Buying a property, especially for new homeowners, can be a confusing process. There are so many complex steps involved and the language used is full of jargon and legalese leading to further confusion. Let us demystify the process for you and explain real estate laws in India in simple terms.
Real Estate Laws
Real Estate Laws in India are governed by both State-specific laws and Federal laws. This is because, according to the Constitution of India, ‘Land’ falls under the State List while ‘Transfer of property and registration of deeds and documents’ falls under the Concurrent List. Due to this, the process of buying and registering a property can seem complicated. First, let us understand the basics of real estate law in India.
The purchase of property in India falls under RERA.
The Real Estate (Regulation and Development) Act, 2016, and the body under it, the Real Estate Regulatory Authority or RERA governs the development, marketing, and sale of real estate projects. It was established with the aim to protect the interests of the consumers in the real estate sector. It established a mechanism for speedy dispute redressal through the Real Estate Regulatory Authority and the Appellate Tribunal. It also mandates the compulsory registration of projects and key players in the real estate sector.
Indian real estate law does not envisage a system of land registration. Rather, the concept of registration is related to the documents under which the title is transferred from buyer to seller. Any instruments and documents relating to land are required to be registered in accordance with the Registration Act, 1908. The system of registration of documents is well defined in India with robust government machinery that registers and maintains these documents.
The Indian Stamp Act, 1899 governs the payment of stamp duty relating to land. It forms a major component of costs involved in property registration and is to be paid to the state governments by the buyer. Since it is collected by the state government, the rates vary from state to state. In most states, stamp duty is paid in terms of a percentage of the total transaction value.
The other act that comes into play in buying and selling of property is the Transfer of Property Act, 1882. As per the Transfer of Property Act, a ‘sale’ is the transfer of ownership in exchange for a price paid or promised or a price part-paid and part-promised. In the case of tangible immovable property, the transfer can only be made by registered documents, as enumerated in the Registration Act, 1908 which is mentioned above. Under Section 55 of the Act, the seller has a duty to disclose to the buyer any material defect in the property or in the seller’s title of which the seller is, and the buyer is not aware and which the buyer could not, with reasonable care, discover. Misrepresentation gives the buyer the right to compensation or indemnity from the seller.
Though the seller discloses all information about the property as well as his title, the buyer should exercise due diligence and check the title of the seller. That was a brief introduction to the Real Estate Laws in India. Now let us talk about the documents that a buyer should check before purchasing the property.
Documents to Check before Buying Home
Due diligence on part of the buyer is imperative to becoming a bona fide purchaser, even though it is not a legal obligation. To conduct due diligence, it is important to check the following documents before purchasing your house and here is a complete guide to buying flats in kolkata
- Completion/Occupancy Certificate: A Completion Certificate (CC) is issued by municipal authorities on the completion of the project. This document is required for receiving loans from banks and for applying for water and electricity connections.
- An Occupancy Certificate (OC) is issued by a local government agency once a project is completed and is deemed fit for occupancy, meaning that it has been built in accordance with the applicable codes. This document is required for receiving loans from banks and for applying for water and electricity connections.
- Building Plan: A building or site plan contains a blueprint of the project with the layout of the housing spaces and utilities. Due diligence must be done by the buyer to ensure that the plan has been fully approved by the local municipal authority.
- Encumbrance Certificate: Encumbrance certificate can be obtained from the sub-registrar’s office where the property is registered. It mentions that the property has no current monetary and legal liabilities. It is important to verify that there are no dues on the property (such as property or other taxes, electricity bills, and water bills), that the legal ownership is in the name of the seller, and that they are authorized to sell you the property.
- No objection certificate can be obtained from society, even though is it not legally required.
Step by Step to Register Your Home
Registering documents related to the sale of a property is mandated by the Indian Registration Act, 1908 according to the real estate laws in India. A person in whose favor the property is registered becomes its lawful owner.
Note: For Maharashtra, the registration of an agreement to buy or sell an apartment is mandated under Section 4 of the Maharashtra Ownership Flats Act, 1963.
Step 1: Preparation of the sale deed
The sale deed is the main legal registered document and acts as proof of sale and transfer of property. It is usually prepared by the buyer’s lawyer on a green legal paper with the date and place fields left blank for stamping. It is advisable to read the fine print thoroughly before signing the deed as it is legally binding.
Step 2: Payment of Stamp Duty
The buyer has to pay the stamp duty at a designated bank of authorized collection center of the Stock Holding Corporation of India for stamping of the sale deed. The charges vary from state to state but are usually around 5% of the market value of the property. The stamp papers can be purchased in person from licensed stamp vendors or online.
Once the payment is done, the bank issues a receipt and stamps the sale deed with the words “stamp duty received”.
Step 3: Registration and Execution of documents at the Sub-Registrar of Assurances
Once stamp duty is paid, the documents have to be registered with the sub-registrar under whose jurisdiction the property is situated. An original copy of the registration is kept with the registrar and can be referred to in case of a dispute.
Transactions relating to registering real estate in India cannot be completed electronically. The physical presence of the parties is required. The following parties are needed at the office of the sub-registrar: seller, purchaser, and two witnesses.
The sale deed is registered after the buyer, seller, and witnesses sign on the stamped deed. Then, a distinct number is assigned to the document and the buyer is given a receipt.
Once the sale deed has been registered, the same is presented to the Reader of the Sub-Registrar for verification. He or she will indicate the registration fee required. The fee due is deposited with the cashier against a receipt and the documentation is presented before the Sub-Registrar.
After the documentation is returned to the buyer, the seller hands over the physical possession of the property to the buyer.
Step 4: Mutation of Title Deeds
Mutation refers to the change in ownership of a property from the seller to the buyer. It is essential to make the buyer the official owner of the property. It also enables the government to levy a property tax.
Application for mutation is made at the City Survey and Land Records Department by the buyer who has to submit a duly signed application form along with the notarized copy of the Sale Deed. The City Survey and Land Records Document decides the value of tax on the property and issues the Letter of Mutation in favor of the buyer. Then the buyer is the owner of the property under the Indian real estate law.
List of required documents for buying property
It is advisable to keep these documents handy by all involved parties, that is , purchaser, seller, and witnesses. Each party will need their Aadhar Card, PAN Card, or any other proof of identity issued by a government authority like a Voter ID Card or passport, along with two passport-size photographs.
Other documents required are:
- An original copy of the sale deed and two photocopies of the same
- Certified copies of the Certificate of Incorporation of buyer and seller, in case of company buyer and not an individual buyer.
- Copy of latest property register card to indicate that the property does not belong to the government obtained from the City Survey Department.
- Copy of a municipal tax bill to indicate the year in which the property was constructed.
- If the signatories are representing someone else, they have to furnish the power of authority.
Buying property and registering it with the right authorities can seem like an overwhelming job. Hopefully, this article helped you understand the basics of real estate laws in India and simplified the steps you have to follow when buying your own property. Gaining some basic knowledge of the process will make you realise that Indian real estate law, though a little convoluted, is not impossible to navigate.
You can also check out the following blog ” Why is investing in Real Estate Kolkata during COVID is smart?” and “Must Read: 6 Reasons to Buy Flats at Kolkata During COVID“