Buying resale property? Follow the checklist

Fears of projects getting delayed or stuck due to developers being cash-strapped or regulatory issues make property buyers jittery.

Many may, therefore, prefer the safety of ready properties to the uncertainty invariably associated with under-construction ones. However, there could be several issues with buying ready properties, too.

Starting with price. Despite their age, ready property prices are rarely discounted. "Due to the prevalent high real estate prices, generally, the cost of a ready property and an under-construction one are almost par," says Amit Shah, vice-president, indiaproperties.com, a Pune-based property portal. In fact, sometimes, ready properties may even be available at a premium.

Verification of title

In case of under-construction properties, buyers are advised to check whether the developer has a clear land title. In case of re-sale properties, though, the property ownership title must be checked carefully to ensure there are no other claimants to the property.

For instance, check if the property is jointly held and if so, all the co-owners have authorised the sale. Similarly, if the property was inherited by the seller, check if there are any other legal heirs involved and whether they authorise the sale.

"(In such cases) if the sale has been carried out without the consent of all owners, it is an invalid transaction. There can be legal disputes in future," says Dhiraj Jain of law firm, SNG & Partners. The buyer can lose his claim over the property entirely despite paying the entire price.

...

Finance: The entire amount must be paid at one go for ready properties. Unlike, under construction ones, where the payments are typically linked with the construction stage and can be staggered over a period.

This could be a problem especially if the lender has approved a lower loan-to-value (LTV). That is, say the property is priced at Rs 1 crore. The maximum financiers can lend is 80 per cent of the cost or Rs 80 lakh here.

However, the bank or housing finance company can lend well below this level based on their assessment of the merits of the case, leaving you to cough up lump sum amounts.

...

"Lenders undertake their own valuation studies of the properties. There could be a difference in the valuation of the bank and the cost agreed upon by the buyer," says the spokesperson of a housing finance company. This could raise questions about the genuineness of the transaction, leading to lenders lowering the LTV or in extreme cases even rejecting the application.

Re-sale property transactions within families (for example one sibling selling a property to another sibling) can be especially tricky and are viewed warily by bankers. Reason: there could be a possibility of kickbacks.

Another common barrier to getting finance for re-sale properties can be its age. In case of properties that are 15 - 20 years old, banks carry out technical studies to confirm the quality of construction. These are mandatory processes. But, they can prolong the process of loan approval. Despite these issues, bankers say financing a ready property purchase is the ideal scenario for them, provided all the above checks yield positive results.

...

Miscellaneous

There are also some micro checks involved, peculiar to re-sale transactions. The previous owner may have outstanding dues on the property like utility bills or society maintenance charges. Prior to finalising the sale, ensure you collect a copy of the latest payment receipts.

You could even verify with the society secretary if there are any dues you haven't been informed about or any major building repairs being planned in the near future to avoid unpleasant financial surprises.

With many old buildings, a common grouse is the unavailability of sufficient parking space. You can use this for negotiating the property price (if parking is unavailable).

Bottomline: the amount of homework and due diligence to be carried out in case of ready property purchases is at par (if not more) with that of under construction properties.