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Vinetha Jadon work is spread across India, Middle East and Dubai. Along with residential projects, she has also been designing residential and commercial projects. Vinetha graduated from the Bangalore Institute of Fashion MBA in New Delhi, India and completed her Masters in Interior Design from Florence. We founded Vintas Designs in 2015. Vintas Designs is acknowledged as a thought leader in the country for their work in the domain of Architecture and Spatial Design

Is it worth buying an old house

Yet, the fact remains that the resale property market has some of the best deals going. If you are willing to spend time on research, you may find the house you have always dreamed of at a price lower than that of new projects in the same area. Banks are now more willing to lend for resale properties than they were a few years ago.

Many of the sellers are those who want to upgrade to a bigger house. They prefer to accept the entire payment by cheque because there is no tax implication if the sale proceeds are used to buy another house.

Buying a house in the resale market has other advantages as well. Faced by a cash crunch, even large developers have missed their project deadlines by months. Smaller ones are behind by years.

Instead of an empty promise of getting possession in a new project, you get a ready-to-move-in property when you go for a resale property. Let us look at the benefits of buying a second-hand property.

Want to stay close to your workplace or your child’s school? Chances are that a new project in an established location close to the business district will sport a premium tag. If, however, you look around the same locality, you have a better chance of finding a resale property which may fit in your budget.

The difference in the price of a newly constructed apartment and an existing one can be 25-50%, depending on the city, location and age of the structure. Even if you factor in the cost of renovation of the old apartment, it would still be a lot cheaper than a new one.

The best part is that you get to live in a well-connected locality. Proximity to the work place, educational institutions, shopping centres and the local transport network are important factors on which buyers base their decisions. They can buy bigger apartments and enjoy a better lifestyle at a lower price in the suburban areas.

Yet, many homebuyers prefer to live in the city even if it means compromising on the space and facilities. The Deys, for instance, chose a house at Vashi because the husband’s workplace and the child’s college were close by.

The difference between the super area and carpet area has always been a contentious issue. But, of late, the problem has assumed alarming proportions.

The super area includes common facilities, such as corridors and staircases, enjoyed by all the units in the building. The carpet area is the actual living area inside the house. The gap between the two has increased in recent times.

In some projects in the National Capital Region (NCR), for instance, the carpet area can be 30% smaller than the super area being touted by the builder. In a resale property, there is no builder or marketing gimmicks.

You get to see the property on the basis of the actual carpet area. So, even though the per square foot cost of a resale property may appear high, it will also offer more usable area.

Usually, older properties have lower maintenance charges compared to the new ones. This could be due to the slew of additional facilities in new projects. Mumbai-based Amit Nanda says that in an older building, certain amenities are offered absolutely free of cost.

This is unthinkable in the latest projects. “In a new construction, the developer would charge you for car parking space and facilities like gym or swimming pool, which the members hardly use,” he adds.

Having said that, keep in mind that older properties require general structural maintenance more often than the new projects. Recurring costs like painting the building, water-proofing and structural repairs have to be borne by the residents, which adds to the financial burden of the individual.

A new property will not have to incur such repairs in the first 10-15 years.

Choose your neighbours: When you buy an existing property, you also have the liberty to choose your neighbours. Ahmedabad-based Bipin Vora, a pure vegetarian, wanted to live in a locality with like-minded people. “I met the neighbours before I bought the property. I talked to them at length and finalised the deal only after I was convinced that I would be comfortable in the surroundings,” he adds.

While there is the promise of a good location and a better deal in the case of a resale property, one has to put in a lot of time and effort on research and due diligence. The groundwork required for a old flat is considerably more than for a new one. Unlike a new project, you are not buying from a company but from an individual.

You also have to assess whether that individual is the legal owner of that property. There are many imponderables and the legal implications of making a mistake are more severe and complicated.

Manish Agarwal considers himself lucky and he has his bank to thank for it. The 29-year-old Mumbai-based marketing manager almost bought a disputed property in a high-rise building. “The flat was on the top floor of a 13-storey tower. It had a beautiful view and was within my budget too,” he says.

Luckily for Agarwal, the bank from which he was seeking a loan, exercised due diligence and found that the building did not have the necessary permission from the municipal authorities. This was why the building did not have a water connection even after five years.

The residents were using water from a tanker, which was hired daily. “The seller had not disclosed this to us, but since banks conduct enquiries on their own, we found out about it,” he says.

Not everyone is as lucky as Agarwal. Many end up purchasing a problematic property. Experts say that there are some basic checks that one needs to conduct before buying an old property.

The structure: Before you are swayed by the location and interiors of a property, take a look at the structure. It is a good idea to take a civil engineer, who can tell you whether the walls are double layered or single layered (double-layered walls are stronger); whether the cracks on the walls threaten the structure or can be corrected; whether the moisture has affected the structure badly or not.

If the property is more than 10 years old, you may also think of consulting a structural engineer. He can tell if the property has been constructed according to the plan and if you are getting the carpet area promised by the seller.

Depending on the city you live in, structural engineers may charge anywhere between Rs 5,000 and Rs 10,000 for a thorough inspection.

Plumbing and wiring: You may not notice seepage in the walls if the owner has put a fresh coat of paint on it. Seepage can lead to bigger problems in the future. It can damage the walls and endanger the structure. Here again, you need to consult an expert who can detect the problem. A good plumber should be able to tell you if there are any fissures in the piping system.

He will carry out a pressure gauge test, wherein all water exits are closed for a day to find out the exact location of the seepage. Before you sign the deal, ask the seller to give you the wiring plan of the house and ask your electrician to take a look. Since the wiring is concealed in most cases, the age and quality of wiring may not be apparent at first glance.

Hidden charges: Before you buy, find out how much you may have to pay for common spaces, such as parking, staircase and lifts. Usually, the resident welfare association or the society charges a fee for these facilities. Check whether the owner has cleared his dues or if some arrears are outstanding against his name. If you really like the house and don’t care about such issues, this information will give you the handle to bargain on the overall price or ask the owner to get things fixed before you buy the house.

The valuation by your bank is usually lower than the price you pay for the property. This will push down the loan amount because banks lend 80% of the value of the property.

This is why it is advisable to get the property valued before you approach the bank for a loan. Even if your income is enough to justify a bigger loan, the bank will give one based on its margin requirements.

The down payment can also vary depending on the age of the property. If the property is quite old, the down payment requirement may be higher.

Moreover, most banks have a cap on the maximum age of the building at the end of the loan tenure. This is normally 50 years. So, if you are buying a property on resale and the current age of the building is 38 years, the chances of getting a loan for more than 12 years are dim, despite the fact that you may be eligible for a 20-year loan.

The reduction of the tenure also reduces the loan eligibility.

Purchase agreement: This is one of the basic documents you need to check while buying a resale property. It tells you who the current owner is. Make sure this is on a stamp paper and duly registered with the local authority. In case the present owner had also bought it on resale, it would give you an idea of the chain of titles. Copies of stamped receipts for payments made to the previous sellers would also be needed if the present owner is not the original buyer.

Share certificate from the housing society: This helps establish the owner’s membership in the society. Often, after the death of the original owner, one of his heirs may have occupied the property though he may not be the legal owner. Getting a loan would be difficult in the absence of a share certificate. If it is lost, ask for a duplicate share certificate, along with an indemnity bond, from the owner.

No objection certificate from the society: This certifies that the society has no objection to the transfer of the share certificate in favour of the purchaser. It should also certify that the seller has no defaults, penalties, or outstanding payments due to the society.

Architectural drawings and clearances: If you are buying an independent house, make sure you take the architectural drawings, municipal clearances and completion certificate from the owner. These will be needed if you intend to alter or extend the house in the future.

Says Mohammed Aslam, COO, residential services, Jones Lang LaSalle India: “The original sale deed and the society share certificate are most important, since the transaction cannot proceed without them.”

You would also need a letter from the society mentioning the number of floors in the building, the year of construction, the apartment’s built-up area, and the number of lifts in the building.

You would need an assessment bill from the municipality to the society, an NOC from the Collector if the building is on his land, a copy of the property card, and a receipt for the payment of registration fees.

Undervaluing the property: The biggest hurdle in buying a pre-owned property is the cash component. Even if you have the cash, undervaluing a property to save on registration charges and capital gains tax is fraught with risk. Ravi Goenka, advocate at Goenka Law Associates, points out that a registered document can be scrutinised by the authorities even 10 years after the date of registration.

Not getting the property registered: Unless the property is registered in your name, it doesn’t belong to you in government records. Many properties, especially in northern India, are bought and sold on the basis of power of attorney. To put an end to the transactions that take place through unaccounted money, the Supreme Court, in October, made the registered sale deed the only valid document for property transactions.

Buying very old property: If you are looking for an apartment, go for societies that are less than 10 years old. This means you will spend less on renovation and they will come with a fair discount to the market price for new apartments in the same area. “One reason why some of the best deals are available on properties that are 8-10 years old is that many sellers are looking to upgrade to a new apartment at this stage and may have probably identified one. They will not lose a potential buyer for a few thousand rupees,” says Harish Tiwari, a Noida-based real estate agent who deals mostly in resale properties.

If you do not have the time to do the necessary legwork, hire experts: To identify a pre-owned property, you need a real estate agent. He will give you an idea about the prevailing prices and can also help you in the paperwork. The fee, which is negotiable and depends on the quality of the service, is usually in the range of 1-2% of the transaction value. A good lawyer can help examine the title deed to make sure there is no glitch. For instance, a property owned by a Hindu Undivided Family can be tricky to buy because there would be several owners.

Om Chaudhry, founder and CEO of FIRE Capital Fund, points out that title insurance helps prevent losses due to disputes arising after the sale of property. However, the concept is yet to be introduced in India.

There are cases where the owner has taken a loan against the property and then sold it off. To prevent such frauds, the Finance Ministry’s Department of Financial Services has set up a Central Registry of Securitisation Asset Reconstruction and Security Interest of India. It is an electronic database of all properties against which there is a pending loan.

In future, the registry will also include earlier mortgage agreements. You can access the registry at ‘cersai.org.in’ and it will cost you Rs 50 per search.

The pros outweigh the cons when it comes to buying a resale property.

You can inspect the house before you buy it

An old property is likely to be at a better location and closer to established amenities like schools, markets and hospitals

There is a greater possibility of negotiating on the price as you deal with an individual

You save on taxes like service tax, which is payable on a property under construction

You know the neighbours and basic problems like traffic and water supply beforehand

You get more usable carpet area in an old property

The monthly maintenance charges are usually lower in an older housing society

The amenities may not be at par with those in new properties.

You may need to renovate to suit your needs and tastes.

Lower loan disbursement in case the property is very old.

A thorough legal background check is required.

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