Buying a House – Tips and Paperwork

Rishab asked a few questions a couple of weeks ago regarding buying property and I will try my best to answer these as well as I can. I guess what I can safely say is to take as much advise as possible from friends, family, bankers, financial planners (if you have access to them) and of course, the internet. It is a great proud feeling to buy your pad (if buying for the first time) and it also involves us emotionally. Like hunting for jobs, this experience should be enjoyed and not feared or seen as a chore. We don’t hunt for jobs or houses every day, do we? Here are a few words of advise that I can suggest from my limited set of experiences so far. Caveat emptor.

1. Pre-Owned or Ready only – I would recommend that you purchase a house that is near complete or second hand only. There is too much economic uncertainty and too much of leverage on the books of real estate companies in India to share project risk with the developers. We have one life and most of us get one chance to pick up a house – we should be as risk averse as possible. With land prices in urban India being bid up higher and higher, property developers have to borrow to buy. If the interest rates rise in the future it will make the going quite though for the real estate companies. That is the reason why the business model of Godrej Properties (GPL) is so cool – they mostly lease property from owners, develop it and share the profits. And that’s one of the reasons why I consider my investment in Godrej Industries Ltd (part owner of GPL) to be a part of my core holdings. Inner core.

2. Documents to look for -

The following documents are usually sought for when buying a second hand property:

- Agreement of sale between the builder and the first owners and all the subsequent agreements of sale thereupon.

- Papers that uniquely qualify a clear title to the land. Also known as the Conveyance Deed.

- Registration certificate of the housing society. It usually takes 1 – 2 years after posession is granted by the builder for society formation.

- No objection certificate from the society to transfer the flat in the prospective buyers’ name.

- Copy of share certificate of the society. Once the society formation is complete, it issues share certificates to its members. You should take a look at this.

- A draft agreement of purchase (between you and the seller)

- Copies of municipal tax paid by the society. This may be tough to get but you should try.

- Occupation certificate granted by the municipal corporation to the builder.

- No objection certificate from the society to mortgage the flat in the favour of the bank, along with a letter stating the lien (this is in case you want to avail a housing loan)

- Income tax clearance of the seller (for registration purposes only). Check that.

There are other sets of documents that would be required if A) buying a resale flat if the society is not formed or B) if you are buying a new flat from a builder. Let me know and I shall email these to you. It is prudent to ask for/be aware of these documents. Indeed some housing finance institutions may not ask for all of these (more on that later) and the builder/society might spin tales as to why some of these documents are really not required – if that happens just walk out of that meeting. When I was looking around for my first house, a particular builder just did not want to part with the architectural plans and other documents of a second hand, unlived flat that I had liked. Luckily for me, I did not have a penny on me (only a promise of future income) and therefore I did not have any option but to look to a bank for finance. Since the bank would not advance the loan if the architectural drawings were not made available I had called it quits.

3. Finance – I am really in no position to opine on which housing finance company you should take your loan from. This decision is not as straight forward as taking out term insurance – in that case you should simply head to the insurer that offers you the lowest premium. Most properties are on the ‘pre-approved’ list of many financers – which means that they have already completed most of the paperwork required. Buying property in such buildings from these banks reduces the risk of landing up with an unclear title as well as easing up the paper work. Public sector banks in India generally offer the most competitive rates but dealing with them may not be a smooth affair. They don’t give a rats ass whether you give them your business or not. On the other hand, private sector banks put stiff sales targets on their sales people and you really do not want an over zealous sales turk to finance what turns out to be a sand castle to you! Finally, interest rates may very well rise in the near future. Inflation is too big a monster for the Reserve Bank of India (RBI) not to do anything to the current rates. However, most banks offer only a 3 year fixed when they refer to fixed rates. I daresay that if someone is to buy a house next year, he/she should pick a floating rate – but it really depends on your view of the interest rates. 

4. CIBIL Credit Report – You should apply and procure your credit report from Credit Information Bureau India Limited (CIBIL). This is available for a nominal processing charge and is one of the things that banks look for when deciding on the grant of the loan. There are known instances where people have found errors in their CIBIL credit reports and while the RBI prescribes a time limit of 45 days for compliants to get resolved, you do not want to be running around clearing the errors in your credit report. Purchase opportunities do not last forever. In fact you should procure and check your credit report regardless of whether you intend to take a loan or not. Beware, if you are blacklisted or your credit score is very low, the chances are extremely high that your loan application will get bluntly rejected without a proper explanation. The onus will be on you to investigate and clear your name. Even if this is your first mortgage application, the fact that you might have had credit cards to your name – some of them you don’t even know if you own – will reflect in this report. Just get that report – home loan or not. My gut is that the public sector banks will be quite partisan to the credit report. At least the private banks might be inclined to help you work your way towards clearing your record (if tainted) since there are sales targets to meet.

4. Other considerations – Some other points that you might want to keep in mind (readers, please add on to this list if you can. I will keep adding as and when I get new insights):

- While the useful life of buildings is usually considered to be 70 – 80 years, do not buy a property that has had more than 2 past owners or is more than 15 years old. Maintenance expenses spike up around this point in the life of a building.

- Do not pay more than 1% as processing fees.

- Best to get a term insurance cover from the same institution to cover the quantum and tenure of the loan. Use this option to squeeze a better rate from the bank. Reveal this card only during the latter stage of rate negotiation.

- One trick that many want to play is to play one bank against another when trying to drive a bargain for the best rate. I don’t feel it’s worth it – India is a growing economy. The mortgage to GDP ratio for rapidly urbanising India is a paltry 7% which is way, way behind the developed economies (60% – 70%). So, banks are not under too much pressure to run after you.

- If the seller of the house also has a mortgage, it’s advisable for you to take your loan from the same institution.  The process gets simplified. Unless of course some other instituion is offering you a much lower rate.

- Bargain with the seller like your life depended on it. In some ways, it does. At least your financial life does. Rehearse your speech and plan your tactics, even if it means you appear like a penny pinching moron.

- If you are married, buy property in joint name. Makes things easy later on.

- Try to see the locality during the peak of the monsoon season. You’ll get an idea of water logging, seepage etc.

- refer to my other post on Buying Property for some more ideas.

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10 Responses to Buying a House – Tips and Paperwork

  1. one must always check and read the terms and conditions mentioned in the agreement. so that tomorrow builder or seller must no have chance to cheat. anyways thanks for sharing such a great article.

  2. Mehul Dave says:

    My application was rejected. Credit Sudhaar was my choice. Initially they were slow. But their counsellors were able to handle all my queries. I will give Credit Sudhaar a positive review.

  3. Baalachandran Narayan says:

    My application was rejected. Credit Sudhaar was my choice. Initially they were slow. But their counsellors were able to handle all my queries. I will give Credit Sudhaar a positive review.

  4. smallivy says:

    I think the truly amazing thing about Facebook is that people have no problem putting all kinds of personal information out there for people to see. I think some are now regretting being so open as potential bosses review their facebook account before making hiring decisions.

    I personally hate to give my phone number out. A brief perusal through a Facebook wall and one can find out all kinds of information on your friends, hobbies, love interests, and a lot of other information. This would be great for someone looking to use social engineering for a scam.

    George Orwell would be shaking his head.

    • Kaushal says:

      Absolutely. You ‘mirror’ my thoughts. Even before starting this website I was thinking – would I be comfortable 10 years hence that people associate what I am wrtiting here with the person I want to be 10 years later, etc.

      Finnally, I took the plunge some months back but yes, people are leaving behind digital trails which can come back to haunt them later. In fact, in my recent post I talked about the credit report issued by a local Indian organisation. For a second I was wondering as to what will happen if potential recruiters start asking for a person’s credit report to be attached along with his/her resume. Companies might like to know if the lack of discipline (if any) behind a low credit score might rear its head in work assignments as well.

      The problem with the internet and the social mish-mash that it has spawned is that we think we live in a hall of mirrors (and see ourselves participating in various activities) and a binoculars (with which to see/spy on our friends/people) but the reality is that some mirrors are two-way (others can watch you too) and some binoculars are magnifying glasses (others can analyse you as well)

      • smallivy says:

        Actually, in the US some employers are looking at credit reports for job seekers. There probably is a correlation between people who are prganized and responsible with money and their performance on the job, getting assignments completed and acting ethically and all.

        The one I disagree with is that insurance companies use crdeit reports for insurance rates. I don’t mind having people with bad scores getting higher rates. I don’t like that people who buy things with cash and therefore don’t have a FICO score are also charged higher rates. I’ll bet that people who have the discipline to live within their means are also good drivers.

      • Kaushal says:

        There you are! My thoughts seem quite prescient in this. There’ll be mutiny in India if cash is removed from its kingly pedestal.
        Actually, transacting via cheques or credit cards leaves an audit trail regarding the source of money and financial institutions would be happy and secure to know that. In India, there is so much black money around that is not funny. In malls and supermarkets when you see a portly gentleman or his rotund wife pay off their bills with a wad of cash, some of us know whats happening there. Wise wits have not called India a kleptocracy for nothing.
        So, if these good men and women are so disciplined to live within their means (which i gather was a great thing to do in the US till just a few years back) then I am sure they will have the fortitude to use plastic and pay off the dues before the payment date. Or better still, instruct their banks to do an auto-sweep.
        But the problem is that tax compliance in the US should logically be far higher than what it is in India – so your point still holds

  5. Sushanta says:

    “One of the best blogs on real estate that I have ever read till date” – First time home seekers should value the entire gamut that the blog has enveloped
    You have addressed a common man’s apprehensions like a pro

    • Kaushal says:

      Well, I have personally gone through most of these things myself and stumbled a couple of times :)

      Its only for the Commoners to do uncommon things.

  6. Rishab says:

    Thnx !
    Really got some good insight like CIBIL report etc…
    Have a safe trip to NYC.

    Regards,
    Rishab Shah

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