Is your life-time investment legally sound?

Is your life-time investment legally sound?

As we slowly make our way into a post Covid world where uncertainty runs high and life’s simple pleasures are no longer taken for granted, one can only wonder what the future of real estate will look like. A churning of events in the real estate industry has been long overdue. Whether the pandemic will bring about increased demand as individuals realise the need to have a place of their own or push them further away from making any long-term commitments due to fear of the future, only time will tell. However, one thing is certain: people are going to become more cautious about how they spend their money. There will be an increased demand for information about any product in the market. In such an environment, will the tried and tested narrative of “Best Price Best Deal” still hold true?

Residential real estate broking in India is largely dominated by the unorganized sector where middlemen feel little to no need to provide their customers with appropriate information about the products, in this case properties, they market. Customers too remain relatively oblivious to the most obvious red flags and rely on word-of-mouth recommendations rather than detailed research. Call it a lack of availability (of information) or sheer ignorance, most people buying and selling properties believe the only point of real contention is price. In the recent years, India has witnessed a bevy of young individuals and companies enter the industry with the purpose of enhancing and enriching the entire home buying experience. With the help of technology, they have eliminated the need, to some extent, of a middleman, having to physically visit project sites to collect information and shortened the entire process of buying, selling, renting and leasing. However, what is still largely amiss is the right decision-making tools: how do you shortlist and compare properties?

A legal point of view

Most individuals are unaware of the legal implications purchasing a property may entail. Your legal standing (ownership) with regard to a property can only be as good as the previous owner’s position. Therefore, an exhaustive background check on the ownership history, in the case of a re-sale flat, and the legal title of the land the property has been built on is not only essential but in my belief mandatory.

The legal title report of a piece of land gives you an understanding of its ownership. Free-hold land is land that has been directly purchased by the builder or developer. He is the sole owner(s) and the title is clear. Collector’s Land is land that is owned by the government and leased out, with permission, for the purpose of development. The value of lease-hold land is determined by the conditions of lease agreement and more specifically the term of lease. Several residential projects in Mumbai today are being built on lease-hold land with lease periods as short as 30 years. Once the lease term lapses, the onus of renewing the agreement falls upon the shoulders of the Co-operative Housing Society in question. Banks hesitate to give home loans for properties on lease-hold land, thereby making it trickier for someone to purchase and then sell their property in the future.

In Mumbai, to take as a case study, in most redevelopment projects builders usually create separate wings for old and new tenants but are forced, by law, to give old and new occupants common amenities, boundary walls and entry and exit gates. Some of the problems such projects face is that of a varied gentry and complications when attempting to form and run a society. Slum rehabilitation projects are more complex as far as legalities are concerned as their ownership is mostly diffused. Slum dwellers usually prefer to be rehabilitated within the same vicinity, though they are given separate entry and exit gates.

Today, enormous residential projects are being built across MMR on non-virgin land. Lower Parel’s biggest projects have been built on what was previously mill land. BDD chawls in Worli is likely to go into re-development, making way for high-end housing projects on land previous occupied by slum dwellers. Congested markets like Bandra, Andheri and Kurla have seen a number of re-development projects come up in the recent years. Legal details of such residential projects cannot be found on their brochures. It is highly unlikely that a builder’s salesman or broker will mention these details or even be aware of them without being prompted. You can understand and read about this only on the RERA website for projects that have been registered. Re-sale flats are not required to be registered with RERA, making them all the more risky. “Caveat emptor” is the principle underlining most real estate investment decisions and thus a buyer needs to be on the top of things especially on the legality of the transaction and the underlying asset.

“Views expressed are the personal views of the author. Any action taken based on the views will be the responsibility of the user alone.”

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