Documents to Check Before Buying an Under-Construction Flat

Investing in a flat under construction comes with many benefits and risks, such as project delays, disputes over legalities and financial loss. So, you must always conduct due diligence. As a buyer, check all relevant documents, understand your rights and make important decisions carefully, as they will impact you in the long run. For this, you need to keep in mind some documents to check before buying a flat under construction. 

RERA, (Real Estate Regulatory Authority) has made transparency and accountability a necessity in the real estate sector. Every developer who has planned a project, whether commercial or residential, has to register it with RERA and get it approved. The Authority also makes sure that your investments will be protected and holds the builder accountable. If you are wondering what documents you need to check before making your decision, you’re in luck.

In this blog, we will explore more about the legal documents for under-construction flats. 
So, let’s begin! 

Understanding Under-Construction Flats

What is an Under-Construction Flat? 

To define, these flats are properties that are still in the process of being built. There are many advantages to investing in such a property, such as: 

• Lower Prices: Costs are usually 10 to 20% lower than ready-to-move properties. 
• Potential for a higher ROI: Early investments may lead to greater appreciation over time. 
• Customisation: You will be able to choose your layouts or finishes, and tailor the property according to your needs. 

On the flip side, there are some risks involved as well: 

• Delays in Possession: This is a very common issue. Often, there can be delays in possession because of financial problems, regulatory hurdles or mismanagement by the builder. 
• Quality Issues: The final product may not meet your expectations or the standards promised to you. 
• Legal Complications: Properties that don’t have proper approvals or clearances can also lead to disputes. 

Common Buyer Mistakes: 

• Many buyers often fail to research the builder’s history and reputation. 
• Ignoring the importance of RERA registration. 
• Neglecting to read the fine print agreements or payment plans. 

Legal and Regulatory Framework

Legal Requirements: 

• All developers have to get builder credibility documents, like title deeds, building permits, and environmental clearances before selling under-construction properties. 
• The project has to adhere to zoning laws and building codes. 

RERA’s Role in Real Estate: 

• Ensures that builders register their projects, and disclose essential details like delivery timelines and project finances. 
• It also requires that the builder has an escrow account for each project so that there is no fund diversion. An escrow account is essentially a third-party account that holds all funds during a transaction between two parties. This account will only release the funds when all the terms of the agreement are met. 
• Offers a grievance redressal mechanism for buyers. 

Key Benefits of RERA: 

• Transparency: It gives you access to all project details on the RERA portal. 
• Timely Completion: Builders can face penalties for delays. 
• Legal Prote action: You can also complain if promises are not fulfilled. 

Checklist for Buying Under-Construction Properties

Builders and Project Documents: 

• RERA Registration Certificate: This RERA compliance document confirms that the project follows all RERA standards. 
• Builder’s Reputation: Research past projects, reviews and delivery timelines.
• Approvals and Licenses: Ensure that the builder holds all necessary licenses to develop the property. 

Property-Specific Documents:

• Approved Building Plans: To validate against what the builder offers. 
• Commencement Certificate (CC): Issued when the construction is cleared to start. 
• Title Deed and Encumbrance Certificate (EC): These verify land ownership and ensure that it is free from any legal disputes. 
• Land Use Certificate: This confirms that the land and project adhere to zoning laws and can be used. 
• Structural Stability Certificate: Ensures safety compliance. 

Buyer Specific Documents: 

• Builder-Buyer Agreement: Specifies timelines, penalties and project details. 
• Allotment letter: This confirms that the flat has been allotted to you. 
• Payment Receipts: Remember to maintain a record of all transactions. 

Financial Aspects

Evaluating Payment Plans: 

• Construction Plans: 
  • Payments are tied to construction milestones. 

• Pros: Reduces financial risks, and makes sure that your payments align with the project’s progress. 
• Cons: Requires monitoring of builder progress regularly. 

• Possession-Linked Plans: 
  • Most of the payment is made after you get possession of the flat. 

• Pros: Reduces the financial strain during construction. 
• Cons: However, you also have to face higher initial booking amounts. 

• Bank Loan Approvals: 
  • Projects that are pre-approved by banks indicate reliability and proper documentation. 
  • Sanctioned plans also facilitate smoother loan processes. 

Avoiding Hidden Costs: 

• Parking Fees: Verify if these are included, or are separate. 
• GST:  Understand how much GST on an under-construction flat is applicable. (5% for affordable housing) 
• Maintenance Deposit: Ensure that the terms are clearly defined; you don’t want any shocks and surprises, after all! 

Let’s take a look at an example calculation: 

Say for a flat priced at Rs 60 lakh: 
GST is at 5% so Rs 3 lakh. 
Parking is at Rs 2 lakh.
The maintenance deposit is at Rs 1 lakh. 
This will make the total cost Rs 66 lakh. 

Make sure that you always request a detailed cost breakdown to avoid any misunderstandings. 

Quality and Infrastructure Insights

Construction Progress and Quality Assurance: 

• Monitoring the Progress of the Construction:
  • Make sure you regularly visit the site to personally inspect the progress of the flat under construction. It should be aligned with the proposed timelines. 
  • Use the RERA portal and track the updates on the project’s construction milestones. Make sure that all RERA documents for the under-construction property have been updated. 
  • Document the progress with photographs and notes for reference. 

• Third-Party Quality Certifications:
  • Independent quality audits by third-party agencies can also help provide an objective assurance of the construction quality. 
  • It also helps if the property has certifications, such as ISO 9001. This is an assurance from builders that their project meets all the quality standards. 
  • Make sure you insist on structural stability reports from licensed engineers so that there’s some extra safety assurance. 

Future Infrastructure Development: 

• Impact on Resale Value:
  • Proximity to upcoming infrastructure projects such as highways, metro stations, schools and IT parks will boost property appreciation potential. 
  • Resale value also increases as improved connectivity and amenities will increase demand in the area. 

• Checking Development Plans
  • Use the municipal or urban development authority websites, as they usually have government-approved infrastructure plans. 
  • Use portals like the one for Smart Cities Mission, or visit local town planning offices for access to planned projects. 
  • Verify any claims made by developers regarding future developments. 

Ensuring Timely Delivery

Importance of Committed Possession Dates under RERA: 

• RERA compliance documents are mandatory; they make builders declare realistic possession timelines and penalise them in case of delays. 
• You are also entitled to compensation in case of delays, as per the Builder-Buyer Agreement under RERA regulations. 

Strategies to Safeguard Against Delays: 

• Compensation Clauses:
  • Make sure that your Builder-Buyer agreement includes clear clauses on penalties for delays. 
  • Compensation could happen in the form of monthly payments or interest on the amount paid. 

• Construction Progress Reports:
  • Remember to request the builder for regular updates, and proof in the form of photos and third-party audit reports. 
  • Check RERA for updates in case of delays or disputes.  

Critical Document Analysis

• Title Deed:
  • Purpose: This document proves that the under-construction flat and the land it is being built on are legally owned by the developer. 
  • Verification: 

• Obtain a certified copy from the Sub-Registrar’s office. 
• Ensure that the title is clear and free from any obstacles. 

• Intimation of Disapproval (IOD)
  • Purpose: Approval that is granted by local authorities for construction, but is subject to some rules. 
  • Verification: 
• Confirm that the builder has complied with all the conditions laid out by the IOD. 

• Commencement Certificate (CC):
  • Purpose: This legal document for an under-construction flat is issued by the local authority, giving legal permission for construction to start. 
  • Verification: 
• Cross-check the CC and see that it complies with RERA disclosures and ensure the property complies with zoning laws. 

• Encumbrance Certificate (EC):
  • Purpose: This document confirms that the property is free from all financial and legal problems. 
  • Verification: 
• You will easily get access to the past 10-15 years’ EC from the sub-registrar’s office. It will help you rule out any pending claims on the property. 

• Approved Layout Plans
  • Purpose: Helps ensure that the construction follows the plans that were approved by the local authorities. 
  • Verification: 
• You can request a copy from the builder and cross-check it with municipal approvals. 

• Purchase Agreement:
  • Purpose: It is a legally binding document between the buyer and the builder, who have both agreed to the terms and conditions. 
  • Verification: 
• Have a legal expert review the agreement so that you are aware of any hidden clauses or ambiguous terms. 

• Occupancy Certificate (OC):
  • Purpose: The OC is a post-construction certificate, that the building is now complete and fit for occupation. 
  • Verification: 
• Ensure that the OC is issued by the proper authority, i.e., the local municipal body before you move in. 

Common Buyer Concerns and FAQs

1. What is the most critical document to verify when buying an under-construction flat?
   The title deed and RERA registration certificate are crucial to make sure that the property is legitimate and compliant. 

2. How can I verify the authenticity of the Title Deed?
   You will easily get a certified copy from the sub-registrar’s office. You can then consult a legal expert. 

3. What happens if the builder fails to provide an Occupancy Certificate?
   Then, you cannot legally move into the house. File a complaint with RERA to address this problem. 

4. Are Commencement and Completion Certificates the same?
   No. The Commencement certificate allows the builder to begin construction, while the completion certificate confirms that the project is complete. 

5. How do I check if the builder has all the necessary approvals for the project?
   Verify approvals like the CC, IOD and layout plans through RERA or local municipal bodies. 

6. What should I do if the Encumbrance Certificate shows pending liabilities?
   Avoid moving in or buying until the liabilities are resolved and documented. 

7. Can I proceed with the purchase if the project is not RERA-registered?
   It is risky; buying a non-RERA registered project could mean that none of the RERA protections apply to the property, essentially putting your investment at risk of fraud and loss. 

8. What is an Allotment Letter, and why is it important?
   The letter basically confirms that the flat under construction that you bought has been allotted to you. It also includes payment details and serves as a precursor to the Builder-Buyer Agreement. 

9. What are the consequences of signing an agreement without reading hidden clauses?
   You may be legally bound to an agreement that can have unfavourable terms. Always talk to a legal expert before signing. 

10. Can I sell an under-construction flat before possession?
    Yes. However, make sure you check the builder’s policy and agreement terms for transfer rights. 

11. How does GST apply to under-construction flats?
    GST is applicable at 5% got non-affordable housing, and 1% for affordable housing, with no input tax credit. 

Conclusion

Investing in an under-construction flat is rewarding, as long as you do it properly. Conduct due diligence to know the risks. Don’t be afraid to exercise the rights given to you by RERA for transparency and legal protection. 

Use this checklist for buying an under-construction property

• Verify the builder’s credentials. 
• Ensure that all legal documents are in order
• Choose a payment plan that suits you best. 
• Regularly monitor the construction progress
• When in doubt, seek professional advice. 

If you are considering buying a property and looking for a credible builder with years of reputation, then Raymond Realty is the best choice for you. Our latest under-construction projects: Address by GS – Bandra, and Invictus by GS – Thane, are RERA registered, and have received all the necessary legal permissions, protecting your investment and promising you long-term benefits!