Vivina Vishwanathan Live Mint 19 June 2014
Avoid a Campa Cola building-like mess by ensuring that the paperwork is in place. Here’s how
After the Supreme Court’s judgment on 27 February 2013, the illegal flats in the Campa Cola Compound in Worli, Mumbai, are scheduled to be demolished beginning 20 June. The compound has seven high-rise buildings, which were constructed between 1981 and 1989. Though the builders had permission to build only five floors, some of the buildings have 17 and 20 floors. “We are not vacating the place and will try our best to save our house,” said Karan Sethia, 24, who lives on the sixth floor of one of the buildings. All floors above the fifth have been declared illegal. Sethia said his parents were not aware of the irregularities when they bought the house in 1991.
This is not the first time that an illegal construction has been asked to be demolished. In April, the Allahabad High Court had ordered the demolition of two 40-storeyed buildings in Noida. In New Delhi, Possangipur village in Janakpuri district is an example of irregular settlement termed as ‘Lal Dora’.
With illegal constructions mushrooming in all cities, how will you find out whether the property you are buying is legal? There are some checks you should run, with the help of experts if required, to ensure you are getting a fair deal. Here are four red flags to watch out for before putting your money.
Get your papers right
Here is a simple question. How do you prove you are a graduate and not a high school dropout? Through certificates and mark sheets. Similarly, when you buy a property, the proof that it is legal can be seen in the agreement papers. Documentation is the first check point. You may argue that the builders advertise heavily and the construction happens in the open, so if it’s illegal, it will catch the eyes of the authorities concerned. This is like believing that a celebrity’s fair skin is a result of using the fairness cream she endorses.
“When you buy a property, you will have to sign a set of documents. Builders are supposed to show you all the agreement documents. In fact, you are supposed to sign an agreement that you have inspected the property that you are buying and are satisfied with it,” said Jehangir Gai, a Mumbai-based consumer activist. If you don’t trust the builder, you can get the document from a municipal corporation or sub-registrar. “Vigilance is the key. If relevant documents are not available with the seller, registered documents relating to the same construction are available at the relevant sub-registrar’s office. Documents that are registered are available for public inspection. If the documents have not been registered, the sale would not have been effective,” said Aakanksha Joshi, associate partner, Economic Laws Practice, a law firm.
But can the authorities refuse to give the documents? “There is a case running currently, against the municipality (Brihanmumbai Municipal Corporation) where its employees refused to give the title search document of a project to an individual. This is also a red flag because if the construction is legal, no one will deny you the documents that are actually meant for public inspection,” said Gai.
Say, you have short-listed a property, and made the payments. At the time of possession, the builder has to send your details to the authority concerned, who will then issue your occupancy certificate (OC) or no-objection certificate. These are important documents to have because an OC proves that the building you plan to occupy has been built as per the approved plan. Unless you have an OC, basic amenities such as water and sanitary connection are also not provided. The provisions, however, vary across states and cities. In the Campa Cola Compound case, the residents didn’t have an OC.
Small tweak, big problem
It is also important to ensure that the house you are buying is exactly as per the approved layout; even small changes are not acceptable—you can be hauled up for changes like adding a roof to your garden space. All residential projects needs approval for every sq. ft that is used for occupancy. Floor area ratio (FAR) or floor space index (according to the development plans and zoning laws of individual states) denotes how much area you are allowed to construct on a given plot size. It is the ratio of the total floor area in the building to the total plot area. The constructed area would include the basic structure, walls, and staircase or lobby space, if any. FAR is calculated using a simple formula: total covered area of all floors divided by the plot area. Say, a builder has got a plot of 1,000 sq. mt and the permissible FAR, according to development plans, is 1.5 sq. mt. This means the builder is allowed to construct a building on 1,500 sq. mt.—which means a three-storey building if each floor is 500 sq. mt.
Again, FAR differs from place to place. Any construction beyond the permissible area is illegal. If you don’t fully understand all the details, big and small, consult a lawyer and get the documents checked professionally.
Too cheap to be legal
If you are getting a project below the market value, it’s a definite red flag. “You should ask questions such as why is a builder being so kind to you? Why is the quoted price below the market price? The problem is that people get excited with discounts. They assume that real estate prices will appreciate, and believe the sales talk could be the last opportunity for them to buy a project at such a price. You should remember that you are not buying a Rs.10 or a Rs.100 product, but putting in lakhs and crores. Due diligence is a must,” said Himanshu Shekhar, a lawyer for the Campa Cola Residents’ Association.
Builders need buyers for their illegal projects. If the documents are not in place and there is less or no demand for such projects, builders tend to sell below the market value. While there is advantage of price, there is a risk of being thrown out of your house.
The other use of a loan
If a financial institution refuses you a loan, this, too, is a red flag indicating that the house you are planning to buy is illegal. “Banks or housing finance companies are very cautious in giving home loans and hence, do a certain amount of due diligence. They generally verify the title search documents and the approval papers to ensure that the project is legal. Taking finance from a reputed bank or non-banking finance company helps you validate if the project that you plan to take a loan on is valid. Banks generally reject loan applications for projects that don’t have a clear title, or don’t have an OC or a no-objection certificate,” said Anuj Puri, chairman and country head, Jones Lang LaSalle India, an international property consultancy. So, a rejected loan application because of lack of documentation is a warning sign.
Mint Money take
A house is likely to be the most expensive purchase you ever make. That should be reason enough for you to be responsible when buying a property and diligently getting all the required information on the property and the builder. An illegal construction can be very troublesome, and you would need to spend a lot of money and time sorting out the issues.
“Risk of demolition is a major problem. Considering the increasing awareness of issues relating to illegal constructions, obtaining financing using illegal premises as collateral or further sale of illegal construction may also be more challenging. Additionally, if the relevant rules are applied more strictly, it may be difficult to obtain utilities at illegal constructions,” said Joshi.
Apart from the threat of a legal battle, you also compromise on safety. “Illegal construction continues to mushroom in unplanned areas of our cities to accommodate the growing population. There is no homogeneity in terms of plot sizes, street widths, height, and gross built area in these locations. Old buildings that collapse are ones that have been built without proper permits and lack structural safety standards,” said Sachin Sandhir, managing director, RICS South Asia, a self-regulatory professional body dealing in land, property and construction.
You must remember that if the government decides to evict you from your house, which is proven to be illegal, you have no choice but to vacate. Living in the anticipation that the house will eventually get approved is like betting in a casino.
(Zahra Khan contributed to this story)
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