7 things you must know before buying a house

Ascompared to investments like bank deposits, gold etc, real estate in Indiaoffers greater potential for growth and high ROI. With the covid waves hittingback to back in India, the housing demand went up in 2020 although the incomeratio was low. As per the government official the housing demand may touch upto$1 trillion by 2030 as a recovery effect of covid first and second wave. Theheartening aspect is that both residential and commercial real estate aregaining equal importance. The Govt. has also realised the contribution of realestate in the development of the economy and thus has facilitated it’s growthby introducing massive changes in the taxation and regulatory aspects of realestate. The setting up of the RERA and its stringent norms have ensuredtransparent transactions, buyers getting full value for their investment andsurvival of only credible developers in the market. Affordable housinginitiative by the Govt. has given hope to people from all strata of the societyto own their own house.

Homebuying is one of the most exhilarating as well as daunting experiences for anyhome buyer. A single individual is a free bird who doesn’t mind moving from oneplace to another for better choices in occupation but families like to settlein a prominent location with the best of amenities and ambience. Home buyingrequires careful planning, proper budget allocation and scrutiny of propertiesand parties involved. Buying a house can never be an overnight decision and anyoffer that looks too good to be true, most probably isn’t. Don’t shy away fromasking for a detailed house inspection by an expert which is the norm nowadayswhile buying an old or new property. It helps in identifying areas ofpreventive maintenance and resolving any hidden defects in the property whichsaves time and money in the long run.

Theprice of your flat is usually based on its saleable area. But there are manyways to interpret and calculate the saleable area. This can have a huge impacton (i) the actual area you get, and (ii) your total buying price.

Althoughthese terms are not clearly defined in any statute book, knowing what they meanwill help you to:

• act smarter – by not getting cheated or misled into buying asmaller flat than you expected
• save money

Sothe 7 Things You AbsolutelyMust Know beforebuying a home are:

• Built-up area
• Carpet area
• Super built-up area
• Per square foot rate
• Loading
• Stamp Duty and Registration Fee
• Khata Certificate, Possession andAllotment Letter

First we’ll briefly explain whatthese terms mean, and then we’ll show you – with the help of an example – howthis knowledge can help you to make better decisions…..and save money.

Built-up area is the total area measuredon the outer line of your flat, including balcony, terrace, etc. It refers tothe usable (or carpet area as described below) of your flat plus the areaoccupied by the walls and columns of your flat plus a little more. In otherwords, the built-up area will normally also include a percentage of:

• Balcony and/or Terrace
• Roof area
• Mezzanine floor
• Detached habitable areas such as servant’s room, etc.
• Columns and Walls
• If shared with another unit – computed at 50%
• If not shared with another unit –computed at 100%

Nowthat you know that the built-up area of your flat includes these additionalareas, you will be able to calculate the actual usable or carpet area of yourflat.

Carpet area is the area enclosed withinthe walls of your flat. It refers to the area inside your house on which youcan actually lay a carpet and physically move around. But that’s not all. Thecarpet area also includes a certain percentage of other areas – such asbalcony, terrace and verandah – which many people tend to exclude from their calculations.This is one of the most common mistakes you can make when calculating thecarpet area – which can result in your ending up with a much smaller usable orcarpet area than you expected. Depending upon your builder, the carpet area ofyour flat can be anywhere from 50-80% of the super built-up area (explainedbelow) quoted to you by your builder. Therefore, you should always askyour builder for the ratio of carpet areato the super built-up area. The higher the ratio of carpet area to superbuilt-up area, the more space you get inside your flat.

Definitionof carpet area under RERA

Super built-up area or saleablearea isthe total built-up area of your flat (explained above) plus your proportionateshare of the common amenities in your building complex.It is also called thesaleable area. Proportionate share here refers to the sum total of all commonareas divided by the total number of flats in your building complex. So thesuper built-up area includes – aside from the built up area of your flat –these areas also:

• A percentage of the double height areas and terraces, if any
• Entrance Lobby
• Corridors
• Staircases
• Lift Shafts
• Lift Lobby and all other lobbies and landing areas
• Lift machine rooms, generator rooms, electrical rooms, etc.
• Gas Banks, Garbage Rooms
• Club House
• Security Rooms
• Indoor Sports Rooms
• General Toilet Facilities for Servants and Maintenance Staff
• All other common areas not included above provided they are not separatelycharged for

Nowhere’s something important you should know…
The Super Built-up Area Does NotInclude…

• Underground sumps and water or septic tanks
• Compound walls
• Open to sky walkways and open to sky swimming pools
• Open sports facilities

• Weather sheds, inaccessible flower beds, lofts, common open tosky terraces, stairwells, etc.

Ifyou find that your builder has included any of these areas in the superbuilt-up area, you should immediately bring it to his notice – and renegotiateyour buying price.

• Per Square Foot Rate is the rate (per square foot) quotedto you by your builder or Real Estate developer. It is typically applied tothe super built-up area to determine the price of your flat. The importantthing to remember here is that the per-square-foot rate of your flat isnormally based on the super built-up area (also called saleable area), whichincludes not only the carpet area of your flat (i.e. the usable area insideyour flat) but also some additional areas of (i) your flat (like balcony andterrace area) and (ii) building complex (like lobbies, staircases, passages,etc.).

• Loading is the difference between the super built-up areaand the carpet area of your flat. It is used to add constructed spaces notexclusively allocated to you. It includes shared areas like lifts, lobbies,staircases and amenities, as well as a part of your terrace and balcony. Aloading factor of 1.20 means that your builder has added 20% to your carpetarea. If your residential project does not have many amenities, the loadingfactor will be small. In most cases, a loading factor of 1.30 is consideredsufficient. However, you should know that some builders can resort to very highloading – of 40-50%. This can seriously reduce the carpet area of your flat toalmost half of its quoted size. Therefore, it always pays to know in advancethe loading factor of your flat.

• Stamp Duty and Registration Fee are the taxes that are impliedby the Government on the purchase of property. It is very important for thehome buyer to know the stamp duty charges and registry charges before applyingfor the home loan. Property registry charges and stamp duty charges vary fromstate to state so before planning your property buying budget you must knowthese charges. Stamp duty also varies depending upon the genders.

• Three important documents that one must be aware of:

Khata Certificate: It is a revenuedocument containing all the details of the property such as location, size,built up area etc. This certificate is a part of the home buying process and isrequired to pay the property taxes.

Possession Letter: This letter isprovided by the builder with a mentioned date of property possession to thebuyer. It is not a proof of property ownership to the home buyer. This letteris given to the buyer after the receipt of the Completion Certificate.

Allotment Letter: If you arebuying an under construction property, this letter is most important for you.The letter contains all the details related to flat payment periods and hidden& extra fees for any additional facilities. This letter also helps ingetting a home loan from banks.

Nowthat you’re familiar with the most important property-related terms, you willwant to know how knowing these terms can help you act smarter and save money

Howknowing these terms can help you act smarter and save money.

Thefollowing example illustrates how easily you can be misled into buying asmaller and costlier flat if you go only by the information provided by yourbuilder (in the blue boxes)– and fail to do your own calculations.

Butthe calculations we’ve suggested (in the green boxes)will help you to interpretthe information correctly and makea well-informed decision that works in your favor.

Architectureof Ashiana- World Architecture Day

Example

Ifyou had to choose between Flat A and Flat B, which would you choose? Both flatsmeasure 2000 sq ft and look equally good. Flat A costs Rs. 3500/sq ft and FlatB costs Rs. 3200/sq ft.

Iflike many people you overlooked the loading factor (or took it for granted) andchose Flat B because it’s cheaper by Rs. 300/sq ft, you would have not onlypaid more per sq ft but also ended up with a smaller flat.

Tounderstand how, take a look at the example below. Start from the beginning….butdon’t miss the three rows highlighted in green.

INFORMATION PROVIDED BY YOURBUILDER of Flat A & Flat B

Bothflats appear equally big but Flat B is cheaper by Rs. 300/sq ft or Rs. 6 lakh

FlatB has a slightly higher loading factor. Loading 40% or 0.4 47% or 0.47

YOUR CALCUATIONS AFTER READINGTHIS ARTICLE :

Result: Flat A appears slightlybigger from inside (60% vs 53%)

CarpetArea: Super Built-Up Area x % of Carpet Area

Result: Flat A appears slightlybigger from inside by 140 sq ft

Result: Flat A is also cheaper byRs. 204.40/sq ft

BuilderBuyer Agreement (BBA)

Thebuilder buying agreement is an immensely important legal document between thebuyer and the builder. Before buying any property be it for residential orcommercial use, buyer should read and understand the terms and conditionsmentioned in the agreement very carefully so that the buyer’s rights areprotected and he/she gets exactly what they paid for. This is a legally validdocument and will help the buyer in defending his/her rights in case of anymishappening.

Itcontains the following provisions:-

• Construction timeline
• Price escalation cost
• Area change
• Payment delay
• Payment on actual cost basis
• Building plan changes
• Transfer changes

NOC (No ObjectionCertificate)

Ano objection certificate is a legal document containing a statement ofpermission granted to an individual or company for buying or construction of aproperty.

NOC From Builder:- When buying a property or anapartment a NOC is required from the developer or society respectively toensure that there is no due on the property by the seller at the time of thesale of the property and to ensure seamless induction of the buyer into thesociety. The buyer must ensure that NOC given to him/her has the followingpoints mentioned:

• Name & Address
• Authenticity of the NOC
• Nature of transaction
• Payment Detail

NOC under RERA :- The builder requires writtenconsent of at least 2/3^rd of the allottees if he wantsto transfer his rights and liabilities to a third party. After that, permissionof the Real Estate Regulatory Authority (RERA) needs to be obtained which isvery important.

NOC for Foreigners :- UnderFEMA, any individual who is of non-Indian origin can purchase or transfer realestate property in India on lease beyond five years and can acquire real estateproperty in India by way of inheritance from a resident. All the transactionsin this particular case will require prior permission from the Reserve Bank OfIndia (RBI).

Occupancy certificate (OC) 

Occupancycertificate is an important document showing that the building has beenconstructed according to the permissible plans and by abiding local laws. Thelocal municipal corporation issues this document after ensuring that complianceof all local laws has been done. The builder is responsible for obtaining theoccupancy certificate. Many financial institutions ask for the occupancycertificate while providing loans to the buyers of property.

Completion certificate (CC) 

Acompletion certification is a mandatory legal document stating that a newbuilding has been constructed and completed according to all the safety normsand regulations and local laws of the Buildings Act.

Fit out period

Fitout Period is the amount of time granted to occupants by developer (cost-freeunless otherwise stated) to customize the home interior according to theirpersonal preference. The base is completely constructed by the developer butthe interior can be fitted by the occupants or the former.

Saleable area

Saleablearea is the total built up area of your flat with the area of common amenitiesyou use. Following amenities are included in saleable area:-

•  Staircase
•   Corridor
•   Terrace
•   Club house
•   Indoor sports room and many more

Summary:

You’vejust seen how a different interpretation or calculation of saleable area canhave a huge impact on both your carpet area and your total buying price. You’vealso seen that:

• More saleable area does not necessarily mean more carpet area

• Area calculation method can seriously affect your buying price

• A lower price does not necessarily mean a better deal

• Per square-foot rate can be misleading unless it is consideredwith other factors that affect saleable area (such as loading)

What other tips can you think ofthat buyers must absolutely know about before buying a home? Do let us know –we’d love to hear from you!