Must Know Terms – IOD, CC and Society Forms for the Real Estate Business in Mumbai!

Dec 24 2018

The real estate market in Mumbai is soaring these days with construction activity. Real estate developers are setting up their best housing and commercial projects in Mumbai due to the rising demand for various real estate occupations.

Amidst all these, if you’re in the realty business, you might come across completely unheard terms from time to time.

The lack of knowledge can contribute eventually lead to legal misinterpretation which sometimes invites problems for the concerned individuals. Especially after the inception of RERA in India in 2016, several new laws have been incorporated.

The Mumbai property scene has been littered with legal cases where RERA penalized builders for not adhering to the aforementioned laws. Hence, obtaining a keen understanding of these rules is inevitable for the participants of this business.  

The realty business in Mumbai is quite organized as opposed to other parts of the country and everything requires various permissions, allowances from the in-charge authority at various steps.

An overall understanding of these terms will help you keep things in check, whether you’re a buyer, builder, seller or agent.

Let’s start with the various types of property assets and the terms related to these.

Must know terms for the Real Estate Builders

Related to Construction

Loading Factor

Loading Factor is a mathematical number that describes how much extra area is available to a flat owner except the carpet area.

This number is decided by the extra area that is usually available to a flat owner in a housing society just around the flat. This area is also called the super built-up area.

The loading factor determines how much super built area will there be in the project and it is essential to calculating the net amount of space occupied by the construction. The factor comes in handy while explaining the additional common area in a given building.

Loading factor is usually described by a given number. Suppose a building has 25% super built-up (area in addition to the carpet area), then the loading factor becomes 1.25.

With the knowledge of the right loading factor, the developer can make accurate estimates of various little things that count in the development cycle.   

  • Super Built-up Area – It is the area available to the resident that is not included in the built-up area of the house. It usually includes the area covered in lobbies, elevator hallways, corridors etc.
  • Carpet Area – Carpet area is the enclosed area of a flat or construction available to a resident inside the flat. The carpet area is devoid of the thickness of the wall. Hence it’s marginally lesser than the actual area of the flat.
  • Common Area – In a real estate construction, common areas are those that are used by the occupants commonly. Such areas are shared spaces and no one owns them exclusively. Some examples of these are the parks, hallways etc.

Open Space Ratio

Open Space Ratio is the ratio of open space available in a land parcel to the total space available in a land parcel. Hence, it defines how much open space a real estate project has in it.

OSR is calculated by keeping several things in mind. Not all uncovered spaces can be treated as open spaces in the real estate terminology. Usually, parking lots, open parks and areas that can be directly used by the occupants are considered as open spaces.

It goes by saying that a healthy open space ration is somewhere above 80%.

Floor Space Index

Floor Space Index is the ratio of the total built-up area of the construction in ratio to the total area available for construction.

The ration basically tells that how much of the constructible area needs to be left open and is usually under the discretion of the local authorities of a locality.

It is also known by the name of Floor Area Ratio and is represented by a number. For instance, if the constructible land is 100 square meters, and the FSI value is 0.8, then construction is allowed on 80% of the land.

Per Square Foot Rate

It is the price of the property per square foot. The price is used as comparison measure to compare the prices of various properties. If a property has the same per square foot rate, then the area covered by the accommodation unit is measured.

The term encloses the built-up area in itself.  

Related to the Authorizations

Intimation of Disapproval (IOD)

Wondering what is IODIt is called the intimation of disapproval but here disapproval refers to an authorization or permit. Matter of fact, it is also called building permit or IOD in construction.

The IOD provides a clearance to the builder to start the construction process after several checks from local authorities are done. 

These checks are carried out during the site inspection process, where it is determined if the land parcel is fit for construction or not. Engineers at the Building Proposal Office determines the eligibility of the project before issuing the IOD.

The IOD certificate usually takes about a month to month and a half to complete as there are 40 different checks made before issuing. Several local authorities sanction permissions such as Fire Clearance, Permission from Traffic and Coordination Department, Environmental Department, Sewerage Department etc.

An IOD is an initial permission given to the builder for the developer and the actual architectural plan is separately checked.

Commencement Certificate (CC)

CC full form in construction is Commencement Certificate, which is given by the local authorities to a real estate builder as a sign of commencement of the construction.

In comparison to IOD CC is an official permission for the commencement of construction. The IOD is an approval for the buildable land, where CC is recognized as the letter of approval for the building.

It is handed out after the builder has submitted the architectural plan for the building and various checks have been made for the same.

From the perspective of the buyer, it’s important that you check the commencement certificate before investing in a building project. If the builder doesn’t have this certificate, chances are that the project is being developed illegally.

Building Layout Approval  

Building layout approval is used to determine the layout plan of the construction project which is checked for compliances to the existing layout laws. The terms that we used earlier such as FSI and FAR values are checked for the project, in order to approve it.

Usually, the Municipal Corporation is responsible for providing approval to the building layout of the project. The layout approval is the part of building approval procedure where the building plan is checked for compliances.

The building layout approval is mandatory before building anything on the given land. Even if you have IOD, you can’t start construction until you have building layout approval first with you as these both look at different aspects of the same thing.

Building layout approval affects the projects in the later stages as well. For instance, at the time of redevelopment, the Mumbai authorities have certain rules that work in this sector.

Recently, re-development in some parts of Mumbai has taken off as a business and the factors that control the redevelopment directly affect how this is compensated to the owner of the property.

Society Transfer Form

In a cooperative society real estate, if you wish to transfer the ownership of a flat to someone else, you have to obtain prior permission from the managing authority of the cooperative society.

In order to make this transfer a society transfer form set is used which defines the details of the transferer and the transferee in written.

You can find forms related to forms for transfer of flat in a cooperative housing society here.

New RERA Rules That Must be Kept in Mind For the Builders

In the wake of malpractices adopted by the developers in various parts of the country and to substantiate buyer interest in real estate again, RERA had released some important rules for the developers.

These rules are designed in the favor of the buyer and several penal actions have been taken against developers who have not been able to meet these rules. It makes it all the more important to follow these rules, hence, they’re worth mentioning in the article.

These new rules are primarily made to avoid delays in the delivery of real estate units to buyers which is an ongoing nuisance in the property scene.

Affidavit by the Promoter

It has been made compulsory to submit a written affidavit in order to promote properties. The promoter must include the date of completion of the project clearly in the affidavit or they’d be penalized for the same.

Recently, RERA fined seven real estate developers for not adhering to RERA rules in Maharashtra, which goes as a clear warning to everyone.

Strength of Possession Date

From a long time, the possession date has been tossed around like a vague term that often didn’t meet the expectation. But this is going to change now.

The agreement of sale will be made to carry the possession date clearly defined as per norms. If a project gets delayed and the possession date goes out of sync, the developer will be liable to pay the interest for the days elapsed in the delay.

Land Title should be Clear

Many a time, the land title of the project isn’t given by the promoter which hides the fact if the land is under some kind of dispute or not. Disputes often lead to delay of the project and in such a case, you’re not allowed to promote the offer. This has been done to keep the buyer in the right light.

Separate Account Needed

RERA has made it mandatory to open a separate bank account in a scheduled bank to deposit the money extracted from the buyers for the development of the project.    

Any money that is withdrawn from this bank account shall be used only for the development purposes or to cover the value for the land. Even the withdrawals made from this bank account shall be under scrutiny for the legitimacy of the progression of the project.

What if the rules are not followed?

These rules are made with strong conviction in mind. If the developers fail to follow any of these rules, there would be penalties imposed and the developers also stand the chance to lose the registration depending upon the gravity of the action.

In case a developer fails to deliver the project on “the possession date”, they’d be penalized for not completing the project on time and would also have to pay interest to the buyer for subsequent days of delay.

The buyer also has the right to withdraw the full amount of money from the builder in case they wish to.

Must know terms for the Real Estate Buyers

Real estate buyers are the biggest concern for the moment in Mumbai as all the focus in on them for all kinds of real estate activities. If you’re new the real estate business, you must come to know the basic terms that govern the market.

As a buyer, you must understand your rights and duties correctly so that you can make a safeguarded buying decision in the process. Here are a few terms that will help you do this.

Buyer’s Agent

When you go out to buy property, you will encounter two types of real estate agents. One would specialize in the sale of properties, and the other in the purchase. in your regards, you will need the buyer’s agent, a person who is typically expert at helping people buy properties.

These professionals are well rehearsed with all the legal formalities required for the purchase of property and would help you in finding the best deal for you.

The other type is called the listing agent, who specializes in the sale of properties, wherein most businesses who want to sell a property, enlist their real estate.  

Closing

Closing is basically the phase when the real estate transaction gets completed. It is also referred to as the closing date when the buyers complete all the formalities such as the signing of deals and the payment of the sum to the owner of the property.

When you’ve successfully bought a property and all the rights to the property have been transferred to you, you can say that you have made the closing.

Earnest Money Deposit

Earnest Money Deposit is a token money that is given to a prospective property owner to show that you’re interested in the deal and you’d like to book it before paying the full amount.

Earnest Money is different from down payment. Down payment is usally of the magnitude of 10-20% of the property but Earnest money is somewhere between 5-10% or as deemed appropriate by the property seller.

Real Estate Realtor

Realtors are fundamentally real estate brokers who facilitate real estate deals and make the necessary formalities for you in order to close a deal but not every real estate agent can be referred to as realtor.

Realtors are usually members of a real estate association that recognizes them under the national status. For instance, Spacio Realtors are ISO 9001 certified.

Certificate of Occupancy

Certificate of occupancy is obtained by the real estate developer which signifies that the property is fit for occupancy. It is issued by the MC of a locality after making several checks on the property for the developer.

As a buyer, you must seek for CO in order to ensure that the property you’re buying, especially a flat, is fit for living. The CO is given as a sign that the hygienic factors associated with the property are well amended to.

Allotment Letter

Allotment letter is provided by the real estate developer to the buyer issuing that the property has been allocated to the buyer by the developer. The property may or may not be complete at the time of allocation but the letter must be there.

It is often done after the deal has been closed between the two parties.

Encumbrance Certificate

It is a certificate that verifies any encumbrances held by the property at the time of property buying. It basically clears the property of any encumbrances that may hinder the deal or cause a delay. It is usually issued by the registrar in order to ensure the smooth flow of the deal.

If you want to protect your interest in the deal, you can obtain this encumbrance certificate so as to be sure of the deal from your end.

Joint Ownership Agreement

If you’re going to buy the property in partnership with someone else, you can sign a joint ownership agreement which will help you clearly define the rights of the other person over the property.

Joint ownership are necessary in order to safeguard your end of the deal whenever a dual arrangement is made.

Conclusion

The real estate market is full of terms that are not self-explanatory and can lead to consequences if not explained correctly. With this article, you’d be able to inform yourself of the various terms that relate to the developer and the buyer alike.

For detailed property advice and how to initiate a deal, you can contact Spacio Realtors.


Important Legalities for NRIs inheriting Real Estate in India

Dec 24 2018

If you’re an NRI selling property in India that was inherited by you from your ancestors, there are certain rules and regulations that you must know about while doing so.

There are fundamental differences in the taxation for NRIs and you will find a lot of things uncommon from usual laws. Real Estate transactions involve hefty amount of money and hence, they should be done with the right structure in mind.

Factors such as laws of inheritance, taxes to be imposed on inherited property, rights of inheritance, permissible properties by RBI etc come into play and violating any of the laws can result in messed up real estate consequences that any NRI would want to avoid.

As Spacio Realtors are NRI Real Estate Agents, we would like to shed some light on the process and the legalities of inherited properties by NRIs.

What kind of Properties can be inherited by NRIs?

Although there are restrictions on buying certain categories of real estate in India such as agricultural or farm land for NRIs, they are free to inherit all kinds of immovable property assets.

Inheritance is allowed from anyone in the family of the NRI or even another NRI to whom the property belongs. Person of Indian Origin (PIO) can allot properties to other NRIs based on the nature of the transaction. There are certain rules that govern this kind of inheritance.

Condition of Inheritance

Only those properties, residential or commercial, are inheritable that properly warrant the inheritance of property as per the laws that govern the case of inheritance by an NRI.

Obviously, the relevance of such laws is subjected to the time the inheritance statement or will was written. If certain conditions as depicted in these laws were not met (at the time of allotment of property), the property can’t be inherited.

The same case applies to properties that are inherited from other NRIs or PIOs by an NRI or PIO.

More information on these laws and FAQs are given at Ministry of External Affairs.

Taxation for NRI When The Property is Legally Inherited  

As such there are no taxes imposed on an NRI when they receive an inherited property from someone. Neither does the transferrer, dead or alive, has any such tax obligation to fulfill to make the transaction valid.

There is a clause however, that if the property is reassigned or the rights are transferred to another person by the NRI who originally inherited the property, the recipient is mandated to disclose the property as income. This condition is valid only when the property exceed 50,000 INR in value, which we suppose almost every property will.

Taxation for NRI when The Property is Retained By the Heir During Their Lifetime 

If the NRI decides to keep the inherited property to themselves, there are certain other conditions that come into play.

  • If the NRI status is retained by the individual based on income tax laws applicable to the person, the property will be taxable by the law.
  • If the NRI doesn’t use the property for any kind of monetary gains and only keeps it for occupying it while stay in India, then there is no tax implication.
  • If the same NRI owns more than one properties in India, including the one inherited from someone, then only one of these properties qualifies for exemption of taxes. Tax Return Filing for NRI will be applicable for other properties as only one can be used for stay.
  • The other properties, in case of multiple properties owned by the NRI, are taxed on the basis of rental income value of those properties.
  • Tax Return Filing for NRI also becomes necessary if the combined income of the NRI in India exceeds the basic taxable bracket, including that earned commercialization of inherited property.

Tax Applications while the Sale of Property by NRI that was Inherited  

There are three basic conditions that operate when an NRI wants to sell the property that was inherited.

  1. An NRI is free to sell the inherited property to any citizen of India.
  2. An NRI can also sell the inherited property to another NRI or PIO but this can only be done after prior permission from RBI.
  3. The laws and rights regarding the sale, rent or gift of property don’t vary if the person was not an NRI when the property was inherited by him.  

Implications when the NRI wants to Gift the Inherited Property to Someone

The NRI holds full rights to gift the property to someone in the family without having to go through any tax implications.

In case, the recipient of the property is not a family member or a non-relative, then they have to pay property tax on the net evaluation of the property.

NRIs are not allowed to gift the property to anyone who is neither a citizen of India and nor an NRI or PIO.

Tax Laws for NRI Corresponding to Income from Inherited Property

There are tax implications on both the seller of inherited property – the NRI and purchaser but the same laws don’t govern the taxes imposed.

When the sale is made by the NRI of an inherited property, then the purchaser has to file income tax according to income tax on capital gains. (Section 195 of ITA)

If the time when the NRI inherited the property and the owner bought the property exceeds 2 years in calculation, the NRI will be taxed based on long term capital gains.

In case, the inheritance has taken place after April 2001, the value of property paid by an preceding owner of the property will be taken for computation.

Alternatively, if the property was inherited before April 2001, the value of property, can be computed based on its value as on April 2001 for taxation.

Tax Percentage for Long Term Gain for The NRI

The NRI is supposed to pay 20 percent per annum is they decide to pay the taxes under long term capital gain.

They also have the option to invest in any of the allowed government institutions in the forms of bonds, given the value of investment is equal to 50 lakhs inside a year.

Get Help With Sale of Inherited Property in India from NRI Real Estate Agents

 If the taxing system and Tax laws for NRIs are a bit overwhelming for you or you want a property expert to help you with the sale of inherited property, you can obtain the services of Spacio Realtors.

We’re ISO 9001 certified Real Estate agents in India who offer a great deal of trust in dealing with NRI property.

There are several benefits of going with us in such kind of transaction as we can provide expert guidance on the whole process, mobilize resources for the deal and help you invest your money precisely for the best tax benefits.

These things make the transaction smoother and retain income benefits for the NRIs.

Conclusion

Inheriting property from relatives in India or other NRIs is legally possible for NRIs but selling it comes with added tax conditions. Gifting an inherited property or selling it out for capital gains must be done with legal compliance in order to make the best out of the assets.  



A Quick Guide on Registering Property in India

Dec 21 2018

So, you’ve made the decision and found the perfect home for you. All that’s left is registering with the government to become the lawful owner of your beloved piece of property.

There is a process to do this that you must follow to invite least amount of trouble in the future and secure your new purchase without any issues. Let’s follow this procedure step by step so that you can pull this off accurately.

Pay Stamp Duty

Stamp duty is a kind of tax that is paid to the government for exercising control over some asset or a right. The stamp papers act as a living proof of the this act and serve as the legal tender for the person who commits the action.

The first step along the line is to pay the stamp duty for registration documents of your new property. The duo of Stamp Duty Act and Registration Act lay down the rules for this process. The amount to be paid for stamp duty is based on the total evaluation of the property and varies from state to state.

Registration of Documents

After the stamp duty has been paid to the government, the property will be registered to your name. There will be a separate fees for registering documents which is liable to be around 1% of the total value of the deal. It also varies from state to state.

Once registered, your documents are kept with Sub-registrar for future reference.

Evaluating Stamp Duty and Obtaining Stamp Papers

You must already be wondering that how much is the stamp duty and how to evaluate it. Here’s the process.

Firstly, obtain an estimate of the property by taking the circle rate into consideration. You will get an estimate value for the property.

Now check if the actual deal price that you have settled for is higher or the circle rate evaluation is higher. Whichever is the higher, will be considered for paying the stamp duty.

You can confirm the stamp duty percentage for your state from the registrar office and get the exact amount. After that you have to buy the stamp papers.

These papers can be bought online or offline from registered stamp vendors. This is a step based on convenience. We recommend buying in person.

Signing the Deed

Once you have the stamp papers ready with you, you would have to get them typed for the deed. The matter would depend upon the nature of the deal such as mortgage, purchase, sale etc.

After the documents are ready to be signed, you would be obliged to mark your presence at the sub-registrar’s office. The same applies to the person involved in the deal with you, i.e. the seller of the property.


Registration of Property Documents in India

Dec 17 2018

What does registration of property documents mean?

Registration means recording of the contents of the document with a registering officer and preservation of copies of the original document. The registration of Sale Deed assures about genuinety of the title of the property. The Registration fees at present fixed for registering document relating to property transactions is 1% of the market value or Rs.30,000/- whichever is less in case of documents pertaining to sale or conveyance. (This is applicable from 1.4.2003 to till date).

Documents Required for the Purpose of Registration:

  • No Objection Certificate under Urban Land Ceiling Act if land is transferred, irrespective of whether land area exceeds 500 sq.mts. or not, in Mumbai.
  • If the land belongs to Government or Semi-Government body or to Charitable trust, the No Objection Certificate of such Government or Semi-Government body or of Charity Commissioner.
  • Property Card of Land on which the property being registered is situated. This requirement is irrespective of whether land is sold or building is being sold or any part of the building is being sold and also irrespective of whether the seller of property is recorded as owner on property card or not. In other words even flat owners are expected to produce this paper at the time of registration.
  • Original stamp duty payment receipt.
  • Two witnesses.
  • Photographs of both buyer and seller.
  • If the building is completed prior to 25-3-1991 then properly assessment bill is to be attached and if the building is completed on or after 25-3-1991 then Commencement certificate or Completion certificate or Occupation Certificate or I.O.D. issued by the Municipal Corporation is required to prove that the Building is an authorized structure.
  • Now mentioning of Income Tax PAN number is mandatory in all sale and purchase document of value above Rs.5,00,000/-. Those who do not have PAN number must file Form 60 along with documents.
  • Registration fees is payable by the way of Government Challan and / or Pay order of Nationalised Bank.

 Procedure of Registration at Sub-Registrars Office:

  • Take token number from Sub-Registrar on Telephone one day prior to date of registration.
  • Obtain a pay order of specified amount favoring that Sub-Registrar for Registration fees.
  • Submit a copy of pay order for Registration fees on the day of taking token number.
  • Bring complete document along with other document as mentioned in the preceding reply.
  • Submit the document along with input form at token window at least 30 to 45 minutes before the time allotted for that token number.
  • Wait till the token number is announced.
  • On token number being announced, all parties to the document must present themselves before the Sub-Registrar to admit execution of the document, photographed, thumb impression and signature taken on additional sheet of paper in presence of Sub-Registrar.
  • Pay the exact Registration fees through Government challan and / or pay order and computer service charges in cash as per the receipt. (Computer service charges are @ Rs.20/- per page) Documents will be returned within 30 minutes of getting the receipt.

Registration and Presence of Witness:

It is to be noted that two witnesses are required at the time of completing the Registration formalities; basically the witnesses are required for the purpose of identifying the persons who have executed the document.

Penalty:

Though there is no penalty for non-payment of Registration fees. However, one must keep in mind that when one goes for registration after four months and before eight months of execution of agreement / document he is charged a penalty which could be up to 10 times of Registration fees. This is the penalty for delay in presenting the document before the registrar and is not a penalty for non-payment. Normally this penalty is charged at the rate of 2.5 times of the Registration fees per month for delay beyond the permissible 4 months.


Compendium on The Real Estate (Regulation and Development) Act, 2016

Dec 17 2018

Download PDF

The Real Estate (Regulation and Development) Act

BACKGROUND

Housing sector is one of the top contributors to country’s GDP and employment creation. Surprisingly, in spite of being such an important part of the economy, the real estate sector has remained by and large unregulated. The Real Estate sector is, to a limited extent, controlled and regulated at the local government’s level with every state government having its own set of rules and regulations for real estate development. Taking benefit of country’s abysmal judicial system, the developers have been taking property buyers for a ride, and putting real estate sector on the bottom of customer protection and satisfaction pyramid.With the things getting bad to worse, it has let to big hue and cry, making urgent need for a unified regulatory legal framework to protect customers’ interest.

To address the various structured issue in the real estate sector, the Central Government enacted “The Real Estate (Regulation and Development) Act, 2016” which received the President’s assent on 25th March 2016.

 Download PDF of Compendium on Real Estate (Regulation and Development) Act 2016


What is Occupancy Certificate,CC and IOD? Real Estate Terminology Part 2 [Approvals]

Dec 17 2018

In the second of this six part series, we cover real estate terms related to important approvals for properties like occupancy certificate, etc. The first part covered terminology related to area of the property including carpet area, built-up area, etc.


Intimation of Disapproval (IOD)

IOD is an essential permission given to the developer by the municipal authorities.

After development plans are submitted to the Building Proposal Department of BMC, an IOD is issued, and under the terms and conditions of the IOD, the developer is asked to comply with many requirements and obtain various clearances like clearance from Environment Authorities, Tree Authorities, Fire Officer etc. After these clearances are obtained, the developer is entitled to obtain a Commencement Certificate (CC).

Commencement Certificate (CC)

A certificate issued by the appropriate local authority certifying the construction may commence. Typically, this is done after the concerned party has obtained sanction of plans for the construction of a multi-storied building.

Commencement Certificate (CC) is given in two stages:

  1. CC upto plinth level
  2. CC beyond plinth level

Usually CC is extended from time to time.

Occupancy Certificate (OC)

Once the construction of the building is done as per the plans which were submitted and approved by the authorities, legal possession of that house or commercial space can be taken only after Occupancy Certificate is received.

OC is a certificate issued by the local municipal authority certifying that all necessary works have been completed as per the sanctioned plans and that the property is fit for occupation. The OC is issued after clearance from the water, electricity, sewerage, fire fighting authorities etc.

Occupancy Certificate is not a good-to-have certificate, but a mandatory one. Till the developer of the residential or commercial property does not obtain Occupation certificate from the civic bodies, it is illegal for buyers to move into that property and commence any activity.

In fact, a very popular case in Mumbai was all over the news for the same reason. Campa Cola Compound in Worli in Mumbai did not have OC for its residential towers. In spite of being aware of this incomplete documentation, residents bought the apartments on the understanding that they would get Occupancy Certificates later and they started living there. After around 25 years, Supreme Court ordered residents of Campa Cola society to vacate their apartments in 2014. (Source: Wikipedia)

This is the second post of our real estate terminology series. Subscribe to our blog via email so you never miss a post from this series and other interesting property tips.

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