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Residential Apartment

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What is a residential apartment?

You purchase a residential apartment commonly called a flat as a place to reside/stay.

How do you pay for your residential apartment?

If you are purchasing an under construction flat check for the :

  • Down payment

  • Construction linked costs

  • Flexi payment options

You have to pay around 10-15% of the cost of the apartment at the time of the purchase. This is the down payment for the apartment.

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Builders ask you to make a down payment at the time of booking of the apartment (10-15% of the cost) and another (70-75%) within a couple of months after booking the apartment.

You make the remaining payment at the time you take possession of the flat. This is a highly risky method of making the payments, as you are stuck if the builder delays the construction of your apartment.

You could opt for a construction linked plan where you pay 10-15% of the amount as a down payment and the rest of the payments are made as each level of construction is complete.

You could opt for the flexi plan where 30-40% of the payments are made as a down payment and the rest as each stage of construction is completed.

Why buy Residential Apartment

Roof over Your Head

A roof over your head is a basic necessity. A residential apartment provides you a place to reside.

A Good Investment

You can buy a second apartment as an investment. You can also use it as a vacation home.

No More Rent

Tired of living in a rented apartment? Tired of shifting houses? Your own apartment is the answer.

Save on Tax

You save on tax, if you take a home loan to buy your apartment. You save both on the principal and the interest.

Things to remember while purchasing an apartment

Check the title of the land

The builder needs to have the title deed showing the ownership of the land. The title of the property needs to be clear and marketable. The builder then needs to get approvals from the municipal and other authorities.

This is very necessary to start construction on the land. Approvals from the water and electricity board and environmental clearances are a must. The approvals for the building structure, the floor plan and the safety audit of the structure needs to be done.

Get a written commitment from your builder

You need a written commitment (clause) from the builder, clearly stating the payments, the time when construction will be completed and when the flat will be handed to you, as well as a penalty for the late delivery of the flat.

Check the background and reputation of the builder

  • Check the track record of the builder. Has he been successful with his projects in the past?

  • Does he have the finances to complete the project?

  • How many projects has he delivered and in what time?

  • Has the builder been involved in any litigation (legal feud) in the past?

Be aware of the cost of the apartment

The cost of the apartment depends on its location. If it is in a posh area its price will be high. The builder gives you the price of the apartment as the basic selling price (BSP).Any extra amenities offered are charged separately.

The builder might offer you a discount (some builders offer gold coins) for the purchase of the apartment.

Compare rates and discounts offered by other builders as well as the cost of similar projects in the area, before going ahead with the decision to purchase the apartment.

Beware of the registration costs

When you buy a property you have to pay the stamp duty and registration costs. These could be as high as 6-7% of the cost of the property depending on the city and the location of the property.

The bank does not sanction (give you a loan) for these amounts when you avail a home loan. You have to pay it from your own pocket.

The builders state that the stamp duty, registration charges and so on are waived for their projects.

In reality the builders pay the Government on your behalf and it is necessary for you to collect the relevant receipts.

Avail Home Insurance

You need to avail a home insurance policy (Basic fire and allied perils insurance), as cover for the structure of your apartment. This is an additional cost you have to bear. In addition if you avail a home loan from a bank then you need to take home loan insurance.

Many banks do not sanction your loan unless you meet this requirement. If you (policyholder) die before making the repayment, the Insurer settles the home loan. The premiums on these insurance policies is an additional cost you have to bear.

Beware of costly delays

Your obvious loss is that you cannot take possession of your apartment. You have to stay in a rented apartment for that much longer. You also lose on the tax benefits you get when you avail a home loan for the construction of your apartment.

When you take a home loan for the construction of your apartment the loan is disbursed in stages. You have to pay interest on only the portion of the loan which is disbursed. This is the pre-EMI.

You get no tax benefits on the EMI (interest component) till your apartment is constructed. Once the apartment has been constructed the total Pre-EMI interest is available for a tax deduction within a period of 5 years.

If the construction of your apartment is delayed you cannot avail tax benefits.

Check the title of the land

The builder needs to have the title deed showing the ownership of the land. The title of the property needs to be clear and marketable. The builder then needs to get approvals from the municipal and other authorities.

This is very necessary to start construction on the land. Approvals from the water and electricity board and environmental clearances are a must. The approvals for the building structure, the floor plan and the safety audit of the structure needs to be done.

Get a written commitment from your builder

You need a written commitment (clause) from the builder, clearly stating the payments, the time when construction will be completed and when the flat will be handed to you, as well as a penalty for the late delivery of the flat.

Be aware of the cost of the apartment

The cost of the apartment depends on its location. If it is in a posh area its price will be high. The builder gives you the price of the apartment as the basic selling price (BSP).Any extra amenities offered are charged separately.

The builder might offer you a discount (some builders offer gold coins) for the purchase of the apartment.

Compare rates and discounts offered by other builders as well as the cost of similar projects in the area, before going ahead with the decision to purchase the apartment.

Beware of the registration costs

When you buy a property you have to pay the stamp duty and registration costs. These could be as high as 6-7% of the cost of the property depending on the city and the location of the property.

The bank does not sanction (give you a loan) for these amounts when you avail a home loan. You have to pay it from your own pocket.

The builders state that the stamp duty, registration charges and so on are waived for their projects.

In reality the builders pay the Government on your behalf and it is necessary for you to collect the relevant receipts.

Avail Home Insurance

You need to avail a home insurance policy (Basic fire and allied perils insurance), as cover for the structure of your apartment. This is an additional cost you have to bear. In addition if you avail a home loan from a bank then you need to take home loan insurance.

Many banks do not sanction your loan unless you meet this requirement. If you (policyholder) die before making the repayment, the Insurer settles the home loan. The premiums on these insurance policies is an additional cost you have to bear.

Beware of costly delays

Your obvious loss is that you cannot take possession of your apartment. You have to stay in a rented apartment for that much longer. You also lose on the tax benefits you get when you avail a home loan for the construction of your apartment.

When you take a home loan for the construction of your apartment the loan is disbursed in stages. You have to pay interest on only the portion of the loan which is disbursed. This is the pre-EMI.

You get no tax benefits on the EMI (interest component) till your apartment is constructed. Once the apartment has been constructed the total Pre-EMI interest is available for a tax deduction within a period of 5 years.

If the construction of your apartment is delayed you cannot avail tax benefits.

Documents you need to check

Title Deed

Gives you ownership over the land and thereby the flat. It also helps you trace the past ownership of the land. You need to check for general power of attorney where the right to sell the land to others or construct an apartment is granted to the developer by the owner of the land.

Sale deed

You need to check the sale deed of the developer which contains the buyers name, location and number of the property and any other details deemed necessary.

Khatha

Check the khatha of the developer which reveals the owners name, size of the property, location of the property as well as the tax paid on the property.

Encumbrance certificate

You need to check the encumbrance certificate which states that the property is free from any outstanding loans or a loan liability.

Layout

You have the layout which has the plot size, park or a road and is sent for Government approval to see if it matches set standards.

Occupancy certificate

You need to check if the developer has an occupancy certificate issued by the Government which states that the building is fit for occupancy. The developer gets this certificate if the constructions conform to the submitted layout and the building is deemed safe as per the inspections of the fire service department.

Flat allotment letter

The flat allotment letter gives you the buyer the right over the flat/apartment.

It includes:

  • Building plan and details of the size of the apartment.

  • Schedule of construction (When what will be constructed).

  • Payment installments.(As each stage of construction is completed the payment is made).

  • If additional facilities are provided such as marble flooring or a glass partitioning then an extra amount is charged.

  • If the builder provides a gym facility or a swimming pool (amenities), you have to pay more for this.

  • Delivery date of the apartment (Date on which you would get possession of your flat).

 

Concepts & FAQ's Residential Apartment

What is a Residential Apartment?

A Residential Apartment is a housing unit in a Residential complex or building.

These may be owned on an ownership basis or offered on rent to tenants. The main focus in a residential apartment in India is the affordability. These properties also yield good returns as investment options. The current outlook is stable in this sector with further growth expected in the near future.

Why invest in a residential apartment?

When land prices escalate to very high levels, residential apartments start becoming very popular. This is a phenomenon that is seen in the metros and most of the tier 2 cities. High disposable income, easy financing, professionalism in real estate has resulted in the increased demand for residential apartment in cities. These apartments are considered as a good option for investment especially for those who can't afford to invest in an independent plot of land. The rental income earned from these apartments serves as an added incentive for the purchase of these apartments.

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Tax Aspects Involved while taking a loan for the purchase of a residential apartment

  • Tax deductions can be claimed by first time buyers of a residential apartment only if the loan amount taken is less than INR 25 Lakhs. Under Section 24 interest portions are tax deductible up to an amount of 1.5 Lakhs per financial year and an extra INR 1 Lakh deduction is available under section 80EE. The value of the residential apartment purchased should not exceed INR 40 Lakhs. Only those individuals who obtain a loan between April 1st 2013 and March 31st 2014 are eligible for this

  • Principal portion of EMI can be claimed up to a maximum of INR 1 Lakh under Section 80C.Interest portion of EMI can be claimed up to INR 1.5 Lakhs under Section 24

  • Pre-EMI is the interest paid while taking up an under construction house. Tax can be saved on the home loan only once the house is constructed. There is no tax benefit during the period in which the house is being constructed. Once the house has been constructed the total pre EMI is tax deductible within a period of 5 years. This may be divided into five equal installments and paid out in five years. For the period the house is under construction only the interest portion is charged hence it is called pre ?EMI. The real EMI begins (Principal + Interest Portion) only once the house is constructed

Thinking of buying a Residential Apartment ?

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Frequently Asked Questions

In a home buying procedure, which fees are payable by the buyer?

The following fees are payable by the buyer:

  • Origination fees

  • Insurance impounds

  • Appraisal fees

  • Discount points

  • Credit report fees

  • Escrow payments

  • Interest adjustment fees

  • Homeowner's Association Fees

  • Mortgage insurance impounds

  • Prepaid insurance

  • One-time mortgage insurance premium (for FHA mortgages)

  • Tax impounds

  • Title insurance policy fee

  • Documentation fees

If you are a first time home buyer, what are the essential steps that you need to follow?

  • Save money.

  • Do some homework.

  • Check your credit report for probable mistakes.

  • Become pre-approved for a mortgage.

  • Collect some data on current real estate deals and make a comparison.

  • Take the help of a realtor (real estate agent)

What is the amount of down payment necessary to buy a house?

Usually, a down payment of 20% is required by traditional lenders. However, you can make a lower down payment in case you obtain private mortgage insurance (PMI). You can make a down payment as low as 5% through utilizing PMI.

Is it necessary to have my own agent while buying a house?

Most real estate experts will suggest that buyer be represented by an agent. Let us look at the reason because of which it is suggested: The real estate commission is basically paid by the seller & the commission amount is already mentioned in the listing contract. And when the buyer doesn't have his own agent, the same agent can represent both seller as well as the buyer, working as what is known as "dual agent".

I have a flat which I want to sell and buy a new flat which will be bigger in area. What are my tax implications with regard to capital gains?

On the proposed sale of your flat you may purchase another flat within two years of the date of sale of the original flat. If you have invested the entire amount of capital gain irrespective of your area of the flat, you would not have to pay any capital gains tax.

Can foreign citizens of Indian origin acquire or dispose of residential property by way of gift?

Yes. Reserve Bank has granted general permission to foreign citizens of Indian origin to acquire or dispose of properties up to two houses by way of gift from or to a relative who may be an Indian citizen or a person of Indian origin whether resident in India or not, subject to compliance with applicable tax laws.

Can foreign citizens of Indian origin acquire commercial properties in India?

Yes. Under the general permission granted by Reserve Bank properties other than agricultural land/farm house/plantation property can be acquired by foreign citizens of Indian origin provided the purchase consideration is met either out of inward remittances in foreign exchange through normal banking channels or out of funds from the purchasers' NRE/FCNR accounts maintained with banks in India and a declaration is submitted to the Central Office of Reserve Bank in form IPI 7 within a period of 90 days from the date of purchase of the property/final payment of purchase consideration.

What are the factors to look for when purchasing a Residential Apartment?

  • Make sure the builder has all the necessary approvals in place without which the construction is considered illegal

  • Make sure the builder has Government approval to develop the land into a residential area necessary if agricultural land or even industrial land is converted

  • Make sure the builder has all the municipal clearances stating that it does not interfere with urban and town planning as well as unrestricted road access and all environmental clearances

  • Make sure the builder has the authority to transfer the undivided share of land to each flat owner and the entire plot to the society on completion of the project

  • Check if the builder has added a clause stating that they reserve the right to make any changes or alterations in the promised features such as a swimming pool and see if the approved construction plan matches that which is promised

  • Check for the problems in the locality such as water shortages, drainage problems, power cuts and damage to walls in the monsoons due to residual moisture

  • Make sure that the apartment has excellent ventilation in addition to good connectivity by road as well as all basic amenities such as markets, schools and hospitals in nearby areas

  • Additional charges such as stamp duty as well as registration fees may add up an additional 10% to the cost of the property

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