R is for Resale
There are two sides to the buying-a-resale-flat coin. Here they are. Not the flat or the coin -- just both sides of what may be a bewildering option
In the first part of an extensive two-part series, advocate and expert AMEET V MEHTA clears the air for people wondering if it is prudent to go in for a resale home, or put one’s finances into a new project, altogether.
There are several advantages, like that of familiarity, while some disadvantages too exist. Also in the real estate world riddled with traps, being duped is a very real possibility. Look out for the red lights flashing, so that you do not step on to a resale landmine. The real estate market in Mumbai is a battlefield and it is better to be wary than watch your own-a-home dream blow up into dust.
What does the resale market look like in Mumbai? In a city where flats are at a premium, does the aspiring buyer have a wide range in terms of resale flats?
Today, it is a buyer’s market. Though property prices are going up steadily in India’s metropolis including smaller towns, it is limited only to new projects. In the resale market, prices have been stagnant since 2010. There seems to be no actual correction in terms of price but eventually it will be a sort of, ‘time correction’. While in new properties, developers have yet to bring down the prices; in resale, property prices have been significantly stagnant in most metros, including Mumbai. Having said it is a buyer’s market, there are lots of opportunities for value pick for customers. A serious buyer can actually sit with payment across the table and get a better deal. Many distress sales through banks can also be a value pick.
Are there certain advantages to buying a resale flats as compared to a new one?
The major advantage of buying a resale home is that you are moving into an established neighbourhood. Your surroundings may be well established to give your street a feeling of permanence.
In terms of investment, a resale home will often give you more for your value than a brand new home. Many owners put lakhs into home improvements ranging from small items, such as landscaping, to major interiors, such as a highly finished and polished room. The buyer gets the home at its real market value, which is based on comparable homes for sale or those sold in the neighbourhood. All those expensive extras may come to the buyer at little or no cost.
With a resale, the vendor’s asking price is almost always negotiable downwards unlike the builder’s list price, which is usually firm. Any extras or changes are added to the list price of a new home. Other benefits are:
>> You will know what amenities like swimming pool, clubhouse, etc. are actually available. You can see and inspect them even before getting into the discussions.
>> You have clarity on maintenance and know Society charges upfront.
>> You can move in quickly into your resale bought flat and seek possession. So you don’t end up paying rent / home loan EMIs as you may have to for an under-construction flat.
>> In resale flats, since you get the possession immediately, you can avail of tax-benefit right from your first EMI payment. Many people do not know this fact. You can claim home loan tax benefit only when you get the possession of the flat.
>> The biggest advantage is you will actually get what you see. There are no surprises with future shocks. You don’t have to live under the long waiting period and wait for super surprises of what your builder will deliver in case of buying an under-construction flat.
>> There is no risk of the possession date being delayed by months or years. This may be the case with an under-construction flat.
>> You can observe the locality and make an informed choice. In fact you have clarity on neighbours and composition of Society with a chance to reject it.
>> You can enquire about lots of general things from the existing neighbours living in the complex/building.
>> You can verify legal status and titles in advance and have sufficient time to take decisions.
>> You can pay the right price, as you know the trend of the area and quality of flat upfront.
>> The carpet area of a resale flat could be more than the new flat in today’s scenario.
>> The inspection of necessary statutory approvals in case of resale flat may already be taken care of. Hence checking of IOD, CC, OC etc. may not be required or even relevant vis-à-vis a new flat.
>> Checking a builder’s track record may not be required, as the more relevant point in resale flats would only be the background of seller. This may not be the case for new flats.
Are there a few negative points too?
All advantages come with certain disadvantages as well.
>> The biggest disadvantage in a resale flat is: You have to be on your own. Hence, if anything goes wrong with the deal, you will have to face the consequences on your own. In case of buying an under-construction flat, there will be many people who will book it along with you. Hence, if anything goes wrong, you can fight for it as a group. But in case of a resale deal, you have to fight a lone battle in case you have to seek a relief.
>> You can’t negotiate much on resale properties -- especially the good ones. Since they are difficult to find, they are quoted at high rates.
>> You might end up buying an old apartment, which might require lot of maintenance. You will have to consider extra expenses before you move in.
>> You need to be careful about the paperwork and any ambiguous claims on the property by anyone else. It is very easy to check the background of an ongoing project but difficult to check history of a resale flat.
>> Good resale properties are difficult to find. Most of the time you will have to depend on a reliable real-estate agent, who will pocket a hefty commission for the resale property deal. In addition another disadvantage is that you will have to trust him.
>> Normally people staying from day one are well accepted as neighbours and are reasonably close to each other, rather than people who move in after couple of years.
>> Society rules may not suit you since they are already established. In a new upcoming building, you have chance to be part of team for framing rules including decision-making.
>> There is limited choice of floor rise or good view, since units on resale are limited. No major changes possible in structure of the house for an already existing flat. That is possible in a new flat.
>> You will need a good trusted lawyer to ensure that all your deal papers are proper and not putting you in a mess. That again comes at a cost.
When a person goes in for a resale flat, what assurance do they need from the seller?
The chain of agreements, share certificate, loan papers, and maintenance receipts, payment of stamp duty plus registration and other necessary paperwork should be in order. They should also ensure that previous pending maintenance and property tax payments are paid in full. Many times, sellers are defaulters and they tend to raise their hands due to the continuous outstandings shown in their account. The buyers should be very careful while taking over such flats. They should also see and check that the 'sq ft' mentioned in the agreement matches with the actual area of the flat. Buyers should also check and double check if the seller is not selling the same flat to two people. Hence taking possession of original documents is extremely important.
How could previous owners try to dupe buyers?
There are many grey areas wherein a previous owner may try to dupe the buyer.
>> He /she may hide their outstanding loans / mortgage with a bank. Though the banks may normally keep original documents such as agreements / share certificates with them, there is sometimes the possibility that the seller would have got issued a duplicate share certificate from the Society stating that his earlier share certificate was lost.
>> The seller may not hand over all the chain of documents and transactions occurred during the life of a flat. Hence possession of the missing link in terms of documents should be taken in custody.
>> The seller may sometimes claim that the share certificate is lost or not traceable. In such circumstances, they should insist for a duplicate certificate from the seller, which is issued by the Society.
w The buyer should check for title certificate ensuring no third party right is created in the flat.
* The buyer should re-check that the flat is not sold to two people simultaneously.
>> Many times, sellers take money in advance before giving possession. Buyers should ensure there is not much gap in the last payment paid and taking possession of the flat.
>> The seller may claim that all maintenance is paid till date. Buyers should ensure that possession of all maintenance receipts especially of the last four quarters are taken from sellers.
>> The seller may try to sell parking spaces and make some good money. The buyers should ensure the validity of such claims of selling parking space and check documents pertaining to such parking'. Also, the parking norms laid down by Society should be understood. Though parkings are not saleable as per Supreme Court judgement, but the reality is that they are sold.
>> If the seller happens to be an investor (normally called as investors flat) you should carefully check the terms of the agreement. Builders have been inserting the 'no-sale' clause in sale agreements, which state that the buyers cannot sell the flat for a certain period post completion. If you plan to exit before that, you may have to seek an NOC from the builder. In short, the investor flat would actually end up become a costly affair for the buyer since the period stipulated in no-sale clause varies from 1.5 years to three years. There is no specific pricing available for an NOC although it ranges between Rs 100 and Rs 500 psf. The cost paid to the builder towards the NOC will eat into your profits and in short, you would be taken for a ride.
To overcome the above, the buyer should keep a good lawyer and or a reliable real estate agent. In fact it is better to spend little more on good lawyers who would help you in a structured due diligence rather than feel sorry at a later stage of your deal.
Would a resale flat (generally) be cheaper than a new one? Or, is that not true?
There are various reasons why a resale flat would generally be cheaper than a new flat, though not always. The maintenance of new flat would normally be higher than a flat under resale. In case of flats under resale, the property tax and maintenance would already be adjusted and calculated since the flat is quite old. Further, many societies have made their maintenance almost negligible as they would have made sufficient FDs / savings whose interest would be covering major expenditure of Society. Another issue is rising interest rates on new flats. Hence resale flats would work out cheaper. You are also not paying for floor rise in case of flats under resale. It's worked out lump sum, which is not the case in new building under construction. Importantly the flat in resale is already in an area, which may be congested unlike the new flats, which have more open areas and surroundings especially due to RG rules. Hence we may find resale flats cheaper than the new ones.
In several resale flats, there is extensive work to be done like waterproofing maybe and other repairs too. Who bears the costs?
The buyer would normally bear the cost since he would like to repair and design (redesign) the flat as per his requirement. The buyer and seller would negotiate and compromise the price to that extent. However as regards to waterproofing, a buyer should be cautious and ensure there are no previous disputes to this effect with the Society, since many a time, there are some old disputes of members with Managing Committee / Society as to who shall bear the cost of waterproofing. The burning issue could be, "Should the Society bear the cost or the member"? Hence, there should be enough clarity on the subject especially for members staying on the last floor of the building. Normally, the cost is borne by the Society since it is a matter related to the Society and not an individual. But, if the leakages are continuous, then the Society may have to undergo major waterproofing which may be a costly affair.
What papers does the Managing Committee of a housing Society need if a flat in the building has been resold?
The transferor should give a cover letter to the Society intimating his intention of sale of flat. It should be accompanied by:
>> Bank NOC / documents in case the flat is mortgaged.
>> Undertaking-cum-indemnity by transferee/Declaration as prescribed in byelaws.
>> Copy of Agreement including confirmation of Stamp duty and registration payment.
>> Various Transfer Forms.
>> Transfer Fee and Entrance Fee.
>> Transfer premium, as applicable.
>> Chain of agreements, which is recommended.
>> Nominee Form (if Society insists).
>> Any Lien documents.
The above-mentioned point of Various Transfer Forms, as per byelaws, would include the following:
The forms required from seller are:
>> Form Appendix 20 (1) which is a form with notice of intention of a member to transfer his / her / their shares and interest in the capital / property of the Society.
>> Form Appendix 21 which is a form of application for transfer of shares and interest in the capital / property of the Society by the transferor (101). Form Appendix 13, which is a form of notice of resignation from membership of the Society by outgoing member. A declaration in support of handing over the possession.
The forms required from the buyer:
>> Form Appendix 20 (2), which is a type of consent of the proposed transferee for transfer of the shares and interest of the member - i.e. transferor (Seller) to transferee (Buyer)
>> Form Appendix 23, which is a type of form for application of membership of the Society by the proposed transferee (Buyer)
>> Form Appendix 4, which is an undertaking to be furnished by the prospective member to use the flat for the purpose for which it is allotted.
The Managing Committee is required to dispose off the transfer application within three months from date of receipt of documents.