GOA – A UNIQUE MARKET
The process of buying property in Goa involves many details, acts and laws that are unique to the state. “Terrafirma”spoke with a renowned and respected advocate based in Goa who specializes in real estate and property law to understand some of these issues and intricacies.
1. What are the issues specific to Goa with regard to title of properties that a buyer should address? how is this different from the way titles work in other places in India? (such as new Delhi or mumbai)
A) It is pertinent to note that Goa continues to have Portuguese personal law relating to marriage / divorce and succession. Personal laws of different religious communities prevailing in rest of India namely for Hindus, Muslims, Christians etc like Hindu Marriage/Succession Act etc are not extended to the State of Goa. Barring the above major laws and other specific laws referred to hereinafter, rest of the laws relating to property like Transfer of Property Act/ Contract Act, Easement Act, Registration Act, prevailing in India apply equally to the State of Goa.
B) However, it must also be noted that some laws which were prevailing in Goa under the Portuguese Regime and which have not been repealed by the extension of corresponding Indian law (if there is no such Indian Law) would continue to prevail, like law relating to co-ownership, pre-emption, demarcation etc.
C) In Goa, one common Portuguese family law relating to Marriage, Divorce, Succession applies to the Goans uniformly irrespective of their religion (concept of common Civil Code under Article 44 of the Constitution of India).
D) Salient features of Goan personal laws:
(i) Marriage: Both the spouses have equal half share in the assets held by them before and after marriage, by default, unless a contract called ante-nuptial contract is executed prior to marriage to not have the said communion. The spouses are termed as co-sharers and not co-owners.
In view of the above, it is absolutely essential for both husband and wife to be parties in a conveyance, as conveyance by only one spouse is totally void and does not convey his/her half share.
This is different from the concept of co-ownership where one co-owner can convey his undivided right, for example children who inherit property from parents or persons buying the property jointly would be the co-owners who can alienate their undivided right.
Only death or divorce cuts off the communion. Upon death the half right of the parent is inherited by the children who are then classified as co-owners and not co-sharers like husband and wife.
(ii) Succession: The execution of documents relating to Deed of Succession, Deed of Renunciation and Wills continue to be governed by Portuguese Law and such documents are recorded by an Officer called Notario (Sub-Registrar) in his Books and maintained as public records and certified copies issued. A distinguishing feature of the will is that it does not require probate as is the norm in many parts of India, and the document by itself can be used as substantive title document.
Also, certified copy of Deed of Succession is provided only after a draft is published in the Government Gazette and no objections are received within one month.
Also, under another law called Codigo Registo Predial (Land Registration Code), the acquisition of title to the property is registered in 2 records called (i) Description, (ii) Inscription. The former describes a property with its boundaries and allocates a number. The latter records inscription i.e. source of acquisition of title to the property, and the entry used to be made by the Officer on verifying the title and the name of the owner is inscribed against the corresponding description number.
This registration is not to be confused with the registration of Deeds of Sale, Gift and Agreement by the Sub-Registrar under the Indian Registration Act under which the sale of property is registered, whereas under Portuguese law, the title in the land is registered.
Availability of all the above documents facilitates to trace the flow of title. Hence, there is no need to carry any separate search in the office of the Sub-Registrar.
In the matter of free disposition like Will/Gift there is a cap by which only 50% can be alienated which is called the “disposable quota” and the balance 50% is called “non-disposable quota” or the legitime which is necessarily reserved for the heirs called forced heirs. If the Will/Gift exceeds the disposable quota, it can be reduced to the prescribed limit by the court in succession proceedings called “Inventario”. Another distinguishing feature is the order of succession whereby the half right of a spouse first passes on the descendants, then to the ascendants, then to collaterals, then to the spouse, then to other relatives and lastly to the Government (in the absence of the first category the succession passes on to the next category). Therefore, care has to be taken when the couple dies issueless, unless there is a Will/Gift executed by them to take care of the respective half rights. It must not be confused that the half right would straight away go to the other spouse.
In the case of pre-emption, one co-owner before selling his undivided right to an outsider has to give first preference or right of refusal to the other co-owners, failing which the aggrieved co-owner can file a suit within 6 months to effect conveyance in his name from the actual purchaser by offering him the consideration.
Under a local law called the Goa Mundkar Act, 1978, a dweller of a house residing in a dwelling house prior to 1975, is called a mundkar and is entitled to, at his/her option, either an area of 300 square meters around and inclusive of the dwelling house, or an area of 5 meters from the outer wall of the dwelling house. Said mundkar has statutory protection from eviction. Relating to inheritance of Mundkarship, as per Section 3 of the Mundkar Act, the rights of mundkars are inheritable, hence the children of mundkar would inherit the right of their father. As the entitlement of a mundkar to the area around the dwelling house is 300 square meters or 5 meters from the outer wall, all the children would have right to the said 300 square meters, collectively, and no one heir can separately claim the said entire area to the exclusion of the other heirs.
2. What are the documents or checks on construction Licensing for a property or a real estate project in Goa that a buyer should look into?
The documents to be checked are:
1. Whether the area is in settlement / agricultural/green / industrial in the regional map (relating to villages) or outline development plan (cities) under the Town and Country Planning Act
2. Whether conversion sanad is obtained under Section 32 of the Land Revenue Code converting area into non-agricultural, (since all the land is deemed to be agricultural)
3. To check whether Town and Country Planning Department / Planning and Development Authority has approved the sub-division/building construction plan.
4. Whether the Municipality/Corporation/Village Panchayat has approved the sub-division/construction license. In the case of areas falling in the coast line:
5. Whether Coastal Zone Management Authority has given approval under Coastal Regulatory Zone (CRZ) Regulation?
6. Whether approvals from Environmental Authorities (MOEF) are obtained if the development exceeds a prescribed built-up area of 20,000 square meters?
Other specific issues relate to existence of tenancy on the land which is apparent from the name of the tenant in the column of tenant in survey Form I & XIV. In such events, the tenants having become deemed owners under Agricultural Tenancy Act are forbidden from making transfer without consent of the Authority/Mamlatdar. Under another law called Goa Land Use Regulation Act, conversion of such tenanted land to non-agricultural purpose is not permitted under any circumstances.
3. for the checks on construction Licensing is it necessary or advisable to consult a registered civil engineer or architect in addition to a lawyer?
It may be advisable to appoint Engineer/Architect to verify the data relating to engineering and architectural aspects.
4. at the time of short listing properties for purchase, what would be the basic title documents to look for before going into a full-fledged title investigation for the finally selected property?
In Goa, the title is checked for a minimum period of 30 years. The intended seller must have the basic title document like Sale Deed, Gift Deed, Will or Court Succession proceedings to prove his title. The recitals, if any in the Sale Deed may indicate the flow of title primafacie. Also survey record Form I & XIV for village propertycard for cities to confirm lawful and physical possessionis a must.
5. When an initial token payment is given by a buyer to seller to temporarily block the property till the due diligence process is completed, what document should be signed to secure a refund if necessitated?
Ordinarily an agreement can be signed putting on paper the intentions of the parties. Sometimes an agreement styled as Memorandum of Understanding (MoU) is also executed although the Contract Act does not provide forany such MoU. For the last 3 years in Goa an Agreement to Sell has to carry a stamp duty equivalent to 1% of the sale consideration. An MoU may be difficult to enforce if objection is taken that it is an Agreement without stamp duty. In the case of registration of the Agreement with 1% stamp duty, only upon delivery of possession are full registration fees (i.e. 2%) payable, if not, only minimum charge of Rs. 100/- is payable.
6. When purchasing old Goan houses which are very much in demand, what remedy is available if any one of several co-owners refuses to sell his minority share?
A co-owner, who has not agreed to sell, cannot be compelled to convey by any action at law although he has minority share. Only remedy is to file a suit for partition of the estate.
7. What kind of development is permissible in the coastal regulatory Zone (crZ) areas of the Goan coast and river banks?
In the matters of CRZ:
a. CRZ – III i.e. the extent along the Arabian Sea: CRZ
i. Between 0 – 200 sq. metres from High Tide Line (HTL) no development zone where no development is permitted;
ii. 200-500mtrs. from HTL Regulated development is permissible having 33% FAR (Floor Area Ratio), height restriction of 9 metres from ground level and the buildings to have ground plus one floor only.
b. CRZ – II these are areas which are densely populated urban areas where building will be permitted only on the landward side of an existing road or an authorized construction.
c. CRZ – I ecologically sensitive areas having ancient monuments, turtle nesting etc,
i. Between 0-500 metres no development. Along the banks of rivers – no development in a belt of 0 – 100 metres from HTL, or the width of the river whichever is less.
8. If one were to purchase an existing property located within 500 meters, what documents would ensure that it was legally built?
CRZ regulations are enforced from 19th February 1991. Therefore, anything constructed earlier thereto would have no problem. The same can be ascertained by the existence of the structure in the survey plan or any other proof like Occupancy Certificate granted by Civil Authority.
9. a lot of foreign nationals, of non-Indian origin have purchased houses in Goa either by proper conveyance Deeds or agreements for Sale with possession, is it legally permitted for an Indian national / nrI / pIo to acquire such properties from foreign nationals?
Purchase sale of property from/to Foreign National will be governed by FEMA. For Indian nationals, NRIs and PIOs this may be possible with requisite approvals.
10. Is it legal to build a house on land that is zoned an orchard? If yes, is a sub-division of orchard lands into 1 acre plots for the purpose of building dwelling houses, legally permissible?
A) The Zoning is done as per the Goa Town and Country Planning Act, 1974. Orchard Zone being agricultural (green) zone, construction per se is not permissible in the said zone, unless there is change of zone from orchard to settlement under the said Act. The change of land use is permissible under Section 17 of the said Act, however, the said matter is entirely at the discretion of the State Government.
B) It may be possible to put up a farm building and not dwelling houses into a 1 acre (4000 square meters) plot in orchard lands.
11. What are the rules applicable for construction of farm houses?
A) Farm Building is a concept under Goa Land Revenue Code, 1968. Section 2 (11) of Goa land Revenue Code defines farm building as follows:
“(a) for the storage of agricultural implements, manure or fodder,
(b) for the storage of agricultural produce,
(c) for sheltering cattle,
(d) for residence of members of the family, servants or tenants of the holder, or
(e) for any other purpose which is an integral part of his cultivating arrangement.”
B) Planning and Development Authority (Development Plan) Regulation, 1989, framed under Town & Country Planning Act, in part IV relating to Zoning Regulations and Use Provisions under No.VII lays down as under :
“USES PERMITTED (ZONE A 1) : Agriculture, horticulture farming and allied operations, subdivisions of land for agricultural purposes, and uses ancillary to agriculture in the form of irrigation, land reclamation, pump or other electrical installation, bio-gas plants, farm house, poultry, dairy, piggery and godowns for agricultural storage and implement storage.
A) The regulations applicable in agriculture zone A1 for any uses ancillary to agriculture shall be as under:
REGULATIONS A 1
a) Minimum area of plot 4000.0 sq. m.
b) Minimum width of plot 40.0 m
c) Minimum width of access road 3.0 m
d) Maximum permissible coverage 2.5%
e) Maximum permissible F.A.R. 5
f ) Minimum setbacks : Front Side & Rear 5.0 m
g) Maximum permissible height 5.5 m
12. What is the stamp duty and registration fee applicable in Goa? are there any exemptions / reduction for female purchasers, defense services personnel, etc.?
A) Stamp duty structure under Goa Stamp Act is as follows:
Consideration Stamp Duty Rupees
Above 1 crore 5%
B) Registration fee: 2% on the consideration.
C) To the best of our knowledge there are no exemptions / reductions for females, defence service personnel, etc.
13. please distinguish between a tenant and a mundkar in property records in Goa. can one purchase a tenanted or mundkar occupied property?
A) Under the Goa Agricultural Tenancy Act, 1964, a tenant of agricultural land is conferred status of a “deemed purchaser” of the land held by him under Section 18-A, and such land vests in him free from encumbrances. The tenant is permitted to formally complete the process of purchase of the agricultural land held by him by making the nominal payment laid down in Section 18-D of the Act. Section 18 (k) of the said act prohibits transfer of such land held by tenant / deemed purchaser/purchaser, by sale, gift, exchange, mortgage, lease or assignment without prior permission of the Mamlatdar. Rule 6 of Goa Agricultural Tenancy (Special rights and privileges of tenants) Rules, 1977, prescribes conditions for granting such permission under Section 18 (k) which are as follows:
(a) that the land is required for agricultural purpose by a an industrial or a commercial undertaking in connection with any industrial or commercial operation carried on by such undertaking; or
(b) that the transfer is for the benefit of any Educational or charitable institution; or
(c) that the land is required by a Co-operative farming society; or
(d) that the land is being sold in execution of a decree of a civil court for the recovery of arrears of Land Revenue; or
(e) that the land is being sold by the landowner on the ground that he is permanently rendered incapable of cultivating the land personally and none of the members of his family are willing to cultivate personally; or
(f ) that the land is gifted in favour of a Religious or a Charitable Institution;
(g) that the land is being partitioned among the heirs/survivors of the deceased landowner;
(h) that the land is being leased by a landowner who is a minor, or a widow, or a person subject to any physical or mental disability or a member of the armed forces or among the land owners holding the land jointly.”
B) The law called Goa Land Use (Regulation) Act, 1991, prohibits conversion of such land vested in a tenant under Agricultural Tenancy Act to non-agricultural purpose, notwithstanding anything contained in Goa Land Revenue Code and Town and Country Planning Act.
C) In the case of mundkar, under Section 17 of the Mundkar Act, 1975, a mundkar can sell his mundkarial dwelling house (including the area purchased i.e. maximum of 300 mtrs. or 5 mtrs. from the outer wall of the house in rural areas and 200 mtrs. or 2 mtrs. from the outer wall of the house in urban areas) after a period of 3 years from the date of issue of certificate of purchase and that too after the mundkar gives the first option of purchase to the landlord under Sub-Section 2 of Section 17.
14. In a residential complex consisting of multiple apartments or villas, how is title of land transferred to the purchaser of a single unit? If a society has been formed, is it essential to acquire membership of the society for effective transfer of property?
A) The purchaser of the apartment/villa will get conveyance of undivided right in the land corresponding and proportionate to the built up area of the apartment/villa occupied by the said purchaser.
B) Yes, a person has to be a member of the society which holds the title of the land.
15. What is the essential information / supporting documents that buyers / sellers need to provide to the registration authorities for Deeds of Sale?
The original sale Deed and in the event the plot is in “Planning Area” under the Goa Town and County Planning Act, a permission under Section 49 (6) of the said Act, is required for the purpose of registration of the document in respect of plots which are not as per Survey plan issued by Survey Department or plots which have no development permission for such Sub-division from Planning and Development Authority.
16. Even if all legal permissions for construction have been obtained, one hears of projects in Goa running into trouble with the local community. Why has this happened in the past, and what does one need to look out for to avoid such situations?
The objections are for “mega projects” since the locals are worried that such mega projects will exert pressure on the existing infrastructure like water supply/ garbage etc.
17. What are the main distinctions between buying a property in north Goa and South Goa? What are the advantages and disadvantages of each area?
There are absolutely no distinctions. Hence, no question of any advantage or disadvantage except the commercial aspect.
18. how will the new airport planned in north Goa affect prospects for north and South Goa properties?
The new airport will improve the prospect of tourism potential of virgin coastal areas to the extreme north of Goa (Pernem) as also areas along the coastal belt of southern tip of Maharashtra.
BUYING PROPERTY IN INDIA
Buying property anywhere in the world can be a long and drawn out experience. However in India, buying property is a particularly demanding task with several possible hurdles along the way such as inexperienced brokers, title defects, complicated tenancy laws, the condition of the property itself, and financing, to name just a few. It is therefore important that the entire procedure be dealt with systematically to reduce the hassles that accompany it.
Stages in Purchasing Property
Identifying a Realtor
Identifying a Property
Assessment of Value
Agreement to Sell
Identifying a Realtor
A realtor can assist in locating and evaluating the right property, providing useful market information and resources, and eventually guiding the buyer through the whole process until the purchase is complete.
It is essential that the buyer proceeds cautiously and chooses a broker who is experienced and knowledgeable about the market, transparent and informative through the entire process, and objective while providing information.
While determining the budget for the purchase of property, there are several expenses besides the purchase price that must also be accounted for, such as:
•Society transfer charges (in buildings with societies)
•Cost of renovation/improving the property
•Cost of furnishing the property
•Future house tax/property tax payments
•Maintenance fees, whether at actual or in the form of monthly payments to a society
For newly constructed properties, it is also possible that the builder/developer may not be fully transparent at the time of booking with regards to the gross pricing of the property. The gross price should typically be a sum of the base price, external development charges (EDC), infrastructure development charges (IDC), preferential location charges (PLC), car parking charges, club membership if applicable, MSEB charges, maintenance charges, etc.
While external development charges are levied by the developer on the buyer for developing infrastructure within the complex, infrastructure development charges are levied by the government on the developer and, in turn, passed by the developer on to the buyer. This charge includes development charges for water supply, sewerage, storm water drainage, roads, street lighting, community buildings, horticulture, public health maintenance, road maintenance, and street lighting maintenance
MSEB charges are levied by the developer on the buyer for availing of an electricity connection on behalf of the buyer.
Identifying a Property
There are numerous factors a buyer might consider while purchasing property, each with its own benefits and disadvantages.
Independent House vs. Apartment in a Co-operative Housing Society: Setting aside advantages related to independence and privacy, some of the most important factors to consider while making this decision in India are maintenance costs and responsibilities, amenities that may be provided by housing societies such as swimming pools, health clubs, and gardens, and arrangements for parking, security, power backup, etc.
Old vs. New construction: Sale price is generally determined on the basis of built-up area i.e. the measurement of the residential unit at floor measurement, including projections and balconies, and is measured from the external perimeter of the walls, whereas the carpet area i.e. the total area of a premises measured from the internal walls, is the area that is actually usable. In new constructions, the difference between the two might be substantial, and a buyer can end up paying a hefty sum for a smaller apartment, whereas in old constructions this difference is far lower.
Further, property and municipal taxes on new constructions are assessed at a higher rate and therefore the monthly outgoings would be higher. However, maintenance standards of new buildings are generally better than those of old buildings, and new buildings often provide amenities such as swimming pools, health club, garden, earthquake resistant designs, etc. which an old building might not possess.
Location, Location, Location: This is an oft-repeated mantra, which in India is taking on new meaning with the construction of new infrastructure such as highways, bridges and metros –which has generally resulted in appreciation of values in neighbourhoods being served.
Investigate before executing sale deed:
•Title is free from defects
•There are no encumbrances on the property
•Property is not locked in litigation
•Inherited property has a probated will
Assessment of Value
Another factor while choosing a property is whether the price is commensurate with existing market values. Information on previous transactions can be obtained from the market (brokers, residents of the neighbourhood/complex, registrars office, etc.), but the best option would be to consult a good realtor for advice on the last transacted sale price, comparable sale transactions etc. However it is pertinent to state that brokers may be motivated to inflate prices, and it is therefore not always easy to accurately determine the value of a property in India.
Legal Aspects of Purchasing Property
When a buyer has found the property that is the right fit for his needs and budget, there are several legal intricacies that must be dealt with to complete the purchase. It is highly recommended that the buyer instruct a good lawyer while purchasing property. Once the buyer has agreed upon a price with the seller, the rest of the process should be handled by his lawyers. Buying property in India involves lots of paperwork and diligence, and the lawyers should be well equipped to handle the entire process. To that end, the lawyers should ideally be those who are proficient in transactions in the region of India in which the property is located as rules, regulations and procedures can vary between states and also between districts.
Buying from a Developer
There are several factors to consider when buying property that is still under construction. Reliability of the developer is paramount, and the buyer should enquire as to his reputation and record before committing to buying any property still in development. Financial institutions and banks funding the developer can help the buyer with his enquiries and to gain a better understanding of the developer’s financial status. It is important that the buyer look into aspects such as timely possession, quality of construction, compliance with the buyer’s agreement (especially penalty clauses), providing the amenities mentioned, etc. It is also important for the buyer to gain first-hand knowledge and the perspective of a previous buyer who has dealt with the developer.
If the buyer is convinced that the developer is reputable, a lawyer should be instructed to commence a search of necessary documentation, such as:
•An approved plan of the building along with the number of floors, and that the floor on which the apartment intended to be purchased is approved or not, as sometimes developers exceed the permissions granted to them.
•Whether the developer owns the land on which the building is located, or whether he has undertaken an agreement with a landlord. If so, the title of the land ownership, development agreement with the landowner, and power of attorney executed by the landowner in favour of the developer must be checked.
•That the land is not designated as agricultural land, else the construction will be illegal.
Buyer may back out of the final sale if:
•Defect in title
•Non-payment of property tax (if not remedied)
•Material structural defects in the property
•Zoning/ land use related issues:
◦Constructing unsanctioned floors
◦Unsanctioned construction on agricultural/coastal land
◦Unsanctioned construction plan
•Previously undisclosed encumbrances on property such as mortgages, liens, or claims
•Absence of probated will (if previously undisclosed)
Note that the seller has the right to back out of the final sale if the buyer delays the process unnecessarily.
•The building byelaws as applicable in that area and whether the builder is not in violation of front setback, side setbacks, height, etc.
•Whether the specifications given in the “agreement to sell” or the sale brochure correspond with the plans of the construction.
•Whether urban land ceiling NOC (Non Objection Certificate), if applicable, has been obtained, and whether NOC from water, electricity and lift authorities has been obtained.
Once the buyer’s agreement is executed, the buyer would typically pay about 10% sale price as a deposit. As the property being purchased is as yet incomplete, there are several options a buyer can choose from as far as the remaining payment is concerned.
Down Payment Plan:
In a down payment plan, the buyer would be required to make a payment of 10% of the purchase price upfront with another 85% within 30 days of the booking date. The remaining 5% has to be paid at the time of possession, which could take several years. The advantage to this plan is that the buyer would almost certainly avail a discount of 10 to 12% on the Basic Sale Price. However, a down payment plan is not generally recommended as construction – and consequently possession – might be delayed, but the buyer would have already parted with the bulk of the purchase price.
Construction Linked Payment Plan:
In this plan, payments are made to the developer in instalments over a period of time spanning the time taken for construction of the building. The buyer pays 10% at the time of booking and another 10% after 30 days from the booking date, and thereafter instalments of 8 to 10% at each stage of construction. This is the most practical payment plan as the instalments are linked to stages of construction, and therefore the buyer’s capital is not blocked if the developer delays construction.
Time Linked Payment Plan:
This plan is also based on payment in instalments, usually with payments being made approximately every 2 months over a period of 20 to 24 months. However, the payment schedule is decided by the builder and is structured based on time and not the stages of construction, and the buyer would have to pay the instalments on schedule irrespective of whether the construction is proceeding on schedule or not. This option is not as viable as opting to pay under a construction linked payment plan and should ideally be avoided.
The flexi plan includes features from both the down payment and the construction linked payment plan. Under this plan, the buyer would, as in a down payment plan, have to pay 10% at the time of booking and another 30-40% within 30 days. Thereafter the payments are structured as with the construction linked payment plan. A flexi plan can earn a buyer a discount of 5 to 6% of the purchase price.
Once the property has been identified, and a price agreed with the seller, the buyer’s lawyer will conduct a ‘due diligence’ or a search of all the documents related to the property to ensure that there are no deficiencies with the property that will hinder the proposed sale. In certain geographies, prior to due diligence the buyer and seller may sign a letter of intent or memorandum of understanding, accompanied by ‘earnest money’ or deposit.
Title: Probably the first – and most important thing – the lawyer will check is the title of the seller with respect to the property. It is essential to know that if the seller does not have perfect title, he cannot transfer the same to the buyer.
For example, if the seller is not listed as the owner of the property, he cannot sell it. Similarly, if the property is jointly owned by more than one person, each joint owner would be required to sign the agreement to sell and sale deed, unless any one of them is authorized to act on behalf of the others by way of power of attorney.
A title search is taken at the office of the local sub-registrar. The buyer should ask for all title documents (and copies of the same) right from the first owner of the property or, in the case of property that is extremely old, title documents thirty years prior to the search. This process can take between 8 and 10 days. The lawyer should also ascertain the survey number, village and registration district of the property as these details will be required for registration.
Encumbrances: The office of the local sub-registrar would also have to be searched to see if there are any encumbrances on the property, such as a mortgage, lien, or claim from a third party. Although mortgaging properties is not an exceptional practice, one needs to consider the implications of purchasing a mortgaged property very carefully.
In case the seller defaults in paying his debt, the mortgagee – usually a bank – can attach the property and sell it to recover the debt, despite the fact that the mortgagor/seller no longer owns the property. Also, the mortgage deed might contain a stipulation that the property cannot be sold unless the mortgagee gives a no objection certificate and in the case of mortgaged property the buyer must insist that the seller clears the mortgage obtains a NOC from the bank. Alternatively, the buyer may contract with the seller to make payment directly to the bank and remove the encumbrance.
The lawyer must also check tax receipts for the past three years to determine whether the seller has paid the requisite property tax to the housing society or, in the case of independent houses, to the municipal authority.
It is also essential to ensure that the property is not the subject-matter of any litigation, as cases pending before the courts can take several years, if not decades, to be finally decided.
In case of property that the seller has inherited, the lawyer must check the will by way of which the property was acquired. Although Indian law does not require a will to be probated (i.e, authenticated by a court), this is preferable as a probate ensures legitimacy of the will and is valid against any claims thereafter made against the seller’s right to inheritance of the property. Although challenging a probated will is not unheard of, it is extremely difficult for someone to do so successfully if the will is not fraudulent.
•To examine all documents of title that the seller possesses or can produce
•To be informed of any material defect in the property of which the seller is aware
•To the execution of a proper conveyance upon payment of purchase price
•To possession of the property as per the agreement of sale
A buyer must also release an advertisement in a newspaper stating his intention to buy the property from the seller, and for our sale properties TERRAFIRMA will assist with this. This is done so that any objections to the proposed sale are raised in advance and may be dealt with accordingly. The objections may bring to light certain hidden facts, such as an encumbrance, or title defect which might significantly impact a buyer’s decision to purchase the property. In case there is a defect in the title, the entire sale can fall through if not rectified.
Once the buyer’s lawyer is satisfied that the seller’s title is free from defects, he will issue a title certificate, which is a document stating that the seller has the necessary title to sell the buyer his property.
Agreement to Sell
After the buyer’s lawyer has issued the title certificate, the seller’s lawyers will draw up a document known as an ‘agreement to sell’ (in certain geographies like Mumbai, a deposit may be required from the buyer prior to the title search and agreement to sell; the buyer’s lawyers will furnish the exact details). The agreement to sell will contain the terms and conditions of the sale, and while there is no standard format for the same, it usually contains the following vital information:
•Description/location of the property
•The purchase price for the property
•The amount of deposit payable by the buyer – usually it would be in the range of 10% to 20% of the purchase price to be paid in advance
•Date of closing – the date on which the purchase price is to be fully paid to the seller and the sale deed executed and registered by him
•Date on which the buyer will be given possession of the property
The agreement to sell might also contain provisions to deal with breach by either party – e.g. forfeiture of deposit in case of buyer’s default, or return of deposit along with interest in case of seller’s default – an arbitration clause or a clause specifying the court which would have jurisdiction in case of a dispute, and provisions for inspection or investigation of title, such as the time in which this is to be completed.
The agreement to sell must be attested by the signatures of at least two witnesses and must be registered by the seller’s lawyers.
It is imperative that a buyer not sign any documents unless both he and his lawyer are satisfied with its contents.
When the agreement to sell is duly registered and the purchase price (or a portion thereof, if so agreed upon), the seller’s lawyer will draw up a document known as a sale deed. This is the document by which the buyer will acquire ownership of and title to the property.
There are certain fees that are required to be paid with respect to the sale deed. Stamp duty, a levy imposed by the government on certain instruments, is payable on the property under the Stamp Act of the state in which the property is located (see box for the applicable stamp duty in various states). The stamp duty is payable either by printing the sale deed on stamp paper of the appropriate value or by franking of the sale deed for the value. In case the buyer has paid the stamp duty and the sale falls through, he would need to apply for a refund, which could take 4 to 6 months.
Like the agreement to sell, the sale deed too is required to be attested by two witnesses and registered, and the PAN cards of the buyer and the seller will be required. Registration of the sale deed is carried out by lodging the original stamped agreement with the relevant registration office. Registering the sale deed is crucial as the title to the property does not pass to the buyer unless it is duly registered in accordance with the Registration Act.
Please bear in mind that stamp duty and registration fees are two entirely separate costs, both of which are to be borne by the buyer unless otherwise agreed between the buyer and the seller.
If the property purchased is in a housing society, the buyer would need to complete certain forms of the society once the property is registered in his name. Once the forms are submitted the society president will raise the issue in the next AGM and admit the buyer as a member. In certain cases, a NOC (no objection certificate) from the society may be required.
GUIDELINES FOR NRI / PIO / FOREIGN NATIONALS
Potential buyers who are not Indian citizens but are resident in India may still have the legal right to purchase property in India. The Foreign Exchange Management Act, 1999 (FEMA) regulates the purchase of properties by Non-Resident Indians (NRI), Persons of Indian Origin (PIO), and foreign citizens.
The buyer must ensure that the land on which the purchase property is built is not agricultural land or plantation property, as these types of land can only be purchased by an agriculturist who is an Indian citizen.
NRI and PIO
The general requirements to obtain a PIO card include holding an Indian passport at any time, one’s parents, grandparents or great grandparents being born in India or permanent residents of India, or spouse being a citizen of India or PIO card holder. Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan may not hold PIO cards. For more information and a detailed list of requirements, please visit http://www.immigrationindia.nic.in/pio_card.htm.
An Indian citizen resident outside India or a PIO does not require any special permission to buy immovable property in India.
However, no payment of the purchase price can be made in foreign currency. The buyer make the purchase in rupees through funds received in India through normal banking channels, or funds maintained in any non-resident account under FEMA and RBI regulations.
There are also no restrictions on the number of immovable properties an NRI or a PIO may purchase for either residential or commercial purposes.
A foreign national resident outside India cannot buy immovable property in India.
However, foreign nationals who are resident in India (and who are not citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, or Bhutan) can purchase immovable property in India without any special approval from the RBI. However such buyers should check with their lawyers before buying any property as they might require approvals from other authorities such as the State Government, etc.
To be considered a resident of India under FEMA, a foreign national would have to satisfy two conditions: He/she must be residing in India for more than 182 days during the preceding financial year, and His/her continued presence in India in the current financial year must be for the purpose of taking up employment, carrying on business or vocation in India or for any other purpose that would indicate your intention to stay in India for an uncertain period
Both conditions must necessarily be fulfilled for a foreign national to be considered a resident of India under FEMA.
Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, or Bhutan who are resident in India can only purchase immovable property in India with the prior permission of the RBI, who will consider the request in consultation with the Government of India.
For more information, please visit http://www.rbi.org.in
An NRI or PIO may repatriate the proceeds from the sale of immovable property in India on the following conditions:
•The property was purchased by the NRI/PIO in accordance with the provisions of FEMA in force at the time of the purchase
•The amount repatriated should not exceed the amount paid for the property if the property was acquired in foreign exchange remitted through normal banking channels or out of funds held in an FCNR (B) account
In the following circumstances, the NRI/PIO may repatriate a maximum of USD one million per financial year:
•Out of the balances held in the NRO account if the property was purchased out of rupee sources
•If the property was acquired by way of gift, the sale proceeds must be credited to an NRO account, and thereafter may be repatriated
•If the property was inherited from a person resident in India, it may be repatriated on production of documentary evidence proving inheritance, an undertaking by the NRI/PIO, and a certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes
In the case of residential property, repatriation of sale proceeds is restricted to not more than two such properties.
A foreign national may repatriate sale proceeds even if the property was inherited from a person outside India. However, prior approval of the RBI must be obtained.
A citizen of Pakistan, Bangladesh, Sri Lanka, China, Afghanistan and Iran must seek specific approval from the RBI for repatriation of sale proceeds.