After lot of search, finally you zero in on an under-construction apartment to buy. Your decisions are based on cost, location, developed, accessibility, quality, reputation of builder etc. The builder as usual promises moon to every buyer and buyer gets impressed by glossy brochures and sugary words of so called sales managers. So you start dreaming about living in your own dwelling.
The builder then sets the terms for payment – 20% advance, 70% for slabs (for a typical G+3 Apartment), 10% after sale deed registration. After paying the advance (20%), you will apply for a bank loan. If your Credit Information Bureau (India) Limited (CIBIL) score is good, you will get immediately loan approved, since in almost all the cases, land records (i,e sale deed, mother deeds, khata, tax paid receipts etc for land) are clean.
The builder will not let you modify any contents of terms and conditions of either Sale Agreement or Construction Agreement (or Agreement to build). Builder will also not entertain any questions, clarifications, doubts etc to be answered or raised. You will be left with no option but to buy it or look for a different flat. Since you would have already tried and tired of finalising/searching a flat, you will not fight with the builder – you will agree to everything.
In most cases, the builder would have constructed all the slabs (or will complete all slabs within 2-3 months) and will raise the Demand Note for the 70% of the flat’s cost. That is, by this time, you would have paid 90% of the flat’s cost. Builder will use all his tactics/coercion/force etc to get the 70% payment as per the Agreement to Build. Builder will also put pressure on the bank to release the payment as per the agreement. Finally, the builder will get 90% of the flat cost into his kitty within three months of Sale Agreement.
This is where the actual problem starts.
Your flat work will not be completed – brick work, painting, fittings, wood work etc. Since the builder has mentioned 10/12/18 months, he will take his own sweet time to finish it.
Also, the total cost includes: Your flat + lift + generator + electricity meter + common areas + All promised Amenities + Registration + Occupancy Certificate + Khata. The builder will only complete brick work etc for your flat and raise a Demand Note for the balance 10%. After the release of 10% (totally you would have released 100% by this time), the builder will ask you to go for Sale Deed registration without completion of all other things except your flat.
As usual, the builder will promise that, he will complete all the common things once for all, after the flat’s brick work is complete. This usually takes anywhere from 12 months to 18 months.
After Sale Deed registration, the builder will ask you to move into flat without Occupancy Certificate. Once you complete interiors and move into your flat, you will start noticing all kinds of problems.
- The electricity connection will be temporary: To get a permanent connection, it might take 1 or 2 years. Without permanent connection you will not be able to run grinder, mixie, fridge, washing machine etc.
- You will notice peeling of painting, leaking taps, bad finishing of tiles, patches in painting etc.
- Lift will not be working continuously (will operate on need basis)
- Incomplete parking lot
- No amenities
- Not enough generator capacity
- Incomplete staircases
- Drainage problems
- Poor quality construction
- Sound of continuous construction work
- Workers using common areas with red spots everywhere
- Drainage problems (since there will not be STP etc)
- No clubhouse/ swimming pool and all other promised amenities
BBMP will issue Occupancy Certificate (OC), if and only if the building has been constructed according to the Sanctioned Plan and meets all bye-laws. BBMP has rights to allow up to a maximum of 5% deviations (but that too subjected to certain conditions). If deviations are more than 5% BBMP will not issue OC. Without OC, you will not get Khata (so called ‘A’ Khata). Still you can pay property tax etc, but you will not get your ‘A’ Khata (I mean Khata Certificate and Khata Extract). Without ‘A’ Khata, neither you can sell your property nor you can get mortgage loan from the bank.
You can say, when the bank has sanctioned loan and legal opinion is clear, why I can’t get Khata? The reason is, bank will sanction loan based on land records only. Because it is under-construction property and the bank will not see any building violations in case of under-construction property. Even if they know, they will not raise any objections, because everything is legal as per the agreement and payment schedule.
The bank will release 80% money just for slabs only, as per the payment schedule. Banks also know that OC and Khata will create legal problems for them, they also would like to release all the money just after the slab work is completed. Even though sanctioned letter explicitly states that there should not be any violations and builder should obtain NOC from all agencies, and ‘A’ Khata is required for creating equitable mortgage (from legal opinion submitted to bank,) the bank coolly ignores the same because they need the business, which is the biggest for them.
The same bank will not accept your documents or sanction mortgage loan, if you would like to sell or mortgage (after you occupy the flat). Since you don’t have OC and ‘A’ Khata. The builder will demand 100% money before the building is complete, because all violations happen only after the slab works. The builder will construct 1 or 2 floors (pent house etc.), extra which are illegal and hence no OC will be given to you. When you check BBMP site for ‘Know Your Tax Paid Details,’ you will still see the land owner’s name against the property and Khata number. This is because original Khata has not been bifurcated into individual flat owners. Reason: Again, NO OC. (B Khata has no value, though BBMP collects property tax).
In Bangalore, 60-70% of the bank business is from real estate. Who on the earth will worry for OC and Khata? Because finally, the bank will catch the buyer for repayment of loan and not the builder for building violations. Bank, builder, BBMP, sub-registrar office, BDA – all are hand-in-glove. All of them know very well that the builder is violating the bye-laws but all keep silent. The reason is, everybody is party to this and they don’t want to stop this.
Around 80% of the buildings in Bangalore have building violations of some kind or the other and if building construction is stopped. Bangalore generates highest taxes/ money in terms of real estate business. Hence everybody will act as if they don’t know anything. And biggest of all these is, bribes being paid to all stake holders in the business, which sometimes run into lakhs/crores of rupees per builder.
Why not go for under-construction property?
a) Risk of the builder violating the building Bye-Laws
b) Builder might construct illegal floors (penthouses etc.) because of which BBMP will not give OC
c) BBMP has the authority to sanction/clear violations only up-to 5%, that too has some restrictions
Beyond this you have to depend only on Akrama – Sakrama.
d) 90% of the payment is collected just before the Sale Deed registration, and other terms and conditions like completion of amenities, car parking etc.
e) Most of the builders won’t have provision for STP (Sewage Treatment Plant), which is mandatory as KSPCB. STPs were made mandatory in 2010 for all the new apartments with more than 20,000 sq. ft built up area, having more than 50 flats.
f) Quality of the construction may not be as good as promised before the purchase, but you can’t do anything as you would already have paid for it.
g) Lead time for delivery may be 18-24 months. Many things happen and change during this time frame.
h) You may have to shell-out additional Rs. 6 lakh o Rs. 8 lakh to the bank as pre-emi interest
i) Agreements generally are one-sided and favouring the builders.
j) Also penalty for delay from the builder is peanuts. It is around Rs. 5/Sq.ft/month. Say you are buying a 1000 sqft flat and the penalty works out to be Rs. 5000/- month. Whereas you will be paying close to Rs. 50,000/- month as pre-emi interest alone!
k) Getting any penalty paid to you from builders is cumbersome.
l) Since you would have paid 90% of the cost within a few months of sale agreement and need to wait for 12-18 months before you get possession of your flat, you will be at the mercy of the builder to get your flat completed and will not be able to raise any issues or objections with the builder.
m) In all clauses for cancellation due to any reason, refund will be around 80% of the paid money and will be after 3/6 months’ time frame.
n) No clear info on carpet area. All flats are sold based on super-built up area which includes all common areas.
o) Sometimes you might get less carpet area than what is committed.
p) Some of the builders may not have NOC from KSPCB, BESCOM, BWSSB, BDA, BBMP etc.
q) Most of the times undivided share of land (which belongs to you) of the flat owners won’t tally with the total land on which apartment is being built.
r) First-time builders who want to make more money, end-up in messing up the whole project and finally flat purchases will be effected.
Advice to Buyer
- Ensure that the builder commits OC and ‘A’ Khata in writing and make it as part of Sale Agreement / Sale Deed.
- Make the payment schedule reflect the stages for actual completion of your flat and also till handing over all the legal documents like OC and ‘A’ Khata.
- Make the bank release payment only after completion of each stage.
- Instruct bank to release payment only after receiving written approval from you (builder generally sends demand note to banker for payment release and puts pressure on bank for release of payment)
- Form an association along with other residents so that pressure can be put on the builder to deliver as per schedule and commitments.
- Don’t fall prey to builder saying that your flat will appreciate within 1 year or so and forces you to pay more etc. It is not true. Roughly if you take construction period as 12 months and loan as Rs. 50 Lakhs, you will pay close to Rs. 6.0 Lacs as pre-EMI interest to the Bank (taking 1% per month as interest on Rs. 50.0 Lacs). So that total flat cost at the end of 12 months is: Rs. 50.0 Lacs + Rs. 6.0 Lacs = Rs. 56.0 Lacs. Please note you would have paid much more than appreciation already, and will have remaining instalments to pay.
- In practice, since apartment construction is growing and in full swing in and around Bangalore, availability is also increasing day-by-day. So any new buyer of apartment will look for new flat because it would have constructed using latest technology and new safety methods. So finding a buyer for an old flat might be an issue.
- Check that the builder has all the necessary clearances, like sanctioned plan, commencement certificate etc.
- After the completion of the project, ensure that the builder hands over whole set of documents to residents association
- Ensure that the builder doesn’t violate the sanctioned plan/bye-laws
- Now, an under-construction property attracts same VAT as a completed apartment, so you won’t save anything.