Essential questions that home buyers must ask their real estate developer

Buying an apartment is fraught with risks. From choosing the right builder to ensuring that he is the actual owner of the land on which he is developing the project, there are many issues that you need to look into before deciding to put your life’s savings in a builder’s project.

What’s the land use?

Check the land use of the property on which the project is being developed. The licence states what the land use is: whether it is for developing residential or commercial property, floors or plots, and so on.

Has land acquisition been completed?

Often developers begin to sell apartments before land acquisition is over. Some unforeseeable problem may arise due to which acquisition may not be completed. The developer may manage to buy 80% of the land he needs but get embroiled in a dispute over the balance 20%. Now, if that one tower in which your apartment was planned was to be developed on the disputed 20%, you would get into trouble.

Does the developer have legal title?

Ask the developer to show you the papers demonstrating his ownership of the land. Every plot has a unique khasra number. Ask the builder for that number and check in whose name the plot is registered. You could hire a lawyer to conduct the title search. He can also find out if there is a legal dispute over the land.

Are all the approvals in place?

Ask the developer for the licence, which is proof that he has obtained permission from the area’s town planning authority to develop the project. Every licence has a unique number. Developers who have obtained the licence often print the licence number in their ads. Also ask whether the developer has received the following approvals: building plan, water, environment and pollution, and height clearance (if the building is situated near an airport).

Often, when clearances have not been obtained, the developer makes optimistic projections that he will get them within, say, six months. “In reality, delay in getting clearances is one of the chief causes of project delays,” says Rajan Ahuja, Director, Realty & Verticals, a Gurgaon-based realty consultancy.

What are the terms of the application form?

In the application form, pay attention to the payment plan. Is the builder asking for a large portion of the cost of the apartment at an early stage of construction? Stick to a construction-linked payment plan. Nowadays many developers offer plans where a substantial portion of the cost has to be paid after possession. Such plans are favourable to the buyer as they compel the developer to hand over possession at the earliest.

Is there an escalation clause?

Builders often include a cost-escalation clause in the builder-buyer agreement. It says that if the cost of building materials or other inputs goes up, the developer reserves the right to hike the cost of the project. Make enquiries regarding the builder’s track record: has he implemented the escalation clause in the past? Did he have a genuine reason to implement the clause? Or, opt for a developer who does not include an escalation clause in the builder-buyer agreement.

When will the project be completed?

The builder-buyer agreement usually states that the project will be completed within a certain period, say, 36-42 months from the start of construction. However, no explicit starting date is mentioned. “Send an e-mail to the developer and get a written reply from him regarding when the project will start,” says Pradeep Mishra, head of Sainik Estates, a Gurgaon-based real estate consultancy.

Is there a penalty clause?

In case of a delay in handing over possession, the developer pays a penalty to the buyer, provided the penalty clause is there in the builder-buyer agreement. Find out how much penalty he will pay. Also, when there was a delay in the past, did he pay the penalty or did he find a way to circumvent it?

What will be the size of the apartment?

The builder states the size of the apartment in terms of super area. This not only includes the carpet area (the area within the apartment’s four walls) but also the balcony, parts of the lift, lobby, basement and staircase. This creates ambiguity regarding the carpet area. Ask the developer for a complete breakup of the super area.

What if the plan changes?

Often, developers show you one building and layout plan at the time of sale, but alter it midway through construction. The flat’s area could increase. The original plan may have shown a swimming pool and club opposite your apartment. Instead, another block of apartments may come up in that space. Read the builder-buyer agreement closely to find out if any redress is available to you if the plan changes. According to Mishra, “Buyers should find out if the builder has changed his plans in the past. Moreover, if the area of the flat increases, at what rate will you have to pay: the original booking amount or the current rate?”

Is an early exit permitted?

Sometimes you may change your mind and decide not to keep an apartment. Enquire whether an early exit is permitted. When a developer’s own inventory doesn’t sell, he imposes curbs so that people are not able to buy from the secondary market. Has the developer blocked sales in the past? And what transfer fee will he charge for an early exit?

What are the extra charges?

Check out the preferential location charges (PLCs). The developer also collects external and internal development charges (EDC and IDC). Find out what the quantum of these charges is. Are they subject to change? Are there any hidden charges that the developer could impose? One favourite trick is to demand two years of maintenance fee in advance. “Get a written assurance from the developer that no further charges will be levied,” says Ahuja. Find out what the apartment’s all-inclusive cost will be. Buy only if this sum falls within your budget.

What if you don’t pay on time?

If by chance there is delay on your part in paying an installment, how much extra time will the developer grant you to pay up? What will be your interest liability? Will your allotment be cancelled? What are the provisions of the forfeiture clause? How much money will be returned to you?
Is the property mortgaged?

If the project has been mortgaged by the developer to a bank, other banks will not give home loans for that project. Moreover, if the developer is not able to sell enough apartments and repay the bank’s loan, the bank will not give its no-objection certificate. Unless it does, you will not be able to get the property registered in your name.

How strong is his financial status?

In case of a listed player, you can easily find information regarding its financial status in the company’s balance sheet. If the company is over-leveraged, avoid its projects as high debt increases the probability of delay in project completion.

How good is his track record?

Find out how many projects the developer has delivered in the past. Avoid novices as they usually lack the financial strength to weather a downturn. Visit an established developer’s past projects and speak to the residents. Did the developer hand over possession on time? Did he provide all the on-campus facilities and the specifications promised within apartments? How well has he maintained the project after its completion? In case of an under-construction property, visit it with a civil engineer and have him evaluate its construction quality.

In most of these matters, the developer may or may not anwer your queries truthfully. Speak to the residents in earlier projects to get an inkling of how the developer is likely to behave if and when some of above-mentioned situations arise.

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