How to buy home or flat in Mumbai safely and smartly

In the 2nd part of the multi-part series on legal issues and remedies for consumers, Vinod Sampat lists out the key points you need keep in mind when buying home or flats

Buying property in India is fraught with perils and risks. Very often, the terms of contract is sided towards the builders or developers and not the consumers. Therefore, consumers have to be careful while buying real estate and must ensure that everything is checked and examined in detail, including the fine print. Unfortunately, not many developers handhold consumers or take care of them. Many are scrupulous and are interested in selling properties at exorbitant rates, with some of them even flouting the law without you ever knowing about it. They don’t disclose many things, so you have to on your footing to check and verify all details in the agreement.
 

In the run up to the Moneylife Foundation seminar to be held on 23rd November, Advocate Vinod Sampat has highlighted key things to keep in mind while buying real estate. Before reading the rest of the article, you may want to register for the seminar beforehand as seats are on first-come, first-served basis and limited in numbers.
 

First, you would need to check the type of property—whether it is freehold or leasehold. Each has its own plus and minuses.
 

Freehold

Leasehold

Advantages

Disadvantages

Advantages

Disadvantages

Peace of mind

Costly

Cheaper

Yearly lease rent to be paid

No recurring expenses

 

 

Check the lease period. After lease period property may not be renewed

No difficulties at the time of redevelopment

 

 

Possibility of litigation i.e. Bombay Port Trust property lease renewed only for five years at exorbitant rates

 

 

 

Problems may arise at the time of redevelopment.

 

Besides deciding on whether to opt for freehold or leasehold, you will need to keep in mind the following as well:

Take search (obtain a search report of the property)

Issue public notice (in local newspapers)

Read original agreement drafted by the builder and see all agreements are duly registered

Have a clause in the agreement that if the seller terminates the agreement or does not give possession on the due date then he will pay double the amount that has been collected by him till date (emphasis added)

Take irrevocable power of attorney from seller

Insist for clear and marketable title certificate from the advocate of the vendor

See that the earlier chain of agreement is duly stamped and registered

Insist for no objection certificate from the cooperative housing society

Have the area physically measured. Also see that the carpet area tallies with the society record as well as with the records of the Bombay Municipal Corporation (BMC). There are instances were builders have fooled flat purchasers by selling open passages. The area as reflected in municipal records is the correct records

Have clear cut idea of hidden expenses like transfer fees, brokerage etc

Be specific and ask hard hitting questions i.e. what all furniture items will be kept. Prepare an inventory of the same

Have separate agreement for furniture item. This will help you in saving stamp duty which is 3% on moveable property and 5% on immovable property

See that the seller has paid all his tax dues

Inquire if there are any notices received pertaining to the flat. Take an affidavit from the seller. In case of dispute this can help you to initiate criminal action against the seller

Documents should be signed before a notary and the notary number must be mentioned in the document otherwise it becomes a defective affidavit

Inquire about incidental benefit i.e. car parking spaces that would be allotted by society, club facilities, etc

Before paying token amount get the draft of all the papers approved from the seller

Ensure that the seller is holding the flat not as a trustee

Find out the market value of the property as well as the impact of capital gains tax on the seller. At times deals get cancelled if the seller has to pay high amount of tax, like tax deduction at source (TDS)

Check the status of the property after verifying the property card

Ensure that the entire chain of documents are mentioned in the agreements

In the event the flat is acquired by the transferor on account of demise of his family members insist for probate/letter of administration. In the alternative insist on the consent of all the legal heirs preferably as confirming parties

You have to ensure that proper precautions are taken else you can face problems when you offer the flat as collateral or at the time of transfer of flat

Take a token bank loan (banks have own method of doing verification of the property title). It will give peace of mind

Check if the occupation certificate/ building completion certificate is received

Deal with reputed persons be it broker or vendor

Your flat is priceless do not compromise by telling illiterate persons to prepare transfer documents
 

Stay tuned for the 3rd part which will be published tomorrow in the run up to Vinod Sampat’s seminar. Register for the Moneylife Foundation Event by Vinod Sampat.
 

Check the first part over here:

 

 

NOTE:
Those seeking help or advice on CHS issues can contact
Moneylife Foundation’s Legal Resource Centre (LRC) ( http://moneylife.in/lrc.html )

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COMMENTS

Karan

5 years ago

Great article Mr. Sampat!

Please can you elaborate when you say that BPT renews leasehold property for only 5 Years??

So if a 99 Year Lease is expiring it will only be renewed for 5 Years?

Also what is the thumb rule of discount/difference in price between Freehold and Leasehold property.

So say all else equal (identical building, location etc, amenities etc) if the price of Freehold Apartment is say going for Rs 10,000 PSF how much should a Leasehold Property go for APPROX?

Look forward to your response!

REPLY

Vishrut Patel

In Reply to Karan 5 years ago

Dear Mr Karan,

Thanks for posting your comment.

As you may be aware Moneylife Foundation has launched a Legal Resource Centre ( http://lrc.moneylife.in/ ) to provide advice and help in such matters.

We request you to send your query through the LRC by clicking in this link http://moneylife.in/lrc.html

Best Regards,
Vishrut Patel

Will the Volcker Rule barring banks from proprietary trading be implemented?

Four years after Paul Volcker suggested that banks should not do proprietary trading (a cause of global financial turbulence), there has been no action.

One of the most controversial regulations of recent times, the Volcker Rule is yet to see the light of the day in USA. It has been now almost four years since the idea of prohibiting banks from doing proprietary trading was thought of in USA, which is the core of Volcker Rule, but till date nothing substantial has happened but timeline for implementation has got extended many times. The USA is abuzz with the news of another extension.  As per Financial Times report,” The Federal Reserve is considering a delay in the compliance date for the highly anticipated Volcker regulation, giving banks additional time to conform to its provisions, according to people familiar with the matter. Banks are currently required to comply with the rule – which bans proprietary trading that puts a bank’s own capital at risk – by July 2014. But regulators are still putting the final touches on the long-delayed proposal, and the final rule will probably not be released until December – giving banks less than a year to make changes to comply with the proposal.”
 

It all began with the financial crisis that engulfed the largest economy of the world in 2008. The rule, named after former Federal Reserve Chairman Paul Volcker, was put forth in 2010 to restrict banks from making speculative bets and trades with their own capital.
 

The key feature of the “Volcker Rule” is that it prohibits an insured depository institution and its affiliates from:
 

  • engaging in “proprietary trading”
     
  • acquiring or retaining any equity, partnership, or other ownership interest in a hedge fund or private equity fund; and
     
  • sponsoring a hedge fund or a private equity fund.
     

The Volcker Rule has been debated (over last 4 odd years) at length but some of issues have remained unresolved till now and implementation of the regulation has been getting extended.
 

Why is it that the implementation of Volcker Rule is getting delayed? There is more than one reason for this. Let us look at some of prominent reasons for the delay:
 

Hedging Exemption:  While Volcker Rule has a provision to ban proprietary trading for the depository institutions, it allows proprietary trading for the purpose of hedging. As per the rule the hedging exemption covers a banking entity’s purchase or sale of a covered financial position designed to reduce specific risks in connection with or related to certain positions, contracts, or other holdings of the banking entity. The hedging exemption is available subject to certain terms and conditions as per the proposed legislation which says ,” The banking entity should have an established internal compliance program to ensure, among other things, that the subject activities are risk-mitigating hedging activities, including written policies and procedures regarding the instruments, techniques and strategies that may be used for permissible hedging activities”. The recent London Whale Scandal has highlighted that hedging activity can put investment banks at risk and hence banning proprietary trading alone does not serve the purpose.  Hedging provision for Volcker Rule has become the main bone of contention. This is very clearly reflected in the public comments from some senior politicians and regulators.
 

Misuse of market making provisions:  Another grey area in the rule is the market making provision. The Commodity Futures Trading Commission (CFTC), the commodity market regulator, has made its stand clear on the implementation of Volcker rule in context of current market making provision. It is very clear that it is difficult to identify the difference between market making provisions and proprietary trading.  Recently CFTC chairman Gary Gensler has indicated that he wants a more stringent application of the market-making and risk-mitigating hedge exemptions which are a part of Volcker Rule. This has come in the wake of London Whale trading scandal, in which JP Morgan's incurred losses of approximately $6.2 billion in the credit default swap market. What was initially thought to be a hedging strategy was later on found motivated by attempts to reduce the unit's consumption of regulatory capital.
 

It is feared in USA that market making may become home to proprietary trading, thereby defeating the purpose of Volcker rule which attempts to prevent misuse of proprietary trading. The CFTC chairman has recently stated that "I spent 18 years on Wall Street, and a lot of proprietary trading happens on market-making desks. If you are a good market-making trader, you often use the flow of that market-making to do some proprietary trading, whether that is for three minutes or three days”.
 

Cultural Gap causing the rift:  Many men, many minds is another issue with finalisation of Volcker Rule. The Dodd-Frank statute convenes the Federal Reserve Board, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the Commodity Futures Trading Commission to write the Volcker Rule. It is conflict between banking cops and market cops which is getting too difficult to manage. While regulators such as Fed and FDIC are responsible for banking regulations, SEC and CFTC are market regulators. Arriving at a consensus seems to be an issue because of difference in approaches.
 

For an economy devastated by wrong doings of banks, Volcker Rule was thought to be the panacea to prevent the wrong doings in the future. Whether banks will be reined in a better way post implementation of Volcker Rule needs to be tested yet, the bigger challenge is the finalisation of the provisions of rules. The war of words on the drafting of legislation needs to be managed first.

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Cyber Monday full of identity theft risks

Scammers and hackers are gearing up for Cyber Monday and consumers should keep their wits about them, be aware of the risks and remain sceptical of offers that sound too good to be true

Consumers are already doing more of their holiday shopping online. Even so, Cyber Monday, the Monday after Thanksgiving, is expected to be the busiest online shopping day of the season as retailers roll out a number of specials to take advantage of that.
 

But be warned: scammers and hackers are gearing up for Cyber Monday as well and one expert says Cyber Monday may be the most dangerous day of the year when it comes to having your identity stolen.
 

“The best way to be secure on Cyber Monday? Yank the plug out,” said Bob Bunge, a cyber security specialist and engineering professor at DeVry University.
 

Christmas for scammers
 

While it's true that scammers run their “phishing” attacks all year long, Bunge and other security experts he consults with have seen the intensity level build since the start of the holiday shopping season, especially since so many retailers are jumping the gun on Black Friday and offering online deals now. But he expects activity to spike on Cyber Monday.
 

“The reason is consumers are expecting to get a bunch of screaming good offers from retailers they've done business with,” Bunge said. “It's the one day of the year that if Walmart says they'll sell you a TV for $10 you might be inclined to believe it. Only it isn't Walmart making the offer.”
 

Instead, it could be someone in another country hoping you will click on the link in their email, which could either send you to a bogus site and entice you into revealing sensitive information, or download nasty malware to your computer – or both.
 

Avoid wireless connections
 

Bunge offers a few tips for staying out of trouble on Cyber Monday – short of unplugging your computer for the day. First, he says, avoid making online purchases using a wireless connection.
 

“Especially avoid using wireless connections in a public space, like an airport or a coffee shop,” he said. “I was at a conference today where they had an open wi-fi connection for everyone to use. Well, that's great but it's not a place to do your shopping.”
 

Home networks are a bit safer, assuming you have good security on your connection. But even then Bunge says you are not completely safe, especially if you live in a high-density area where many of your neighbours can pick up your wireless network. If one of your neighbours happens to be a skilled hacker who can get past your security, you're vulnerable. Better, he says, to place your orders with a computer hard-wired to your network.
 

“All things being equal, wired beats wireless when it comes to the security of your connection,” Bunge said.
 

Links
 

Another piece of advice – never click on a link in an email.
 

“If you like the way the URL looks, if it looks legit, then re-type it in the address window of your browser, don't click on it,” Bunge said. “The reason being, a hacker can type a legitimate web address, like www.amazon.com, in the email but make that link take you somewhere else.”
 

Make sure your software is up to date. Most software updates address security issues so consumers, where possible, should opt for automatic updates.
 

“Two of your major security issues are Java and Flash, which are third-party browser enhancements,” Bunge said. “And the reason they are security issues is because people don't update them. There are all kinds of known exploits against the older versions and if consumers aren't updating those packages, that's something attackers will exploit.”
 

At the same time, Bunge says consumers need to beware of bogus update prompts that try to get you to download malware or spyware. Always make sure you are getting your updates straight from the vendor's website.
 

Limit risks
 

A savvy online shopper will also try to limit their risks. One way to do that is to use only one credit card for online purchases.
 

“If something bad happens you only have one card that has been compromised,” he said.

Finally, consumers should keep their wits about them, be aware of the risks and remain skeptical of offers that sound too good to be true. Bunge says the most effective online scams are usually the simple ones – “You've won an iPad! Click here!”
 

While it may seem that the Internet has made the world a scarier place for consumers, Bunge says the world has always been pretty scary.
 

“The Internet hasn't changed human nature,” he said. “It's made it more convenient for liars to lie.”

 

Courtesy: ConsumerAffairs.com

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