Thursday, June 02, 2005

Buying property in India - The common man's guide - Part 2

Having covered the legal verification of the real estate property in part 1, I will address the legal documentation for sale and the actual registration process in part 2. For successfully execution of sale, you need to have a document that clearly describes what is being sold and this should be signed by you (the BUYER) and the seller or a person authorized by the seller. This sale has to be registered with the government so that it will be recognized in a court of law. This registration is done in a sub-registrar's office.

First let us cover the buyer (you ) scenarios. There are basically two options here, you pay for the property yourself or you have a bank fund the purchase.

  • Funding yourself : If you are funding it yourself, you will have to have a legal document signed with the seller - this document is called as the sale deed. It is a legal document that will be printed on stamp paper and will describe the property and its surroundings. Then it would clearly describe the fact that the seller is selling the property to the buyer. This document should first be reviewed by the lawyer before it is executed on the stamp paper. So ask the seller or the VENDOR for a draft copy of the sale deed and have your lawyer review it and suggest corrections if any.

  • Funding through a bank: Banks offer loans to purchase realty. The process they undertake would be to do a verification of the property papers (legal review through their lawyers), verify if the property price as negotiated by you with the seller is fair market value (through a property surveyor) and finally ensure that there is an agreement of sale between the seller and buyer, executed by the seller or his representative. Once they are satisfied with the three steps, the will finance the purchase and have you execute the registration process through the sale deed (similar to funding yourself). The only difference being that they will have physical possession of the sale deed until the loan is repaid.

During the registration process there are a few items you need to verify to ensure that there are no hitches in the future for the property ownership.

  1. Registration Price :The price quoted in the sale deed. Ideally this price would exactly match what you pay for purchasing the property. In reality though, this seems to be hardly the case when I spoke to a few buyers and sellers . You should ensure that the difference is not too large for the simple reason that you are paying a higher price for purchasing than what is being registered for would mean that if you decide to sell the property in the future, the net gain on which you pay tax is higher than what it really should be. Further the logic of reduced cost in the sale deed to reduce registration cost (which is a % of the sale price) escapes me since what you gain marginally in registration costs you pay a substantially higher penalty during a future re-sale of the property - bottomline it is not worth the trouble.

  2. Execution of sale:The sale execution, the process of signature on the sale deed at the registrar office should be done by you and the seller or an authorized representative of the seller. Nobody else is authorized to sign this document from either yourself or the seller's behalf. Ensure that the power of attorney given by the seller to the authorized representative is valid on the day of sale registration.

  3. Congrats, you have now completed the sale and own the property. In the next article in this series I will cover the post sale steps that you need to take to protect your property.

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