Be careful while buying an under-construction property

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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.

  1. 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.
  2. You will notice peeling of painting, leaking taps, bad finishing of tiles, patches in painting etc.
  3. Lift will not be working continuously (will operate on need basis)
  4. Incomplete parking lot
  5. No amenities
  6. Not enough generator capacity
  7. Incomplete staircases
  8. Drainage problems
  9. Poor quality construction
  10. Sound of continuous construction work
  11. Workers using common areas with red spots everywhere
  12. Drainage problems (since there will not be STP etc)
  13. 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

  1. Ensure that the builder commits OC and ‘A’ Khata in writing and make it as part of Sale Agreement / Sale Deed.
  2. 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.
  3. Make the bank release payment only after completion of each stage.
  4. 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)
  5. Form an association along with other residents so that pressure can be put on the builder to deliver as per schedule and commitments.
  6. 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.
  7. 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.
  8. Check that the builder has all the necessary clearances, like sanctioned plan, commencement certificate etc.
  9. After the completion of the project, ensure that the builder hands over whole set of documents to residents association
  10. Ensure that the builder doesn’t violate the sanctioned plan/bye-laws
  11. Now, an under-construction property attracts same VAT as a completed apartment, so you won’t save anything.

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25 Comments

  1. Dear Rama Murthy, A khata for Flat is provided by builder or we have apply our own after getting the possession of FLAT? If we have to apply then OC is mandatory to get the A khata?

  2. Dear Rama Murthy, A khata for Flat is provided by builder or we have apply our own after getting the possession of FLAT? If we have to apply then OC is mandatory to get the A khata?

  3. To share own further thoughts:
    Did ‘u’ Know THIS > http://indianexpress.com/article/cities/mumbai/hc-sets-aside-deemed-conveyance-for-campa-cola-housing-societies
    OR ever give a serious thought to its potential far reaching consequences, in store for the aggrieved / impacted one and all alike, the promoters deserving no exception / exclusion ?!
    In one’s conviction, all such or like instances in recent times do provide helpful clues; and ought to be taken a conscious note of in re-framing and -structuring , -while going ahead with the lately mooted idea of having a fresh look at / through, – the pending legislation of a regulatory regime for the realty sector.
    No need to add, in this respect what is imperative and hence aspired is the whole hearted proactive assistance and unadulterated co-operation with the ministry (ies), of each one of the competent experts around, endowed with basically a public-centric approach and altruistic attitude.
    Loudly thinking, points (of posers) instantly surfacing are broadly as under:
    Are not, now that the deemed conveyance stands nullified, all the parties back to square one; that is, on the premise that conveyance of the property (land and building) has yet to take place ?
    Does that not impact / jeopardize the rights and interests of all purchasers, not excluding those in occupation and enjoyment of the rest of the floors, not faulted as illegal ?
    Is not, as per the law, therefore, the property to be treated as still in possession of the promoter(s), with all attendant lawful consequences/ perils?
    Answers could hopefully emerge only in the course , and conclusion , of the further proceedings ! Unless, in the interim, the experts have anything more or different to share !

  4. Always all BBMP approvals will be ONLY for G+3 floors. Large number of apartments in BANGALORE are G+3 in nature. The ‘so’ called ‘4th floor’ (penthouse), as per legal framework, ILLEGAL in nature. But, almost all apartments in BANGALORE, have this PENTHOUSE (which is illegal). Who has to INSPECT, STOP and TAKE ACTION against errand builders? Obviously it is BDA or BBMP. Since all are hand-in-glove, BUILDERS-BANKS-BBMP-BDA etc, this will NOT happen. In-fact all BUILDER PLANS will be converted into as per ‘BBMP PLANS’ and then BBMP approves the same. Otherwise BBMP can’t approve PLANS which are against the LAW. In-fact all the BBMP engineers, contractors, architects, will create new set of building plans for “BBMP APPROVAL” only. After the BBMP approval, builder will use his OWN PLANS and do the construction. This is how whole APPROVAL process works. And it is NOT ONLY for BBMP, it is TRUE for BWSSB, BESCOM etc and all other govt agencies where APPROVALS are required. There will be always 2 sets of documents – ONE is SOLELY meant for “PAPER APPROVALS” and the SECOND one for “ACTUAL CONSTRUCTION”.

    ILLEGAL floors demolition can ONLY happen, if someone else files a court case against the builder and that too if it is causing inconvenience of any kind to you. All of us know – how long it takes for courts to decide. Already we have millions of pending cases. So in PRACTICAL or REAL terms this may not happen (court cases). Or in cases like CAMPA-COLA where LIFE of occupants in under threat. So both are extreme cases.

    So for the time being we all live in “LEGALLY” in “ILLEGAL” flats.

  5. @ G Pujar
    Hello ! Sorry to intervene and say :
    Prima facie, strikingly, there seems to be a confusion/self contradiction in the narrated facts; querist will be well advised to self try and have clarity in own mind.
    The so called rules Book, for that matter even the activists can not be expected to provide any forthright and sensible direction. Instead, better go by the world book of past experience. The closest instance so known is that infamous case- ‘campa cola’ (-not to mix, for a moment, with the like sounding, ‘coca cola’ or any other modern day colas aplenty).
    Lesson (the most fundamental of all fundamentals ) to be found in ‘the world book’ of past experience is this :
    Self help is the best of all helps
    That is the only one can prudently think of, guided by soulful wisdom gathered in hind sight.

  6. Hello Rama Murthy, The article is very informative. Thank you posting the same.
    I was trying to purchase a flat and it is almost in ready condition. The builder is promising OC and A khata. The property is g+3 floors. There is a flat on top of 3rd floor and also a pent house on the 3rd floor. But when I check OC, it does not mention anything about 4th floor. The OC shows the approval upto 3rd floor. My flat is on the 3rd floor. Will the extra construction on the 4th floor cause any problems?

  7. Manisha Jha, Thanks for your views. Good and Bad exists in each and every field. This article is only on the bad practices adapted by certain scrupulous builders who want to make money over night from the gullible buyers. I’m also aware of honest and good builders in Bangalore and sincerely appreciate their efforts. Court option always exists, but we all know the loss of peace, time and money in this process. Campa Cola is very good example. Only by better education we all can be a better buyers. That is my view. This article is not against any individual or an organization.

  8. Mr.Rama Murthy to me this article looks like as if all builders & developers and real estate sales managers are villans of our society & this article is projected as if we are buying homes from cheaters & fraudsters.
    Not that i am a builder, but in general sense i am asking you that if you had mentioned “some builders or majority of builders” would have made more sense to this article.
    I would like to inform you that i had a delightful experience when i bought a home from a builder a year back as they delivered exactly what was promised to me. And i have absolutely no complaints against the builder.
    If you are so sure that all the builders are cheaters & fraudsters you should file a petition in court seeking justice to home buyers rather than writing articles which creates fear & negative feeling to home buyers rather than a pleasant home buying experience which is once in a lifetime for most of us.

  9. Till we get the REAL ESTATE BILL passed by the parliament and implemented across the country, we all have to go through the same set of problems. Only this bill might ensure proper rights for BUYERS under the constitution. Till such time we have to live with the existing laws and options available to buyers including social media.

  10. Dont have words to confine in a dimension. Perfect and immaculate. Every point has its weight more than the price of a Diamond.

    In Bangalore, when you have thousands of Idiots dreaming and Dreaming, cheating is very easy. Its by these loop holes as mentioned above, bhikaris who did not have 2 meals per day to eat have their children driving Audi and Benz Cars, that too who have failed to even clear their SSC or PUC.

    Someone earned with hardwork and swiftly builders and govt officials swindle leaving many people to curse all their life.

    Blv me life is not again the same once one gets a shock and such people become pessimists and the effect bears on their children when elders beat the frustation on their parents, wives and kids………….leading to divorces etc.

    The issue is much beyond the dimension mentioned here and sometimes ppl have committed suicide for their inability to get back their hard earned money. I know many instances, where lakhiers have brought ill luck by investing in flats to their family and post their death, their wives either live working as maids or do petty businesses to grow up their children.

    The issue is very very serious and for sure no Govt will be able to help us out. Our Investment and IQ is in our hand. Be wise, just stop buying flats once for all. the market price will automatically fall leaving these builders penny less and back on street where they belong to.

    Be Wise, Live Life King Size by investing in Banks, you at least have liquid money and can access it any time any day with 0 risk.

  11. Thanks for the great article Rama Murthy!
    I am inclined to buy an apartment from my relative, which has got ‘B’ Khata certificate due to construction violations. I would like to understand the extent of violations (minor vs. major). Which department in BBMP should I approach to get this information. Please help!

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  13. One of the option can be consulting a good lawyer and filing a case in consumer court.
    Second option is to use social media and on-line consumer complaints forums.
    Third can be forming an association of all affected parties and filing a criminal case of negligence against builder.

  14. We purchased a flat in MS Garden Apartment, Bangalore from MS ARASU Builders & Developers back in 2012. Few months after the purchase we noticed that the walls had developed cracks due to poor quality of construction and after 1 rain season my room wall was completely ruined due to seepage. I tried contacting the Builder MD of MS Arasu Builders & Developers Mr. B. H. Mahalingappa but they are now not responded to my quires.

    I am now extremely worried that I just lost all my saving money which I had invested towards this Flat and the building might fall due to poor quality of construction.

    MS ARASU Builders & Developer
    No.67-68/51, SUDEV COMPLEX,
    III Floor,S.Kariappa Road,
    Basavanagudi, Bangalore 560004,
    Karnataka, India

    MS Royal is another project which belongs to them and I would strongly suggest that no one buys any apartments from MS Asasu Builders & Developers as you will just end up losing your hard earned money !

    Can someone tell us what we can do ?

  15. Thats rite. i am fed up of searching for better one. Cant’t trust anyone these days. @madhu. can i have more details of the apartment that you have purchased. or else please mail to my id (sujith81@hotmail.com)

  16. But it depends on the builders. If u choose really a best, reputed builder, you might not face this kinda issues. I also bought an under construction apartment from Concorde Group(www.concordegroup.in) in Electronic City. And I got it without any major issues.

  17. The suggestion to ” go for AKRAMA-SAKRAMA …”may not be that simple to follow, particularly by purchasers of apartments in a building complex who have not formed the legal entity of “owners’ association” and have it on record of the Registry as mandated by the KAOA. That is at least what, one remembers, a circular issued by the govt. said !
    But the fact remains, compliance with that mandate has been rendered almost a non-starter , thanks to the government’s own apathy in the matter. For more info. / clarity, read the article posted, not long ago, on this website itself, by Sanjayv, bringing out what the KAOA says; also, the numerous related posts @praja.in.

  18. Everybody is hand-in-glove in this whole real estate business. BBMP gives B KHATA because they want to get the taxes from citizens, but they are not worried about doing their job properly in-terms of ensuring strict action against errant builders. And our laws also not that water tight and not buyer’s friendly. Only option to make it 100% legal is, go for AKRAMA-SAKRAMA which will be announced any time and regularize by paying fee.

  19. Thank you so much for the valuable inputs. This article seems the story of my life 🙁 Have gone through all this issues coz I bought an under construction flat. I have taken home loan and the work is almost complete now but the builder is not providing the occupancy certificate and its B Khata. Kindly let me know what are the options that I have?

  20. To curb this menace of illegal constructions, V K Venugopal wrote a nice article on 05 Dec 2013 in Citizen Matters. A very important proposal he made is:

    “Registration Departments should be instructed to register sale deeds of
    apartments only after verifying the occupancy certificate.
    This one step will go a long way to protect customer interests”.

    Read his full article at: http://bangalore.citizenmatters.in/articles/six-things-that-can-stop-customers-from-falling-for-shady-property-deals

    Also, recently, Mr. Ashwin Mahesh of the Loksatta party has written a blog about
    Akrama Sakrama (http://loksattakarnataka.org/fixing-akrama-sakrama/).

    The very first point in Mr. Ashwin Mahesh’s article is this:
    (a) There must be a LIST of the buildings that are currently identified to have violated the building bye laws or the zoning regulations, and this list must be made public.

    To this effect, http://bangalore.citizenmatters.in should make space/provision for readers to list builders/buildings that are non-compliant.

    We can start the list with this:
    M/s. Celebrity Housing Projects have built and marketed several apartment complexes and layouts in and around the premier Electronic City Area of Bengaluru.

    This builder has blatantly violated the sanctioned plans in every case. Having built apartments with major variations from the initial approved plans, they have never bothered to obtain “Occupancy cum Completion Certificates” from the agencies.

    So, please avoid buying properties from this builder.

  21. The learned writer is seen to have drawn attention to and cautioned buyers against the most types of irregularities commonly known and requiring to be taken the utmost care. However, the one more aspect of a very vital nature/significance , though been made a mention, but requiring special focus pertains to the concept of ‘agreement to build’ ; also known as ‘construction agreement’ . It obviously refers to the prima facie and strongly objectionable practice of “dual agreement”; that is,- one for sale of ‘undivided interest’ in land and another for construction of a unit (apartment) for buyer on the undivided interest in land so sold. As repeatedly pin pointed as and when occasion arose, any such arrangement is strikingly a stranger to, rather makes a mockery of the scheme of things as borne out clearly by the applicable law in force; hence irregular, illegal and unacceptable by any logic. According to one’s info. , such an objectionable practice has its origin in TN, and was being followed also in Karnataka (no info. readily available re, practice in other States) until quite recently. Notwithstanding that it came to be discouraged / objected to by the Stamp Duty Authority in Karnataka (again, similar development. if any, in TN not known of, except lately enacted enhancement of stamp duty), but only with a view to procuring more revenue, hence mostly discontinued. Even so, it seems, the wrong practice is still being pursued by using documentation in a modified form; but not satisfactory in a wholesome manner , so as to be foolproof enough, – in comparison to the prescribed documentation for meeting squarely the mandates of the governing law . These are aspects to be found dealt with in some detail, in inter alia the published write-up titled , – Own an Apartment in Chennai?; (2003) 3 MLJ (journal) pg 5 ( Issue dt. 6-11-2003)

  22. A well crafted article with all nitty-gritty of corrupt practices being followed by Real Estate developers in Bangalore and also throughout India. This is going to continue until this sector is regulated and Real Estate regulating body is established. But I doubt, whether it would ever be a reality since our rotten political class who work hand in glove with these builders would ever let it happen and as we have seen in recent past, many political parties opposing the idea of a real estate regulator in India.

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