Precautions needed before purchasing a site

PURCHASE OF SITES

Though the apartment culture has captured Bangalore, the original Bangalorean still prefers
an independent house. The old Bangalore was known for its bungalows, with vast open
spaces, lawns and gardens. In present days, as the cost of land has sky rocketed, one can
hardly afford to own a bungalow. Instead independent houses on smaller plots are preferred
on the outskirts of the city.

Purchase of site is the beginning of construction of a house. "Sites in the shape of perfect
square, rectangle is suitable for good
construction. Sites should be nearer to the infrastructure and civic amenities like school,
hospitals, bus stops, recreation centres, milk
booths etc.

The sites are of different types based on its formation and origin. Broadly, there are BDA
sites, BMP sites, Housing Co-operative Society Sites, City Municipal Council sites, private
layout sites, Converted sites and Gramathana sites, revenue sites, which are available. This
article refers to purchase of sites, but not allotment of sites from BDA.

BDA Sites:

These are the sites, which are in the layouts formed by the Bangalore Development Authority
or erstwhile City Improvement Trust
Board. These sites are allotted to the eligible applicants. Legally, these sites are best,
provided all the documents are correctly
scrutinised. It is the development authorities, which pass the title of the site to the allottees.
These development authorities follow
prescribed legal procedure to acquire the lands from public and form layouts, with all the
infrastructures like power, water, and roads.
Hardly there is any need to trace the title of the property before acquisition. The documents
that are required to be examined are
allotment letter, possession certificate, payment receipts, absolute sale deed, Khatha
Certificate, tax paid receipts and Encumbrance
certificates. Apart from these documents, in case of earlier allotments lease cum sale deeds
need to be verified. The development
authorities, previously were handing over the sites to the allottees on lease cum sale basis, for
a period of ten years, where in the
allottees were not permitted to sell the sites during the lease period and has to construct a
house within and period of three years. In
such cases, the allottees do not get absolute title over the property and their rights are only
that of lessee.

The development authorities reserve powers to cancel the allotment and resume the sites if
the allottee fails to comply with the terms of lease. In such cases purchase of such vacant sites
is not recommended even though the stipulated lease period has expired, as the allottee is
bound to construct the house within the stipulated period. In simple terms such vacant sites
are not for sale, unless the development authorities waive the conditions.

However from 23.10.2000 the BDA has removed the system of lease cum sale agreement and
is executing the absolute sale to the allottee. In case if one is purchasing a BDA site from a
person other than original allottee, the sale agreement, sale deeds, revenue records tax
receipts in the name of the subsequent purchasers, have to be examined.

A caution here:
There are many fake BDA documents in circulation. It is necessary to check the genuiness of
the documents and nature of the site with
the development authorities, before purchasing the same.
BMP Sites:

These are the sites, which are available in Bangalore Mahanagara Palike Jurisdiction. They
are private properties, inherited, partitioned acquired by individuals. Vacant sites are very
few in this category and comparatively costly. Title of property is required to be traced from
the origin, with successive deeds of transfer, wills, partition deeds, family trees, encumbrance
certificates and revenue records such as Khatha endorsement, Khatha Certificate, Khatha
extract, Tax paid receipts. Though many advocates restrict the tracing of the title to 13 years,
it is advisable to verify the records for at least 43 years. Apart from the records mentioned
above, the records of city survey office have to be verified. Definitely a complicated process,
as many records are very old not decipherable, and non-availability

f old documents.

Housing Co-operative Society Sites:

These sites may be placed at par with BDA sites. Government or development agencies
acquire land and allot to housing co-operative
societies these societies form layouts, which are allotted to its members. Only sites formed by
any approved societies have to be

purchased. Byelaws, registration details of the society have to be studied. Societies allot sites
only to its members and put various

restrictions on sale of sites. Layouts formed by Co-operative Societies require approval from
concerned authorities. Check all these

details and whether the seller is a member of the society. If there is any restriction on sale
during certain period, insist on no-objection

certificate from the society. In most of the cases, the purchaser may have to become a
member of the society. Verify the allotment

letter, absolute sale deed, Khata, Tax paid receipts and encumbrance certificates. If the
society has acquired land directly, call for

conversion certificate and verify. The title of the seller from whom the society acquired the
lands.

City Municipal Council Sites:

There are seven City Municipal Councils and one Town Municipal Council surrounding the
Bangalore city. The sites in the limits of these

authorities are mostly owned by private individuals, some of the sites are acquired by
Government. Infrastructure is very poor. The

process of tracing the title is very complicated. But some extra pre cautions need to be taken.
Verify whether the betterment charges

have been paid, if not purchaser may have to pay it in the future. Many lands in the area of
these local bodies are agricultural lands and

conversion to non-agricultural purpose must have to be done. Presently City Municipal

Councils have stopped collecting betterment
charges and issuing Khatas. If the owner doesn't have a Khata, he cannot construct the house
with the plan approved from CMC.

Site in private layouts:

These are layouts formed by private parties, other than statutory development authorities.
Many reputed land developers have formed layouts around the city. Verify all the documents
as required in case of private property for a period of 43 years. Apart, from the above check
whether the land is converted for residential purpose, and the layouts are approved by BDA
or BMRDA. Verify the records with respective offices. Many numbers of private layouts
with D.C. conversion and panchayat approval are available. Purchase of these type of sites
involves little risk.

Gramathana Sites:

These are residential sites, which were originally available in village panchayat areas. They
can be distinguished from Kaneshumari

number, assigned to them. The agricultural lands have survey numbers. The sites of this
nature are very few. Government has put

restrictions on issue of license for construction by village panchayats beyond their approved
Gramathana area, original Gramathana

sites can be identified by examining old village survey maps available in survey department.
Examine all the records as is done in case

of private property. In addition verify the village records and Form No. 9 and 10. Form No. 9
denotes Gramathana site and form No. 10

denotes the building, which confirm that the particular property is original Gramathana site or
not. But many village panchayats issue

from No. 9 & 10, though they are not Gramathana sites. Many such sites fall in green belt
area, where construction of residential

buildings is restricted. Extra caution is necessary while buying Gramathana Sites.

Revenue Sites:

These are the sites formed in agricultural land. The very word revenue sites is a misnomer.
The revenue land cannot be used for any

purpose other than agriculture. Unless it is converted for non-agricultural residential purpose
it remains as agricultural land. Formation

of layouts is not permitted on agricultural land. Further layouts needs approval from BDA or
BMRDA. Any one who purchases revenue

site is purchasing a agricultural land. Selling and purchasing of agricultural land has strict
restrictions. Only agriculturists with some

income limit are permitted to purchase agricultural land. Any purchaser in contravention of
this stipulation is null and void and the

purchaser will not get any title and may have to loose the money. Most of the Revenue sites
fall under Green Belt Area. As per zonal

regulation green belt area is meant only for agricultural purpose. The Revenue records such
has Pahani and Mutations of these lands

remain in the name of the original owner even after it is purchased by others. Do not purchase
a site in layouts formed in agricultural

lands, and which are not approved by the concerned authority. Utmost care and precaution is
required in purchasing sites and guidance

of experienced advocate is necessary.

HOUSING FINANCE AT A GLANCE

India is a vast country, having a population of more than 1000 million. Many are without
owned shelter. After independence, the successive governments addressed this problem with
various government-sponsored programmes. They are targeted at poorest of poor, and houses
with bare facilities were provided.
The problem was too gargantuan to be met with government alone. The Government of India,
established National Housing Bank,

under the supervision of Reserve Bank of India. Scheduled commercial banks, Co-operative
banks, were also directed to lend for

purchase/construction of houses. In the beginning 1.5% of incremental deposits of

commercial banks during 1988 was earmarked for

housing finance sector, which was enhanced to 3% during the year 1999 and subsequent
years. The banks were given freedom to

exceed this stipulation depending upon their resources. The slow down of economy, slump in
the demand for loans from corporate

sector goaded banks to aggressively market housing loans. In the course of the time, banks
have overtaken the housing finance

companies in market share. The easy availability of finance, the tax benefits extended by the
union government and increased

earning/spending capacity of middle class, mostly wage earners have fuelled the growth of
this important sector.+

Owning a house, previously was the last priority, mostly at the time of retirement from out of
terminal benefits savings as one could rarely find the means of financing the
purchase/construction. This mindset has changed. The youngsters in early twenties are
earning substantial salaries, with increased spending capacity. They prefer to own houses out
of borrowed funds, which is repaid over a period of time. This helps them to avail of lower
interest rates and also tax benefits for longer period.

Eligibility

The repaying capacity is the single determining factor. There must be regular monthly
income, with enough surplus to meet the
monthly repayments. The maximum age limit is 55 years, which may be extended to 60 years
in deserving special cases. If the

applicant is more than 50 years, any of the legal heirs may have to join as co-borrowers.
Salaried person should have a confirmed job,

with at least minimum five years of balance service. The professionals like Advocates,
Doctors, Engineers, Chartered Accountants,

Company Secretaries etc, should have established income of at least three years. Retired
persons pensioners are generally not

entertained to avail of Housing Finance. Further rental income can be added for eligibility of
increased loan.

Legal Scrutiny Report and Valuation

It is very important to have legally established ownership of the property to avail of the
Housing Finance. The applicant should have all the documents to establish his title to the
property. He should verify the documents available with him/or with the seller and perfect the
title to the property. Financing Institutions will rely on the legal scrutiny report of their
advocates on panel. In view of the severe competition in the field, many institutions are
ignoring the importance of the legal scrutiny, and title to the property, and are giving much
importance to the repayment capacity

Apart from perfect title to the property, the valuation of the property is also very important,
based on which the loan component will be

determined. The banks have approved valuers on their panel, who will value the property and
arrive at the market value.

Loan Amount

Many institutions have a maximum ceiling of one crore-per party. The loan depends upon the
cost of construction, land, purchase cost, stamp duty, registration charges, legal charges and
also other additional expenses. The borrowers may have to bring is 10 to 15% of the cost as
margin money. There are institutions, which finance full cost without insisting on margin
money. In addition to these parameters, the income of the applicant, repaying, capacity of all
the borrowers are being considered Maximum amount that an individual may require is 10-15
lakhs, for a good house, which is within the reach of average wage earner.

Repayment Schedule

The loan is to be repaid in monthly instalments comprising interest and principle called
equated monthly instalments (EMI). The amount

of repayment remains the same during the entire tenor of the loan.

In case of construction, the loan amount is disbursed in instalments depending upon the
progress of construction. The regular

repayment commences after the completion of construction or after the expiry of certain
stipulated time. Interest for intervening

period, from the date of loan to the commencement of equated monthly instalment is called
pre-EMI. This has to be paid quarterly or

monthly.

Though the repayments offered vary upto a maximum of 20 years, it is preferable to avail of
the period of 10-15 years, considering the interest rates, tax benefits and repayment capacity.
The repayment period of 5 years attract heavy monthly instalments, which prove to be
burden; in repayment beyond 15 years, one has to pay heavy interest. There are institutions,
which offer repayment period beyond 20 years also.

Certain banks have special schemes, under which any surplus amount available may be paid
though in excess of equated monthly instalment with facility to with draw such amount in
case of necessity. The account operates like a current/over draft account. This would be
useful for business people. Such schemes are called Home Loan Saving Schemes, where by
paying off the loan earlier substantial amount of interest is saved.
Recently, the repayment has become flexible to suit the borrowers. Step up payment is useful
to young borrowers, where EMI in the beginning is small, which increases as the income of
the borrower grows. Step down payment is useful for aged borrowers, where EMI will be
more during the beginning and goes on reducing as the income diminishes. Interest

At present interest rates are very low the loans are available at 7.25% but there are signs of
interest rates hardening. There are two

different types of interest rates floating and fixe

Floating Rate

Here the rates are not constant, but keep changing. There are linked to market condition.
They may increase or decrease. The present floating rates has reached the bottom and there
may not be further reduction. The lending institutions are very reluctant to pass on the
benefits of reduced interest rates to borrowers. They adopt different strategy to keep the
borrowers paying higher rates. In most of the case the old borrowers pay higher rate than a
new borrower for a similar loan.

Fixed rate

This is supposed to remain fixed through the tenor of the loan. Fixed rates are higher than
floating rates but many banks/housing

finance companies have "Force Majeure" clause in their agreement, which gives absolute
powers to change the fixed rates.
In general, the fixed rates for loans of long tenor, floating rates for loans of short tenor may
be preferred.
Many offer a combination of both fixed and floating, where some percentage is charged as
fixed or balance as floating.

Reducing Balances

Reducing balance means the period at which the instalments collected from borrowers are
credited to the loan account. In annual
reducing balances the monthly instalments collected are credited to the loan account once in a
year. In monthly reducing balance they
are credited on a particular day of month; and in daily reducing banks, it is credited on the
same day. Annual reducing balance is
mostly costly, where as daily reducing is the best. Many have monthly reducing balance, and
few have daily reducing balance.

Hidden Costs

There is no transparency in Housing Finance sector. Apart from interest the borrower has to
pay processing charges legal fee, but many other types of fees, such as administration fee,
inspection fee, etc. Further the rates at which these are charged are also not clear. In such
cases, though the interest rates are low, the hidden costs increase the burden. As stated
earlier, interaction with borrowers would help.

Switch over

The borrowers have an option of switching from floating/fixed to other mode on payment of
certain penalty. Generally it is 1% on the outstanding loan amount. But recently, the
financing institutions have increased fee for switching over. While switching over, consider
the penalty payable, the loan balance, the rate of interest available and the balance repayment
period. If the balance repayment period if short it is not advisable to switch over.

Transfer of Loans

The borrowers may also transfer the loan to other institutions, which take over the loans.
Many borrowers transfer the loans to avail
the reduced interest rates available. The interest rates during 1990-2000 were very high. In
case of transfer of loan, the borrower has
to pay some prescribed fee calculated on the outstanding loan. Apart from such fees, the
institution, which takes over the loan, charges
processing fee, legal charges etc. They may offer some additional loan also. But avail of such
additional loan only in case of absolute
need. While transferring the loan apart from interest rate, calculate the transfer fee,
processing/legal fee, and mode of reducing
balance adopted by the institution, which takes over the loan and hidden costs. If the balance
repayment period is small, transfer is not
recommended.

Tax Benefits

Home loan borrowers have two types of income tax benefits:

1. Rebate on repayment of principal and stamp duty and registration charges.
2. Deduction of Interest
The Stamp duty and registration charges paid and repayment of principal is eligible of rebate
on a maximum amount of Rs. 20,000/-

within a over all limit of Rs. 70,000 under section 88 of income tax act 1961.

The interest paid in a financial year on housing loan is allowed as deduction under section 24
of the income tax act 1961. The maximum
interest allowed at deduction at present is 1.5 lakhs in case of self-occupied house. This is per
individual. If there are more than one
borrower, with definite shares in property, each may avail of this deduction, subject to his
share, with a maximum ceiling of 1.50 lakhs.
There is no such ceiling in case of properties, which are let out. Any amount of interest paid
on the loan is allowed as deduction, and
the income from the property by way of rent is taxable.

Insurance

Apart from insurance of property, against fire, riot, civil commotion, many insurance
companies offer term policies on payment of single

premium. These term policies cover risk for certain period and repays the loan in case of any
lose of life of borrower.

Selection of Financier

Housing finance is most easily available credit product. All the commercial schedule banks,
co-operative banks, extend finance for
purchase/construction of houses. In addition there are housing finance companies specialised
in this line. Many of these institutions are
concentrated in metro and urban centres. There is severe competition. In general the rates of
interest in housing finance companies are
slightly higher than banks. Though there is intense competition, there is no transparency in
Housing Finance industry. It is better to
interact with borrowers of different lending institutions and select the best. If one is a regular
customer of any bank, it would be better
to borrow from such bank.

While selecting the Financing Institutions, examine the rate of interest, charges for shifting,
hidden charges, transparency, and
accessibility to the financing institutions. Many institutions operate through direct selling
agents, and the borrowers will rarely have a
chance to interact with the officials of the institutions. Further there is very little of select
between any two institutions.

WOMEN'S PROPERTY RIGHTS

The Constitution of India, does not differentiate between males and females. Women have
equal rights as that of a mean in every
sphere. Earlier women did not have any rights to the property and they were at the mercy of
the male members of the family. Joint
Hindu Family, an unique institution acted as refugee home for many women widows. With
the disappearance of the Joint Hindu Family,
the plight of women worsened. Gradually in course of time, the women have acquired
absolute rights over the property as that of a
male. Successive Governments have enacted various laws improving / conferring property
rights to women.

Hindu Women's Rights to the Property Act, 1937 dealt with the rights of Hindu widow, on
the death of her husband who does not make
any Will. In such cases, the widow or widows are entitled to the share of the property as that
of a son. But her interest in the property,
Hindu Women estate is limited interest.
Karnataka Hindu Law Women's Rights Act 1933 conferred limited rights to the property, to
the women. This limited right is called
limited estate. Under limited estate rights, the women do not get any rights to alienate the
property by Sale, Will and Gift etc. But the
women had full rights including that of alienation by Sale, Will in case of Stridhana Property.
Stridhana includes ornaments, apparel,
gift received, property acquired out of her savings.

REVOLUTIONARY CHANGES

The Hindu Succession Act 1956 brought out revolutionary changes in property rights of
women. Section 14 of the Hindu Succession Act,
confers absolute rights to the female in any property possessed by Hindu female. The rights
are of full nature including unfettered
rights of disposal of property.
The property covered under the section 14 of the Hindu Succession Act is both movable and
immovable, which is acquired by
inheritance, demise, partition, in lieu of maintenance, arrears of maintenance, gift, property
acquired by her own skill, purchase,
prescription, or in any other manner and also includes Stridhana. This absolute right operates
retrospectively, since the Section 14
refers to the properties acquired before or after the commencement of the act.

RIGHTS IN FAMILY PROPERTY:

Another area, which was improved upon, is Co parceners property. Co-parceners property is
a Hindu undivided family property. The
member of Hindu Undivided property is called co-parcener, who attains the right in the
property by birth. They are all related to the
head of the family. This Co parceners include relatives within four degrees including Kartha.
Earlier females were not member of co-
parceners, hence were denied succession to the ancestral property. Many States Karnataka,
Andhra Pradesh, Maharashtra, Tamil Nadu,
Kerala have amended the Hindu Succession Act 1956. Amendment to Hindu Succession act
by Karnataka has come into effect from 30-
07-1994. Women who have married prior to 30-07-1994 do not have any rights in the
ancestral/co-parceners properties. But this act
gives women equal status as that of a Male who are married or not subsequent to 30-07-1994.
She becomes a member of Co
parcenary by birth in the same manner as that of a son. On partition of the co-parcenary
property, she is entitled to the equal share as
that of a son. The property so acquired on succession is capable of being disposed by her,
through Will or any other Testamentary
disposition.

In certain cases the ancestral house might be the co parcenary property. Generally, members
of the joint family, mostly male co-
parceners reside in such houses. In such cases, the female member cannot force a partition of
such ancestral house unless other male
members in occupation of the house opt for partition.

But the unmarried daughter, a married daughter deserted or separated from her husband, or a
widow is entitled to a right of residence therein