AMIT SHANBAUG

T
he first question asked of those
planning on buying a property
is: does the property developer
have a good track record? Most
believe that a developers past
performance determines whether or not a
property transaction will go smoothly. But,
is this belief correct? Realty experts say that
purchasing a property from a first-time
developer with no proven track record
could be as safe as buying it from an estab-
lished developer. In fact, it could bring
in certain benefits. Performing the
following checks can help you
avail these benefits.

Builder background
The first check to perform is that
of the developers background,
says Anuj Puri, chairman and
country head, JLL, India.This is es-
pecially true if the developers project is
at the pre-launch or the very initial stage of
construction, he says.
In order to get a property within the stipu-
lated time frame, as promised in the sale
agreement, buyers should select projects
whose execution does not pose a problem.
If possible, go for ready-to-move-in projects
or those about to be completed.
Bank project funding
If a bank has approved a project and is fund-
ing it, buyers risks are cut dramatically.
A first-time developer will not be mentally
ready to face unforeseen problem compared
to an established developer. In case any addi-
tional expense comes up, his project could
get stalled. However, if a bank is funding the
project, the developer will not face a liquidity
crises, says Ganesh Vasudevan, CEO, India
Property Online.
Documents and approvals
Buyers need to check the title of
the land and other legal docu-
mentation to ascertain that the
land where the project is to be
constructed has been acquired
via legal means, says Vinod Sam-
pat, a real estate lawyer. You can
get these details from the deputy collec-
tors office or from the registrars office.
These documents will also list the people
who owned the property before the devel-
oper purchased it, he says.
Buyers will then need to verify if the devel-
oper has received all the necessary approv-
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Gain from new
housing players
If you do adequate due deligence, buying property from a first-time
real estate developer can bring in some extra benefits.
als for constructing the project. On average,
a developer needs to obtain anywhere be-
tween 40 and 50 kinds of permissions
from approvals from the fire department to
environmental clearances.
One should also check associated docu-
ments such as the approved drawings of the
project, a copy of the intimation of disap-
proval (IOD). Ensure that the property is free
from any litigation and any kind of debt.
Some documents like the occupancy cer-
tificate are issued only after the civic authori-
ties are satisfied with all aspects of the pro-
ject. You can get the details of the approvals
by meeting the concerned officials or getting
the information by using the right to infor-
mation act, says Sampat.
Some of the basic documentation that
buyers need to check include 7/12 extract-
basic document of title and proof of rights,
government approved building plan, re-
ceipts of property tax that has been paid,
Completion Certificate issued by the civic
authority, No Encumbrance Certificate
issued by concerned sub-registrar
to ensure the property has not
been mortgaged and Occu-
pancy Certificate.
Purchase agreement
As a buyer, you must
try and ensure the
builder-buyer agree-
ment suits your
needs. Builders tend
to put an escalation clause in the builder-
buyer agreement. Ask your developer to re-
move this clause. Else, the developer can in-
crease the property rates significantly at a
later stage citing various reasons economic
and inflationary pressures, rise in cost of
raw materials, etc.
Also, buyers should ask the developer to
put the exact date of the completion of the
project. The compensation clause in case of
delays should ensure that the builder pays a
strict penalty.
The purchase agreement, other than spec-
ifying the purchase price and the amenities
the developer is planning to give the custom-
er, states the mode of payment, details of oc-
cupancy certificate, and insurance of the
building, says Sampat. The customer must
ensure that the developer does not alter the
original plans by including the same in the
purchase agreement, he adds.
Bank loan
Banks conduct the necessary due diligence
to safeguard their money. This can work to
buyers advantage. Those apprehensive
about going through with a transaction can
go for a bank loan to fund their purchase.
Customers can also opt for construction-
linked payment plans. This safeguards buy-
ers payment against any delay in construc-
tion and non-completion. The lending bank
will disburse the amount after the comple-
tion of each stage of the construction cycle,
thus reducing the risk, says Sachin Sandhir,
managing director, RICS South Asia.
At times, new developers also tie-up with
non-banking financial institutions and inves-
tors acting as financiers. In such a case, the
rate of lending is slightly higher than the
prevalent interest rates, says Sandhir. Opt-
ing for a bank loan can be a better choice.
HOW BUYERS STAND
TO BENEFIT
Pricing could
be at a
discount to
attract more
customers.
A first-time
developer has
only one
project to focus
on.
He has a brand
name to create,
so may not
compromise on
quality.
He needs to
complete the
project on time
to avoid facing
a cash crunch.
Response for
future projects
would depend
solely on the
present one.
The Economic Times Wealth, July 7-13, 2014
21
Real Estate