank
certificate stating the consideration paid for the purchase. Permissions are
generally granted without undue delays if all the relevant papers are submitted.
NRI regulation for sale of property:
NRI desiring to sell property within India has a lock in period of three years. That
is, NRI under the FEMA regulations is allowed to sell property only after three
years from the date of acquisition for the property or from the date of payment of
the final installment of the consideration for its acquisition, whichever is later.
Repatriation or realty returns or sale proceeds:
It is easier to bring money into the country. Getting out has a number of
bottlenecks, which is a constant disappointment for the NRI community. FEMA
says no matter what the proceeds of the sale may be, the amount for repatriation
should not exceed the amount paid for acquisition of the immovable property in
foreign exchange received through the normal banking channels or out of funds
held in foreign currency Non-Resident Accounts. The repatriation of sale
proceeds is restricted to only two properties. NRIs are also restricted from
repatriating returns form real estate investments in the form of dividends.
Purchase etc, of Immovable Property in India:
The Foreign Exchange Management Act, 1999 (FEMA), came in force with effect
from June 1, 2000. Section 6(3)(i) of the Act empowers the Reserve Bank to
frame regulations to prohibit, restrict or regulate the acquisition or transfer of
immovable property in India by certain persons mainly residents outside India.
The restrictions under this clause are not applicable to a lease of immovable
property for a period not exceeding five years. The regulations made by the
Reserve Bank are called Foreign Exchange Management (Acquisition and
Transfer of Immovable property in India) Regulations, 2000, and have been
notified vide Notification FEMA No.21/2000-RB of May 3,2000. Full text of the
Notification is available on the Bank's website.
Foreign Nationals and Companies
Foreigners buying property:
Persons who are not citizens of India, and companies (other than banking
companies), which are not incorporated in India, are required to obtain prior
permission of The Reserve Bank to acquire, hold, transfer or dispose of property.
(Refer Section 31 (1) of FERA (Foreign Exchange Regulations Act, 1973).
This also applies to partnership firms where one of the partners is a foreign
Foreign nationals who wish to buy property in Mumbai must contact the
following office for the necessary permissions.
The Chief General Manager
Exchange Control Department
Foreign Investment Division (III)
11th floor, Central Office Building
Reserve Bank of India, Central Office
Shahid Bhagatsingh Marg
Mumbai - 400 001.
• Stamp Duty
A 5% Stamp Duty must be paid as per the Bombay Stamp Act, 1958. The
purchaser of the flat must pay this duty.
The stamp duty paid document has to be registered under the Indian Registration
Act with the sub-registar of Assurances, of that particular area where the property
Stamp Duty Offices
The Superintendent of Stamps
General Stamp Office,
Ground Floor,Town Hall Building,
Shahid Bhagatsingh Road,Fort,
Mumbai 400 023.
Ph: 266 4589, 266 4585.
Office of the Superintendent of Stamps
First Floor, B.M.R.D.A. Building,
Mumbai 400 051.
Ph: 645 1894.
Collector's Office Compound,
Thane (West) 400 601.
(The Thane stamp office is open on Tuesdays and Fridays only and is closed on
the 18th of each month for accounts purposes. If the 18th happens to be Tuesday
or Friday, the office will be open on the next working day)
• Post Ownership Payments
Once you move into the apartment, there would be one time payments towards
deposits. Please make sure what these deposits entail.
Besides these, there would be monthly payments towards maintenance and