Buying under-construction property from investor? Read this

Buying under-construction property from investor? Read this

When one buys a property from an investor in an under-construction project, he is entering into a multi-party transaction. And at times it can be too complicated. Better to know about it before jumping into one.

When you plan to buy an under-construction property from an investor, the deal is not the same as you do when you are buying it from a builder. And it is not the same as if you are buying a property in the secondary market, from a home owner.

When an investor wants to sell his under-construction property to a new buyer for making profit on his investment, then he assigns the rights of the property completely to the new buyer in exchange.

This transaction requires the builder also to be a party as the first buyer has neither paid the full consideration, nor in possession of the property. This tripartite (Assigner, assignee and builder) is called an "Assignment Deal".

Many are unaware of the finesse' involved in these transactions and during the process discovers them and overcomes with difficulty. That becomes stressful and sometimes plans need to be altered to suit the situation, if especially the mortgage bit is overlooked at the inception.

Many new buyers (assignee) do not even know that there's another party to this transaction, if the assigner (seller) has a loan running. Generally, that question is completely forgotten at the time of the deal-making. The formalities include closure of the assigner's loan and it further gets complicated if the assignee also plans to borrow. Then there comes involvement of five parties and trust me, it is complicated.

I am trying here to untangle it as much as possible with below questions.

Here are some question a new buyer or assignee should ask-

1. At what price was the transaction done between the builder and the assigner at the time of inception of the project?
It is important for the buyer to know the price at inception and get documents like the sale agreement executed between the seller and the builder. This document will also need to be submitted for loan application. Some sellers will not want to disclose, but this is mandatory.

2. How much of that is already paid up and what are the dues?
A statement of accounts from the builder showing the payments made with date and instrument numbers will be required for the lending too. Any unaccounted payment cannot be considered without proper receipt from the builder.

3. Any long-pending dues which might attract penalties during possession?
If the seller has been making delayed payments, there is high possibility that all those interest accrued by the builder will be charged on the new buyer during possession, which might be shocking. Hence, check on this too.

4. Is the assigner having any home loans? If yes, will he close it himself or the new buyer will have to?
If the seller has also borrowed while buying this property from the builder, the seller (vendor) will need to close the loan. This can be done in 3 ways - (i) Seller pays from his own funds, (ii) seller asks the buyer to pay directly towards closure of the loan through his self-contribution funds, or (iii) buyer's bank pays of the seller's bank (vendor takeover loan). The third one is not easy as product is not available with all lenders. Your loan adviser should be able to guide you to the banks who have this product.

5. What amount of that loan is disbursed & how much is un-disbursed? Is there a possibility to borrow from the same lender if the new buyer wants to?
In order to structure the loan closure via vendor take-over (third option above), the sanction letter of the seller's bank loan taken earlier, along with his outstanding principal statement and foreclosure amount, his repayment track and the account statement of pending disbursal will be required by the buyer's lender.

6. Are there any other loans / conditions attached to this property?
If the property is attached to any other loans, it can never be known by the intending buyer without disclosure by the seller. In India, a property-search method is done, a loan search for an individual is also done, but a search for collateral created in a property can never be found out.

7. What will be the penal clause if the assignee backs out due to (a) No loan eligibility, (b) No fund arrangement from self-source, (c) Any other personal reason?
Though it doesn't seem important at the time when everything is going good, it is better to include this clause in the MOU (Memorandum of Understanding). Clarity will help both parties take necessary calls in time of requirement.

8. Who will pay the transfer fee to builder and at which stage?
Generally the seller pays the transfer charges to the builder. However, that is not in a rulebook. Sometimes, the buyer & seller go dutch or even for a great bargain, the buyer picks up the tab too.

The most important things in assignment transaction is the speed in which it is smoothly closed by keeping all parties involved and informed in advance, on the steps. In the event of loans by both assigner & assignee, following are the parties:
(a) Assigner, (b) Assignee, (c) Builder, (d) Assigner's lender and (e) Assignee's lender.

Do an educated transaction & never be surprised during the deal and avoid stress.

Happy Investing

Source:Moneycontrol.com