FLAME Newsletter - April 25, 2012



“Don’t buy the house, buy the neighborhood” – Russian proverb


Of the many dreams that one might have, owning a house figures in almost everyone’s list. Not only does it bring with it security, but also the scope of appreciation of value. For those who already own a house, buying another one and giving it on rent for residential or commercial purposes can prove to be a substantial source of income. Not only houses, one can even buy a plot of land in their name and use it to build a house or an office or give it up for resale a later stage.  However, one must always exercise caution while getting into these deals.




Due to the housing crisis in the US in 2007-08 which led to the recession, about 1mn homes were repossessed in 2010. Repossession of a property/house occurs when a person defaults on his agreement of repayment.




Must-knows before buying a property

Buying a property is a huge task. You need to conduct a thorough research on the plot, the builder and other factors before making a decision. It involves a lot of paperwork and one has to follow many laws. One is also required to visit the plot regularly and deal with the concerned parties.


This process can become very difficult if a person is not aware of all the property requirements. Thus, when you plan to buy a plot, a house or a flat, ensure that you are aware of the procedure and the requirements when it comes to documents, funds etc.


Difference between the Lease Agreement and the Leave and License Agreement

It is important to understand the lease agreement and the leave and license agreement of a property.


A Lease is a transfer of property for a fixed period of time. The original owner of the property is called lessor and he transfers the right of the entire property for a particular period. The person who gets the property is called the lessee. The lessor can lease the property for however long he wishes to.


A License allows a license holder to occupy the licensed property for a specified time period. The License is mandatory to own a property entirely and lawfully. 


You need to register and pay stamp duty in both cases. The stamp duty in case of a lease agreement is higher than the stamp duty in case of the leave and license. If the holding period of the property is over three years, the stamp duty applicable is the same. 


Difference between Built-Up Area, Super Built-Up Area, and Carpet Area


When you are buying an apartment, the area is classified into three parts.


Carpet area: This is the area of your apartment which a carpet can cover actually cover if required. In other words, it is the actual livable area.


Built-up area: It is the area which the walls of your apartment cover.


Super built-up area: If your apartment is part of a complex, the common areas of the complex such as the stairs, lift, lobby, etc. constitute the super built-up area. 


Why is it considered necessary to register a property?

The registration of your property is imperative. It is the process of maintaining an official record and having a proof that the property is owned by you. Any use of the property can only be allowed by you if you are the registered owner of the property.



Watch Out for the Added Expenses while Buying a New Flat

Many people, while buying a flat, only take into consideration the total area of the flat and calculate the cost. You must understand that there are other costs involved such as registration fees, stamp duty and several other taxes. As these charges are fixed, you have to take them into consideration. There are some other costs too which are not fixed but are unavoidable. 


Exact area and cost

You should know that the main built-up area of the flat is not its actual usable area. The actual area that you can use is called carpet area, in other words, the area of the flat which can actually be carpeted. This area is almost 40% less than the built-up area. The built-up area includes the walls etc. That means, when you buy a flat of 1,000 sq.ft built-up area, you will get 600 sq. ft of carpet area. Based on this, you can determine the real price you need to pay.


Fixed charges 

Most people tend to miss the registration and stamp duty costs. These costs are important and one should take them into account while calculating the total cost. You should also remember that area maintenance charges too are involved. It does not stop here as you also need to calculate the service tax and property tax payments. If you have availed a loan, you also need to calculate the EMIs.


Common area 

The common areas around your flat also cost you a good amount of money. Common areas are those areas which all flat owners use collectively. They can be the lobby, lift area, the area of a drive way and even the area of the swimming pool and gym, if your building has any. This value will be added to your final invoice which is why they too must be calculated. 


Nothing is free

Many flats have recreational areas such as swimming pools, entertainment units, gyms, clubs etc. that you have to pay a fee for. This fee is apart from what you pay for them as common areas.  


Society maintenance

Your flat would have employees such as a liftman, caretakers, cleaners etc. and all the flat owners would contribute towards their salaries. Also, there would maintenance costs for water supply, playgrounds, usage of the lift, etc. which will have to be taken into account.


Points to Keep in Mind While Signing an Agreement with a Builder





The opportunity to buy a readymade house or build a new one is a lifetime achievement for many people. A major component of people's funds goes into investing in a house. There are many players in the real estate industry who offer their services to prospective home buyers; some have properties already built and ready for sale, while others would offer to build them using their resources such as construction material and labor. There are plenty of builders in the market, but having chosen one, a customer must keep a number of things in mind when he signs an agreement with his builder.


Builder should be of repute:

This is perhaps the most obvious factor a person should keep in mind while selecting his builder. The builder should be of considerable repute because this will add authenticity and credibility to the agreement and make the whole deal a worthwhile affair. The builder's credentials should also be backed by previous projects developed under his supervision.


Ask questions:

It is always wise to ask the builder relevant questions regarding the house for sale or the new construction he is due to begin. Doing so will impress upon the builder that his client has fairly good knowledge of construction work.


Scan the house details:

If a buyer opts for a readymade house on sale, he/she can consult people living in the locality about the building to ensure there are no legalities pending against it. He can also find out whether the land was previously a farmland or a vacant plot.


Warranties and paperwork:

A prospective home buyer should be in the know of the particulars contained in and excluded from the warranties. Warranties on critical areas such as roof and foundation will provide a sense of safety and security. Taking the help of a realtor to understand the fine print of paperwork would be a good idea to be clearer on the legalities involved.


Finally, given that prices are relatively negotiable, the buyer should be able to negotiate prices because builders always set their profit margins in anticipation of this very query from buyers.



After the Supreme Court cancelled 122 2G telecom licences issued in 2008 by then Telecom Minister A Raja over irregularities in the allocation and allotment, one would think that the new licence auction process would be less dramatic. However, in the recommendation stage itself, the Telecom Regulatory Authority of India has set the auction base prices at a level where players would have to pay 10 times more than their earlier purchase prices.


New 2G spectrum auction base price higher than industry expectations



Repayment of your housing loan can actually bring you some tax benefits. Check the link to know how your housing loan on a new house purchase can save you some tax.


Saving Tax from Housing Loan




FLAME (Financial Literacy Agenda for Mass Empowerment) is an IIFL initiative to promote financial literacy amongst the masses in order to make them an integral part of India's spectacular growth story.


In an era of accelerating GDP and rising per capita growth, financial literacy has become more critical than ever before such that we all reap the tangible benefits of the nation's economic prosperity. Financial inclusion has been quite high on the governmental agenda, given its emphasis on widening the Banking & Financial services network across the country. IIFL's FLAME initiative stands committed to complement this effort by helping common people gain financial growth and security though better awareness and education on the variety of financial products while avoiding the lure of and loss from unrealistic claims made by unscrupulous agents and ponzi schemes.


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