TOP 6 REAL ESTATE SCAMS AND HOW HOME BUYERS CAN AVOID THEM

TOP 6 REAL ESTATE SCAMS AND HOW HOME BUYERS CAN AVOID THEM

The Indian real estate sector is growing, and so are the scams and frauds associated with it. Consumers now-a-days are more informed, but ironically are still susceptible to scams. Real estate scams run the entire gamut, from legal frauds and fly-by-night operators to false promises and untenable buy-one-get-something-free offers.

"It is a double whammy for gullible realestate investors because justice for fraud victims is long drawn and uncertain, due to the complex nature of disputes in this sector. The absence of an industry watchdog compounds the matter further," informs BankBazaar, a multi-brand financial product comparison platform.Here is a rundown of scams typically plaguing the Indian real estate market that investors need to keep an eye out for:

False Promises:

With increasing competition in real estate, builders are trying to lure as many buyers in the initial phase of a project to meet their funding requirements. Advertisements with false promises are part of it. A Gurgaon-based real estate developer was recently accused by over 700 investors of embezzling more than Rs 1,000 crore in a real estate project. The developer had assured investors of 12% returns on the invested money until possession, but the cheques given by the company bounced. To worsen matters, investors faced inordinate project delays, grinding their property investment dreams into dust.

Assured Rental Returns:

Many builders market their projects by assuring a fixed rental income from properties. Some builders even publish fake rental listings of various projects over the internet. If the prospective buyer does not conduct his own research, he may actually believe that the property once bought can be easily rented out for a fixed monthly income. But, in all reality, once the purchase is over, rentals are hard to come by, leaving the investor in a lurch. As for the builder, the unscrupulous variety vanishes without leaving behind a mud trail.

Title Frauds:

This happens with both individual sellers and developers. There have been cases where scammers have duplicated title deeds of vacant or disputed projects and sold them to innocent buyers. "By the time the fraud is detected, the scammer is far out of sight, counting the wads of money he has made. A related genre of real estate fraud is where buyers purchase their dream home only to later come to know that the project does not include that part of land the builder had specified as theirs when they booked it," observes BankBazaar.

Deliberate Delays:

Project delays and disappearing builders are another common occurrence in real estate fraud. One strategy unscrupulous builders resort to is to delay project completion deliberately until they get requisite number of buyers. Yet others divert the money pooled from one project to another, delaying both projects in the process. Many new and existing builders have left a trail of gullible buyers who have just property purchase agreements to show and are kept on wait while they pay huge rentals.

Deviation from Approved Plans:

Many projects when completed take several deviations from the approved plan in terms of common areas. This possesses a huge challenge for many buyers who have to compromise on common amenities, spaces, promised luxuries and even on core project amenities like dedicated parking space despite having made additional payments for the same.

Delayed Aprovals:

There are many cases reported where buyers are left wringing their hands in despair even after possession, since several sanctions for utilities like electricity connection, water connection, etc. were pending. Issues like plot in unauthorized layout or sub-divided land, building with land use violation, setback violations, floor area violations, etc.detected after agreement formalities and construction have commenced could lead to delay in other downstream approvals and title registration.

Tips for Real Estate Buyers

For property purchasers, who invest their personal savings in any realty project, no amount of caution is too much. Here are certain precautions you must take while purchasing property:

Hire services of a legal advisor:

It is imperative to hire the services of a legal advisor and discuss all property-related documents with him before signing on the dotted line with the builder. "With the advisor's help, ensure that all government approvals are in place. If the builder fails to show you the complete set of approvals or only has partial approvals in place, think twice before investing in such a project," advises Bank Bazaar.

Check builder's background:

Make sure you do your own background check and research on the builder and their credibility.Use the power of the internet and social media to your advantage. Check their completed projects list, track records and ensure that they are members of real estate bodies like CREDAI.

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STAMP DUTY JOINT DEVELOPMENT AGREEMENT

STAMP DUTY JOINT DEVELOPMENT AGREEMENT

The Government of Karnataka under Karnataka Act No.9 of 2009 has brought out certain amendments to the Karnataka Stamp Act, 1957 effective from l" April, 2009. According to this Amendment Act and in terms of article 5(t) thereof, stamp duty chargeable for joint development agreements relating to construction or development or sale of immovable property is at the rate of one rupee for every one hundred rupees or part thereof on the

1. Market value of the property

2. The estimated cost of construction of proposed construction or development or proposed development of the property as the case may be [which is the subject matter of such transfer under the agreement in accordance with the provisions of sec.28 of the Karnataka Stamp Act, 1957] or

3. On the consideration of such transfer, whichever is higher?

It is the normal practice that when any landlord desires to develop his agricultural land into an apartment complex, he would enter into a joint development agreement with the developer of his choice. It is also the normal practice that when such joint development agreements are entered into, only the total built up area and the undivided share of land would be shared between the landlord and the developer at the agreed ratio. Not only this, at the time of execution of joint development agreement it would be premature and not feasible for the developer to estimate the cost of construction or the proposed construction or development and sharing of square feet area. In spite of this factual position, when joint development agreements are presented for registration, some of the sub-registrars in Bangalore have been insisting on mentioning some figure as the proposed cost of construction to arrive at the stamp duty payable on registration of such a joint development agreement or the same is referred for valuation under sec.45-A or the document is impounded. Thus, there is no uniform system adopted by the sub-registrars regarding stamp duty on registration of joint development agreements.

To have a clear picture of the issue, Shri S.Selvakumar, Editor, Real Estate Reporter, took up the matter with the Inspector General of Registration and Commissioner of Stamps under Right to Information Act,2005 and sought clarification on the point.

As the information furnished by this authority was not convincing, an appeal was filed before the Appellate Authority under the Right to Information Act. The Inspector General of Registration and Commissioner of Stamps, as an appellate authority, has passed the following order on the subject vide his order No.RTI/239/09-10"In the instant case, only agricultural land is given for development and there is no mention of cost of construction or proposed construction etc., or there is no consideration for such transfer. Under these facts and circumstances and in the absence of specific case on hand, stamp duty is chargeable on the market value of the agricultural land which is deemed to be the subject matter of transfer under the Joint Development Agreement."

 Thus, when a joint development agreement is entered into by the landlord with the developer to develop his agricultural land wherein no cost of construction or proposed construction is mentioned or there is no consideration for such transfer, stamp duty payable will be on the market value of such agricultural land and if the land in question is a converted land, stamp duty payable will be on the market value for such converted land and where there is a fraction of converted land with revenue khata, stamp duty is payable on square feet basis as per guidelines value fixed by the Central Valuation Committee.

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PROPERTY JOINT DEVELOPMENT AGREEMENT

PROPERTY JOINT DEVELOPMENT AGREEMENT

Urbanization has accelerated migration of people to the nearby cities in search of jobs and other means of livelihood. This increased influx of population to the cities has in turn created paucity of residential accommodation. The employees prefer to have accommodation near their job centers for obvious reasons. This has resulted in vertical growth of cities instead of lateral growth. Vertical growth saves lot of land and can accommodate a large of number of families in a limited space. But, vertical development of land requires heavy investment which an individual cannot generally invest and thereby the joint venture activities.

What is meant by Joint Venture?

The words "Joint Venture" is described as "a business activity by two or more people or companies working together". Many times an individual may own some land, but may not have funds to fully exploit it. Similarly a builder/developer who has resource may need some land to employ his resource profitably. For vertical development of land which comprises of a number of flats lot of money, manpower and expertise are necessary all of which an individual cannot possess. Moreover, unlike in the case of construction of independent house, the group housing or construction of apartments is more complicated. It requires approval from various agencies like water supply board, sanitary department, electric power supply board, Airport Authorities, Pollution Control Board, Survey Department, Telephone Department, etc. The group housing project also has to get through a much stricter compliance of procedure for obtaining project loans from the banks.

Thus, for a joint venture project, the owner and the developer join hands to develop the land for the benefit of both. To avoid the likely disputes, misunderstandings between them and for smooth completion of the project, they enter into a Joint Venture Agreement wherein details of the terms and conditions are spelt out in unambiguous terms. The development agreement must be in writing and needs registration.

What does a Joint Venture Agreement contain?

A Joint Development Agreement generally contains the intention of the parties to develop the land, sourcing of funds, time schedule for completion of the project, apportionment of the developed property/flats between the land owner and the builder, commitment of the promoter for adherence of the statutory requirements, expenses to be borne for getting the statutory permissions of the competent authority, finding the prospective purchasers, common areas and facilities specifying the percentage of undivided interest in the common areas and facilities available to each flat owner, type of use of the apartment building, penalties for non-adherence of the terms and conditions by the parties etc. In short, the Joint venture agreements clearly stipulate the duties and responsibilities, obligations and rights of land owner and the builder.

Procedure for joint development:

After examination of the property of the land owner, the developer puts forth his intention to develop the property. This offer basically consists of the percentage of the built up area which shall be offered to owner towards cost of the land and the amount of refundable or nonrefundable security deposit to be deposited by the developer with the land owner. The percentage of area or flats offered to the owner is arrived at after taking into account several factors such as cost of the land, cost of construction, escalation in cost of construction, cost of obtaining approvals for the building, marketing and administrative expenses and most importantly the selling price of apartments in that area.

 If the offer is attractive, the land owner will give his acceptance and hand over a copy of the title documents to enable the builder to get the same verified by his Advocate. If the builder's Advocate approves the title, a draft copy of the Joint Development agreement laying down the terms and conditions of the development is given to the landowner who generally gets it vetted by his Advocate before giving his consent.

Upon finalization of the Joint Development agreement, the same is registered upon payment of the prescribed fees. This agreement is signed by both the builder & land owner and thereupon the builder pays the first installment of refundable security deposit to the landowner. Along with the Joint Development Agreement,the landowner also gives a Power of Attorney to the Builder to enable him to apply for various approvals needed for the construction of apartment building and to sell the apartments falling to the share of Builder.

The builder gets the plan prepared by an Architect taking into account the requirements of the landowner. Once the plan is ready and approved by the landowner, the same is submitted for approval of the Government authorities. All the procedures, formalities and costs for approvals are taken care of by the builder.After the plans are submitted and approved, the builder takes possession of the land from the owner.At this stage, the remaining balance of refundable advance is paid to the landowner. On receipt of the approval of the competent authority, the builder commences the construction and notifies for public the availability of flats for sale.

Builder's share of apartment will be registered on completion of the building in favour of the purchaser. In respect of the apartments falling to the share of the land owner, the land owner may retain some apartments and sell the balance according to his wishes. The landowner may sell his apartments when the construction of the building is nearing completion or after completion or even earlier to this. The builder can sell the landowners apartments after the consent of the land owner and pass on the consideration to the landowner as and when the same is received from the buyers. When the landowner's flats are sold and full payment is received, the landowner will register these apartments in favour of the buyers.

On completion of the project, the flats retained and unsold by the landowner are handed over to him.The security deposit deposited by the builder will be refunded to him. The builder and the land owner will facilitate the formation of a Flat Owner's Association and upon formation of such an association, the title documents of the property will be handed over to the Association.

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JOINT VENTURE

JOINT VENTURE

The word joint venture is describes as a business activity by two or more people or companies working together wherein each person contributes assets and share risks. Like a partnership, joint ventures can involve any type of business transaction and the "persons" involved can be individuals, groups of individuals, companies, or corporations. Famous examples of such ongoing joint ventures include Dow Corning, Sony Ericsson, and Owens-Corning.Cost of starting many projects can be very high so in this case a joint venture allows the persons involved to pool their collective resources in order to achieve the common aims without having to undertake potentially insurmountable or crippling financial obstacles to do so.

A joint venture takes place when two parties come together to take on one project. In a joint venture, both parties are equally invested in the project in terms of money, time, and effort to build on the original concept. While joint ventures are generally small projects, major corporations also use this method in order to diversify. A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project, as well as the resulting profits.

How to enter into Joint Venture agreements?

Selection of a good local partner is the key to the success of any joint venture. Once a partner is selected generally a Memorandum of Understanding or a Letter of Intent is signed by the parties highlighting the basis of the future joint venture agreement. A Memorandum of Understanding and a Joint Venture Agreement must be signed after consulting lawyers well versed in international laws and multi-jurisdictional laws and procedures. Before signing the joint venture agreement, the terms should be thoroughly discussed and negotiated to avoid any misunderstanding at a later stage. Negotiations require an understanding of the cultural and legal background of the parties.

Before signing a ‘Joint Venture Agreement’ the following must be properly addressed:  

·  Dispute resolution agreements

·  Applicable law.

·  Force Majeure

·  Holding shares

·  Transfer of shares

·  Board of Directors

·  General meeting.

·  CEO/MD

·  Management Committee

·  Important decisions with consent of partners

·  Dividend policy

·  Funding

·  Access.

·  Change of control

·  Non-Compete

·  Confidentiality

·  Indemnity

·  Assignment.

·  Break of deadlock

·  Termination.

The Joint Venture agreement should be subject to obtaining all necessary governmental approvals and licenses within specified period.

Challenges of Joint Ventures

Although joint ventures are a great way to pool capital and expertise while simultaneously reducing the risk of loss to all involved, they create some unique challenges as well. For example, if one party to the joint venture independently develops an idea that allows the joint venture entity to make a substantial profit, should the resulting profits of the joint venture be split evenly or should the inventing entity receive a larger portion of the profits? Problems such as these, often not considered at the inception of a joint venture, may be one reason that nearly half of all joint ventures last less than four years and typically end in a legal battle. For that reason, it is important to understand what a joint venture is, anticipate potential problems, and account for those possible eventualities in a joint venture agreement.

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INVESTMENT BY NON RESIDENT INDIANS

INVESTMENT BY NON RESIDENT INDIANS

An NRI or Person of Indian Origin (PIO) can own both residential as well as commercial properties in India and there is no restriction on the number of properties you can buy. However, you cannot purchase any agricultural land, farm house and plantation property. You can have ownership of such property only if they've been gifted or inherited. It should be kept in mind that the monetary transactions, used in these investments should be strictly in Indian National Rupees (INR), through proper channel.

Funding the Purchase: It is advised to get the papers verified by a lawyer before going ahead with the transactions. One should properly check the title papers of the property, especially if it is inherited or jointly held, and take a bank release in case it was at any point of time under mortgage. Also, should take a no dues certificate from the seller at the time of purchase to ensure there is no water, electricity or any other pending bills with the authorities. For new constructions, land title should be clear and the builder should have taken all approvals and permits from the civic authorities in terms of construction. Also, education qualification and profession play a role in deciding your loan eligibility. Like, only graduate NRIs can avail home loans in India. According to RBI norms, a maximum of 80% of the value of property can be funded by a financial institution. Rest has to come from the NRI's personal resources. Indian financial institutions give rupee loans and so the same needs to be repaid in rupees only.

"Another option NRIs can use is to get funding overseas where interest rates are lower and is a good idea especially if you are still overseas and have income accruing there," says Anil Rego, CEO and Founder, Right Horizons, a Bangalore-based financial planning firm. Since all transactions must happen through the banking channel, repayment has to be done by inward remittances. You can directly get the money remitted from NRO/NRE account in India or issue post-dated cheques or Electronic Clearance Service (ECS) from your NRE, NRO or Foreign Currency Non Resident (FCNR) account.

 In case you let out the property you can use the rent to repay the loan as well. Cheques issued from a relative's local account can also be used to make the loan payments.

Passing the PoA: If you are buying an under-construction property, your developer may ask for a power of attorney(PoA) favouring them. This is not unusual and would make documentation work slightly easier and quicker. A PoA can be given to execute any contracts, deeds as well as mortgage, lease or even sell. So make sure the kind of authority you are giving to the person through the PoA. Just get it worded properly by a professional lawyer you trust. Also, if and when you want to dispose the property, it is a good idea to have a PoA to be a resident India who may be able to act on your behalf to complete formalities such as registration, possession, execution of agreement of sale, etc.

Regulations on Sale of Property by NRIs: Under the FEMA rules, if you are an NRI, you can sell any residential or commercial property you have bought or inherited to anyone you want. If you have any inherited agricultural property, plantation or farm house, you have to search for a resident Indian to buy it. However, you are allowed to gift them to another NRI or the person of Indian origin. There are some specific RBI guidelines on the repatriation of sale proceeds which need to be adhered to. You need to decide on whether you want money as repatriateble or not. "If you want to repatriate, it needs to come in foreign currency from an overseas account, NRE or FCNR account. One can repatriate up to the amount invested in the property," says Rego. "The other condition is that repatriation cannot exceed the foreign exchange amount paid for purchase of property through banking channels. Refund of application money, bayana, advance on cancellation has no limitations," says Sudhir Kaushik, co-founder and CFO of Taxspanner Also, it must be noted that an NRI cannot repatriate proceeds of more than two properties.

Tax implications :A property is also a good tax saving tool for both residents and non-residents. The benefits for a non-residential Indian (NRI) are very similar to the tax benefits of a resident Indian. An NRI is entitled to all tax benefits related to purchase of property that a resident Indian is. So, you can claim a Rs 1 lakh deduction under 80C.

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EFFECTS OF PROPERTY PARTITION

EFFECTS OF PROPERTY PARTITION

Partition is neither a gift nor a transfer of property.It merely breaks a joint right into several rights. It is not acquisition of property or exchange of property. It is a combination of release and conveyance of the rights of the property in favor of individuals. And therefore it can be affected orally. Partition is not transfer but when it assumes the form of transfer, the intention may be to hoodwink the creditors.

The basic character of joint Hindu family is that each member has inherited title to the property by birth. Each member has joint title to the entire property and that joint enjoyment of the title is converted by partition into separate title of the individual co-owner for his enjoyment. Therefore, it is now an established fact that partition is not transfer, but transformation of joint property.

When a property is divided into more than two parts, the co-owners of the different portions shall agree to hold their portions separately as absolute owners and each of them shall make a grant to release his share from portions give to others. Necessary covenants in a partition deed are about encumbrances on the property, quiet enjoyment, custody and production of title deeds, easements of necessity payment of rent and taxes and performance of other conditions of lease, if any, etc.

Partition of joint property is not an exchange. If it is reduced into writing, it must be registered in case of immovable properties.Deed of partition requires registration. Mere writing of previous partition does not require registration. Mere list of properties allotted to different co-owners does not require property registration. Unregistered deed of partition though not admissible in evidence to prove the fact of partition, cannot be used to prove that a particular property was allotted to a particular co-owner as his share.

Partition means collapse of joint ownership. It destroys the harmony of joint ownership and of possession.A large property falls into pieces over a generation or two. The land is very much there in bits and pieces in the name of different owners.

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FAMILY PROPERTY PARTITION

FAMILY PROPERTY PARTITION

Properties and human beings are inseparable. With progress and social change over the ages the urge to own property, wealth has acquired demonic proportions. In the present day world, immovable properties are the most valued assets one can possess.

The desire to own material possessions reared its head in the inquisitive mind of the Stone Age man. Thus women, children came to be his first personal assets, followed by immovable properties. While literacy and social outlook have elevated the status of women and children, there has been no change worth the name as to the status of immovable property as the personal asset of the human being. So long this state of affairs continues problems relating to property transfer will persist. From Stone Age to cement age, it has been a long haul.

Partition:

Partition is division of property held jointly by co-owners. When a property is divided each member becomes sole owner of his portion of the property. Each divided property gets a new title and each sharer gives up his or her interest in the estate in favor of other sharers. Therefore, partition is a combination of release and transfer of certain rights in the estate except those, which are easements in nature.

There are some properties, which cannot be divided physically. If physical division is not possible, partition can still be affected by paying cash or other assets to a sharer in lieu of his or her share in the property. Such situation arises when the division of an estate is considered to be dangerous and unreasonable, and when such division dilutes the inherent value of the property, or when the immovable property is too small for division.

The instrument of partition is a document by which the co-owners of a property agree to divide the property among themselves by oral agreement or written agreement or by arbitration or through court. If a document of release shows that the executants are to get cash or other assets, the document is an instrument of partition. The basis of partition is equality. The parties shall share the property equally.

If there is no agreement among the co-owners for amicable division of the property, the only alternative is to sell the property by mutual consent or by court decree and distribute the sale proceeds among the co-owners. Any of the co-owners may also enforce partition through Court.

In a partition suit a court may have decreed partition of the property in the interest of the co-owners. But if it is found that the sale of the property and distribution of the proceeds to the co-owners is more beneficial, the court can at the request of the shareholders direct sale of the property and distribution of the proceeds to the co-sharers.

There are three types of co-owners: Joint tenants or tenants-in-common; Hindu Joint Family owners or coparceners; partners of a partnership firm. Under the Hindu Law in general everyone being a co-owner in a joint ownership has a right to claim his share and such right cannot be denied to him if the property is held as joint tenants. Since joint tenancy is unknown to Indian law, there is not much difference between joint tenancy owners and tenants-in-common.

Christians and Muslims hold properties as tenants-in-common or as joint tenants and partition of such immovable property can happen by mutual consent or by partition deed or by court decree or arbitration.

Partition in Hindu law covers two aspects. One is the division of the status of the members and the other is the division of the joint family property. In the former case, the members are divided according to heir standing in the joint family and in the latter case division of joint family property into separate shares. Share of a member depends on the status he enjoys in the family. These are interlinked. Partition must be according to law. If a minor gets less shares than he is entitled to in law, the partition is defective and he can re-open the same when he attains majority. If a member gets more than his share in a property, the excess received will be treated as a gift.

It is not necessary that all co-owners agree to partition. When a member desires partition, the property is divided into two portions one for the separating one according to his status and share and the rest jointly for the others. Though oral partition is allowed under Hindu Law, it is not preferable as it may give rise to disputes particularly with respect to immovable properties. It is advisable oral partition should be reduced in writing (palu patti). Also, the Income Tax Act does not recognize oral partition of a Hindu Family property unless the Income Tax Officer is satisfied with the facts and this is possible only when it is recorded in partition deed.

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