ALL individuals and Hindu Undivided Families whose net wealth as on March 31 exceeds Rs 30 lakh is required to pay wealth tax at one per cent of the amount that exceeds Rs 30 lakh.
The good news is that wealth tax is payable only on what are termed 'unproductive assets'. Consequently assets such as shares, securities, mutual funds and fixed deposits, the 'productive assets', are exempted. Though there is a long list of items such as yachts, boats, aircraft, etc, that are subject to wealth tax, for our purposes we shall only consider assets that are commonly owned such as real estate, jewellery and cars.
House property
Just like in income tax law, one house is exempt from wealth tax. In other words, ownership of more than one house will attract wealth tax liability on the second house onwards. There are three exceptions. If a property is used for conduct of business or a profession or if it forms a part of stock-in-trade or has been rented out for at least 300 days in the year, wealth tax is not applicable on such property.
Also note that wealth tax is applicable on net wealth, after deducting any liabilities or debt owed to acquire the assets. Therefore, if any house subject to wealth tax has been purchased using housing finance, the value of the loan due is deductible while arriving at the figure of net wealth.
If you find yourself liable for wealth tax, merely transferring the asset to your spouse will not help. Clubbing provisions similar to those applicable in income tax law are also applicable in the case of wealth tax. Therefore, any assets gifted to spouse, minor child or son's wife will be, notwithstanding the gift, deemed to belong to the taxpayer.
Friday 30 December 2011
TN the 2nd most Transaparent Real Estate Market
According to a report by real estate services firm Jones Lang LaSalle Tamil Nadu ranked second in the Indian Real Estate Transparency Index 2011 among 20 states surveyed.
The ranking was based on factors such as availability of market information, reforms in urban local bodies, progressive business environment, protection of property rights and inclusive and sustainable development.
Tamil Nadu also ranked second in inclusive and sustainable development, reforms in urban local bodies and availability of market information and third in protection of property rights. However, it came only ninth in the progressive business environment category.
Neighboring Andhra Pradesh, which is ranked first, overall, is way ahead of Tamil Nadu on progressive business environment, according to the Index.
"Tamil Nadu rates highly on market information, urban reforms and property rights. In the report, Economic Freedom of States of India published by Academic Foundation, the state ranked high on legal structure and security as well as regulation of labour and business, due to its good governance," the study said.
Real estate services related to land records and registration and water supply services are perceived as being corrupt in Tamil Nadu, as per the India Corruption Study 2008 by Transparency International India. However, these problems are likely to be alleviated in the long run as all reforms related to computerisation of land records have been initiated and are in progress, the study said.
The ranking was based on factors such as availability of market information, reforms in urban local bodies, progressive business environment, protection of property rights and inclusive and sustainable development.
Tamil Nadu also ranked second in inclusive and sustainable development, reforms in urban local bodies and availability of market information and third in protection of property rights. However, it came only ninth in the progressive business environment category.
Neighboring Andhra Pradesh, which is ranked first, overall, is way ahead of Tamil Nadu on progressive business environment, according to the Index.
"Tamil Nadu rates highly on market information, urban reforms and property rights. In the report, Economic Freedom of States of India published by Academic Foundation, the state ranked high on legal structure and security as well as regulation of labour and business, due to its good governance," the study said.
Real estate services related to land records and registration and water supply services are perceived as being corrupt in Tamil Nadu, as per the India Corruption Study 2008 by Transparency International India. However, these problems are likely to be alleviated in the long run as all reforms related to computerisation of land records have been initiated and are in progress, the study said.
Monday 28 November 2011
Revision of Guide Line Values & What it means for you.
A government deeply in debt has finally decided to rationalize the guideline values in the state of Tamil Nadu. Here is what is planned and how it will affect EVERYONE in the state:
Guideline values will match Market Values in the cities
Major metros like Chennai, Coimbatore and Madurai, where guideline values of land is 60% to even as low as 45% will see sharp rise matching or even exceeding , yes exceeding market values. In certain prime localities like Boat Club, Besant Nagar & MRC Nagar, some large business houses have recently concluded large transactions. Due to stiff competition for those particular pieces , these corporates paid higher than market price & registered the property for the full value. These values will now be taken as the benchmark, though in reality the plots in that neighborhood will not command such prices.
Rural Areas will continue to have guideline values lower than market
Many acres of land along ECR near Mahabalipuram , Poonthndalam, Pudupattinam, Vadapattinam, Mugaiyur, Odhiyur, Marakanam, Koonimedu among others have been converted to prime gated layouts. The market value here exceeds Rs 300 per Sft. Yet the adjoining villages continue to ply their agriculture in rich wetlands. The government would loath to offend the villagers by summarily extending the higher guidelines to these large swaths. Instead we can expect the guideline values to increase from Rs 1.5 lakh per acre to about Rs 4 lakhs per acre, still far below the market price of Rs 18 to Rs 60 lakh per acre.
Black money & Land Mafia
The gangs which are already on the run due to stringent action being applied on them by the government will furthermore shun urban land where there is little scope for undervaluing & registering land. The modus operandi so far has been to arm twist the innocent sellers to accepting the low guideline value as white money, viz cheque and demand draft, then cheating them of the balance payment by making them register the property by coercion. Now with the revised values, the unscrupulous elements will have to show a legal transfer of far higher money. This won't be possible in most cases and related crime will come down.
Loan Disbursal will be easier
With land values reflecting realistic figures, project reports will reflect true costs . Industrial projects, hospitality and mass housing sectors will greatly benefit. Even individuals who pledge their property for a loan can negotiate higher disbursal.
Better Practices at the Registrar office
As you are aware the registration charges in TN are 9 percent. Of this 6% goes to the TN Govt kitty, 2 % to the local body, and 1% to the registrar. With higher receipts the land offices in the state can expedite digital surveying and computerizing the data. Currently TN has not implemented the GIS system like n Bangalore or even the matching of patta & registration as in AP. Many of our registrar offices continue to manually register the photos & thumb prints of the buyers and sellers, leading to possibility of fraud. These are likely to change for the better rapidly.
Market reaction
Currently there is a rush to register properties before the Dec 15 announcement and the Jan 15 rollout of the new policy. Soon after than, we can expect a 25 % drop in number and value of registrations. Black money will struggle to find avenues and the money market may ease. Informal cash loans will be easier and land speculators will take a break. Yet genuine registrations will thrive and within the year prices in urban areas will go up by at least 20%. The seller will now demand 20% to 40% MORE for his property . Here I mean more than the guideline value. The logic would be, if he is going to be inconvenienced by being saddled with huge white money & taxes, he might as well be compensated for his troubles.
Overall this impending change in guideline value augurs well for the market.
Guideline values will match Market Values in the cities
Major metros like Chennai, Coimbatore and Madurai, where guideline values of land is 60% to even as low as 45% will see sharp rise matching or even exceeding , yes exceeding market values. In certain prime localities like Boat Club, Besant Nagar & MRC Nagar, some large business houses have recently concluded large transactions. Due to stiff competition for those particular pieces , these corporates paid higher than market price & registered the property for the full value. These values will now be taken as the benchmark, though in reality the plots in that neighborhood will not command such prices.
Rural Areas will continue to have guideline values lower than market
Many acres of land along ECR near Mahabalipuram , Poonthndalam, Pudupattinam, Vadapattinam, Mugaiyur, Odhiyur, Marakanam, Koonimedu among others have been converted to prime gated layouts. The market value here exceeds Rs 300 per Sft. Yet the adjoining villages continue to ply their agriculture in rich wetlands. The government would loath to offend the villagers by summarily extending the higher guidelines to these large swaths. Instead we can expect the guideline values to increase from Rs 1.5 lakh per acre to about Rs 4 lakhs per acre, still far below the market price of Rs 18 to Rs 60 lakh per acre.
Black money & Land Mafia
The gangs which are already on the run due to stringent action being applied on them by the government will furthermore shun urban land where there is little scope for undervaluing & registering land. The modus operandi so far has been to arm twist the innocent sellers to accepting the low guideline value as white money, viz cheque and demand draft, then cheating them of the balance payment by making them register the property by coercion. Now with the revised values, the unscrupulous elements will have to show a legal transfer of far higher money. This won't be possible in most cases and related crime will come down.
Loan Disbursal will be easier
With land values reflecting realistic figures, project reports will reflect true costs . Industrial projects, hospitality and mass housing sectors will greatly benefit. Even individuals who pledge their property for a loan can negotiate higher disbursal.
Better Practices at the Registrar office
As you are aware the registration charges in TN are 9 percent. Of this 6% goes to the TN Govt kitty, 2 % to the local body, and 1% to the registrar. With higher receipts the land offices in the state can expedite digital surveying and computerizing the data. Currently TN has not implemented the GIS system like n Bangalore or even the matching of patta & registration as in AP. Many of our registrar offices continue to manually register the photos & thumb prints of the buyers and sellers, leading to possibility of fraud. These are likely to change for the better rapidly.
Market reaction
Currently there is a rush to register properties before the Dec 15 announcement and the Jan 15 rollout of the new policy. Soon after than, we can expect a 25 % drop in number and value of registrations. Black money will struggle to find avenues and the money market may ease. Informal cash loans will be easier and land speculators will take a break. Yet genuine registrations will thrive and within the year prices in urban areas will go up by at least 20%. The seller will now demand 20% to 40% MORE for his property . Here I mean more than the guideline value. The logic would be, if he is going to be inconvenienced by being saddled with huge white money & taxes, he might as well be compensated for his troubles.
Overall this impending change in guideline value augurs well for the market.
Tuesday 22 November 2011
Monday 21 November 2011
Sale Agreement : 7 points to consider in India
While executing a land transaction, be it buying or selling, often the issue of executing a Sale Agreement crops up.
In India, unlike many western countries and some East Asian countries, your LAWYER cannot represent you in a land sale. In the west a buyer and seller will operate through their trusted lawyers who will execute the sale on your behalf and will even handle the payments.
In India, where many land transactions involve payments through black money and due to trust deficit with the lawyers and due to the Indian system not allowing lawyers to act as proxy , the sale is handled directly by the buyer and seller at the Sub Registrar Office at every district.
Between agreeing to buy and the actual sale, some advance payments may transfer hands and both parties will agree to allow few days or even months to allow for the mustering of funds and perhaps arrival of certain signatories. During this period a SALE AGREEMENT is signed by both parties.
A sale agreement is executed on a Indian Government Revenue Stamp Paper. An unregistered agreement is executed on a low value paper such as a Rupees Hundred paper. Both parties sign along with witnesses. In a registered agreement, the government charges a 2% fee of the sale value which can be offset during the actual sale registration. This rule varies from state to state, so please verify in your situation what applies. The points below apply to an existing property and NOT for a property under construction.
Here are some of the important DO's and Don'ts in a Sale Agreement :
1. AVOID : If you are a seller try NOT to execute a Sale Agreement. If the transaction is going to happen in few days or weeks, try not to take an advance payment , issue any receipt or sign any agreement. If the buyer appears genuine and requires a type of agreement to apply for a bank loan, you can issue a LETTER of INTENT. Most banks are willing to accept this for loan processing.
2. VERIFY : If you MUST execute an agreement, either because the transaction period is long or you are in need of the advance money, you may execute an agreement after verifying the buyers correct identity. Please refer to the previous blog to see what would amount to an acceptable verification.
3. REGISTER : If you are the BUYER and want to execute an agreement , again, verify the identity of the seller and check if matches the actual name and address in the parent documents and Patta. While an unregistered sale agreement is of some value, a registered sale agreement through the office of the Sub Registrar holds precedent over any unregistered sale agreement. Once the sale agreement is registered, it will start appearing in the "Encumbrance Certificate" of the land in question. The seller will NOT be able to sell the land to others , because other buyers will become aware of his agreement with you when they scrutinise the EC. Here we are assuming that any other suitor will be clever enough to check the EC documents.
4. VALUE Buyers and sellers must be aware that an agreement should state the actual sale amount and not a lower or higher amount. The agreement holder can FORCE the seller to sell the property at the value mentioned. Many buyers who want to conceal any black money transactions will not put the actual figure and will put down a notional lower figure. The seller then risks selling the property at this price should the full force of law be applied.
5. EXPIRY DATE ! Even if the sale agreement states a short duration, saw 30 days for the agreement's effective period, the buyer may move court stating various reasons and extend the period to up to 3 years !!
6. CANCEL : If any sale agreement is cancelled or modified, it must be done officially and payments returned through bank cheques to substantiate the closure of the agreement. If the agreement holder goes ahead with the purchase, but decides to buy the land in any other name than that mentioned in the agreement, example his wife's name instead of his, the old agreement should STILL be cancelled.
7. Your WORD : Remember, even if NO agreement has been written down but you have received some payment towards this by official cheque or demand draft or such instrument, the buyer can still move court stating YOUR verbal assurance to sell !! So be careful what you say and receive during land transactions.
8. MONEY SOURCE: If you are receiving any advance payments by cheque or demand draft , please insist upon proof that the payment is coming through the buyers account (and not from a relative or friend's). This is crucial to prevent other claimants for the property. It is common during disputes for third parties to claim part of the property stating that you received payments from THEM !
In India, unlike many western countries and some East Asian countries, your LAWYER cannot represent you in a land sale. In the west a buyer and seller will operate through their trusted lawyers who will execute the sale on your behalf and will even handle the payments.
In India, where many land transactions involve payments through black money and due to trust deficit with the lawyers and due to the Indian system not allowing lawyers to act as proxy , the sale is handled directly by the buyer and seller at the Sub Registrar Office at every district.
Between agreeing to buy and the actual sale, some advance payments may transfer hands and both parties will agree to allow few days or even months to allow for the mustering of funds and perhaps arrival of certain signatories. During this period a SALE AGREEMENT is signed by both parties.
A sale agreement is executed on a Indian Government Revenue Stamp Paper. An unregistered agreement is executed on a low value paper such as a Rupees Hundred paper. Both parties sign along with witnesses. In a registered agreement, the government charges a 2% fee of the sale value which can be offset during the actual sale registration. This rule varies from state to state, so please verify in your situation what applies. The points below apply to an existing property and NOT for a property under construction.
Here are some of the important DO's and Don'ts in a Sale Agreement :
1. AVOID : If you are a seller try NOT to execute a Sale Agreement. If the transaction is going to happen in few days or weeks, try not to take an advance payment , issue any receipt or sign any agreement. If the buyer appears genuine and requires a type of agreement to apply for a bank loan, you can issue a LETTER of INTENT. Most banks are willing to accept this for loan processing.
2. VERIFY : If you MUST execute an agreement, either because the transaction period is long or you are in need of the advance money, you may execute an agreement after verifying the buyers correct identity. Please refer to the previous blog to see what would amount to an acceptable verification.
3. REGISTER : If you are the BUYER and want to execute an agreement , again, verify the identity of the seller and check if matches the actual name and address in the parent documents and Patta. While an unregistered sale agreement is of some value, a registered sale agreement through the office of the Sub Registrar holds precedent over any unregistered sale agreement. Once the sale agreement is registered, it will start appearing in the "Encumbrance Certificate" of the land in question. The seller will NOT be able to sell the land to others , because other buyers will become aware of his agreement with you when they scrutinise the EC. Here we are assuming that any other suitor will be clever enough to check the EC documents.
4. VALUE Buyers and sellers must be aware that an agreement should state the actual sale amount and not a lower or higher amount. The agreement holder can FORCE the seller to sell the property at the value mentioned. Many buyers who want to conceal any black money transactions will not put the actual figure and will put down a notional lower figure. The seller then risks selling the property at this price should the full force of law be applied.
5. EXPIRY DATE ! Even if the sale agreement states a short duration, saw 30 days for the agreement's effective period, the buyer may move court stating various reasons and extend the period to up to 3 years !!
6. CANCEL : If any sale agreement is cancelled or modified, it must be done officially and payments returned through bank cheques to substantiate the closure of the agreement. If the agreement holder goes ahead with the purchase, but decides to buy the land in any other name than that mentioned in the agreement, example his wife's name instead of his, the old agreement should STILL be cancelled.
7. Your WORD : Remember, even if NO agreement has been written down but you have received some payment towards this by official cheque or demand draft or such instrument, the buyer can still move court stating YOUR verbal assurance to sell !! So be careful what you say and receive during land transactions.
8. MONEY SOURCE: If you are receiving any advance payments by cheque or demand draft , please insist upon proof that the payment is coming through the buyers account (and not from a relative or friend's). This is crucial to prevent other claimants for the property. It is common during disputes for third parties to claim part of the property stating that you received payments from THEM !
Sunday 20 November 2011
9 Mistakes to Avoid when Buying Land in Chennai
So you are about to break your Piggy Bank and buy that plot of farm "lay out" near the beach? Hold on, do this simple reality check before purchasing land in Chennai :
1. Loan-ability : Ask this question: Will the land qualify for a bank loan? Even if you DON'T need the money to buy the land, asking this question to the seller will come up with all kinds of truths. If the land does not qualify for a bank loan , the papers are probably dodgy.
Banks in India have instructions NOT to fund land purchases. This is in order to reduce land speculation. However banks are allowed to give loans on land which are approved for residential construction. You must build your primary home on that land within 2 years or else either repay the loan amount or be prepared to pay a higher interest. Every bank has a different set of rules.
But for the purpose of this discussion, we are using bank loan-ability as a check to see if the land titles are good.
2. Land Title : The land developer or the seller should posses a clear title of the land he is selling. Believe me , YOU are not qualified to check it ! Nor your friend who has just introduced you to the seller ! You need a professional lawyer who specialises in scrutinising Land Titles. Don't expect a court going criminal lawyer to check the papers. It would be like going to a Dentist when you have stomach pain.
The seller should have purchased the land in his name and should have a sale deed to prove this. If the seller is a broker or a developer , he may not have a sale deed in his name. He may be operating with a "sale agreement" from the actual seller or with a POA (power of attorney). While these are legally valid, they are fraught with risks of fraud and forgery. You need to employ a lawyer of great skill to study these situations.
The land should further have a "Patta" in the name of the owner. Patta is akin to the "katta" in Karnataka and N.India. While the sale deed is a document verified by the SRO ( Land office of the Sub Registrar), the Patta is issued by the district Collector's office, represented by his Taluk administrator. Your seller may not have the Patta and may give you the excuse that he has the Patta in the PREVIOUS owner's name etc etc. This is not acceptable. If you buy such a land, you may spend several months or even years working the complex system to get your Patta. There is NO assurance this will happen and you will be open to several risks including claims by the previous Patta holders.
3. Approval to build : There is no wriggling out of this. The land should have any one of these :
CMDA Approval. If the development is within the city limits , it will have a CMDA ( Chennai Metro Development Authority) approval. If the township has been planned and promoted by the developer he will have a CMDA approval number on his layout drawing. Ask for a copy. If the land is being re-sold and if it is in a crowded old locality in the city like T.Nagar or Anna Nagar, please take the document to your lawyer and ask if the plot qualifies for construction. Do NOT assume just because there is an old house on the plot, automatically you will be allowed to demolish and build anew.
DTCP Approval : If the plot of land is outside Chennai metro limits, and if your plot is within a layout, then the development should have a DTCP (District Town & Country Planning Approval). The DTCP approval number will be with the developer. A DTCP approved layout will follow minimum standards when it comes to road width, public spaces like park etc.
More than 80% of the lands being sold by developers around Chennai are "unapproved" layouts. This is an oxymoron. It is like saying you are in an unapproved marriage ! Many developments along the beach and along ECR are so called "unapproved" layouts. This is because there is an official ban on construction within 500 meters from the sea due to the CRZ ( Coastal Regulation Zone). Being 300 meters away from the sea is not better than 100 meters from the sea. Even if your plot is 490 meters from the sea, the CRZ rule will still apply.
PANCHAYAT Approval :
So almost no plot of land on the seaward side of ECR going towards Pondicherry can get approval. Yet, you ask, there are several multi-million dollar beach houses along Chennai to Pondy road. This is due to a grey area in the development rules called the "Panchayat Approval System" . Every village outside the city comes under some Village Panchayat or other. These bodies have local administrative powers over the organic growth of their villages and have authority to give approvals for houses ranging from 750 SFT upto 2000 SFT depending on the size and facilities in the Panchayat. The Panchayat elected council is supposed to apply the DTCP rules at the local level. For example one of the rules state that no house can be built within 90 meters from a cremation ground.
Today through the Panchayat system you can get an approval to build on almost any plot of rural land as long as the Patta for the land is in your name. This means you need to FIRST buy the land and THEN apply for the approval. Panchayats are keen to give approval to even the most suspect requests, because new houses pay taxes adding to the local revenue. An approval to build is normally valid for 2 years and if you do not build within this period, you may have to re-validate the approval.
An approval is pre-requiste to getting electricity from TNEB ( Tamilnadu Electricity Board). Most villages anyway do not have piped water or sewage systems. If in the rare occasion they do, you will be entitled for a connection to those systems at extra cost.
If you are buying land in an "unapproved layout", creative developers will obtain a letter from the local village Panchayat giving "a no objection to making housing sites" This does not automatically mean that your plot of land is a legal entity. The panchayat letter is supposed to be sent to the DTCP office for scrutiny along with the developers proposed layout. The DTCP will most often turn down such a proposal citing various legitimate concerns. Voila ! Thus is born an "unapproved layout" !
But your wife likes the sea view you say, and you always dreamt of living by the beach. So why don't you buy a boat instead ?
4. No Encumbrance Certificate : The Sub-Registrar office under whose jurisdiction the proposed land comes, will issue an E.C (Encumbrance Certificate) of the land. It will show previous transactions, buyers and seller names of yester years, whether the land has any lien or loan on it etc. Your lawyer should check the extent of the land to see if it matches the sale deed and the patta. The EC is not a bullet proof document , due to clerical error some entries may be missing or not clear. So it is important to study the same with other parent documents.
5. Possession certificate : This is a little known but crucial document which even your lawyer may overlook. In fact if you press him for it, he may murmur that you are paranoid. Remember it is YOUR money and you have to be paranoid when it comes to land dealings. This certificate is issued by the VAO or VO ( Village Administrative Officer). The VO is appointed by the Tahsildhar who in turn reports to the District Collector. The VO is supposed to be intimately aware of the goings on in every village - but in reality he won't , but in turn will depend on the village "Thalayari" a local govt appointee. All these chaps used to be part of the British administrative system of revenue collection and spying. But today we have to deal with these relics to get our certificates. Anyway, the VO will demand that the land owner pays up his land taxes , usually a paltry Rupees Three hundred or less, before issuing a possession certificate.
6. Identity Verification: Now that you have become sufficiently paranoid, you will agree with me that one crucial detail that we overlook in all the bonhomie with the broker, is if the seller indeed is who he claims to be ! There are enough part time actors with forged identities who can be called upon to play the role of the seller on that fateful day. Your Sub registrar office neither has the time nor inclination to checking these frivolous details.
Politely but firmly ask to see the originals of at least 3 different identity papers of the seller. Passport, Pan card , voter's id, driving license are all good. Make sure you retain a photocopy of the same. It is within your right to check if the property was purchased by the seller using his own funds. If it is a recent purchase and he has paid through cheque or demand draft, you can ask for those bank transaction details. Is this important ? Not entirely, but there has been cases of Mr X buying the land with funds being provided by Mr Y's account, perhaps a friend or relative, who many years later files a case stating that he should have been part of the purchase / sale etc. So if the value of the land is high, ask your lawyer to verify this.
7. Legal Heirship: Any person who has purchased a land with his OWN funds is at liberty to sell if she/he is in sound mind. However if the property is ancestral or has been devolved through "settlement" between family members or through a divorce settlement your lawyer should demand legal heirship certificate to verify number of claimants and scrutinise court orders on confirmation of WILL etc.
8. Measure the Land: If you are too lazy now to physically verify the land, believe me you will be very busy with this subject few years from now. So please visit the site and get it measured by the local village surveyor. make sure the extent is as per document and ask the surveyor to make a drawing over the existing FMB (Field Map Book) drawing published by the government and ask him to sign with his official seal. Do not use a private surveyor. His word means nothing in the court. Getting the government surveyor may involve a bit of running around as these chaps are elusive figures. But your local Village Officer should be able to help you. Include this drawing as part of the sale deed when registering the property. If any dimensions or extent is amiss, renegotiate the price with the seller.
9. Proof of Payment: Try and make all your payments by cheque or draft drawn out in favour of the actual seller preferably mentioning their bank a/c number as well. I know it is often tempting to short change the government of the taxes buy paying out substantial amounts in "black" money or as cash. If the seller is motivated, remember, he will find ways to account for the cheque money you give. It is up to you to insist this, after all you always have the choice of buying something else. Assuming you want to be above board, trying to save 10% of the cost by way of registration fee, is not worth the underlying risks.
Your seller may insist he receives the cash component few hours or days ahead of the actual official registration. Even if he were to hand over the original parent documents as a collateral , you are still open to the seller renegading on his promise.
Your seller or broker may unfairly claim that some or all the money you gave was "short" or had "counterfeit notes".
All large transactions are tracked by our ( albeit lacklustre) vigilance system. After a large transaction if your seller is found to possess largely unexplained cash, the trail will lead back to you, giving you perpetual headache.
If and when , God forbid, the government wants to acquire your land for some purpose such as road expansion or military purpose , they would be more amenable to paying compensation equal to the amount actually shown in your purchase document.
Finally by paying cash and not disclosing the actual amount, you will be simply postponing the problem. Some day, when you wish to sell the land hopefully the price of land will be high and you will make a handsome profit. But as your luck may have it, if you deal with an honest buyer, who insists on paying everything above board, you will end up paying a large capital gain tax!
More later. But for now , start worrying but keep buying. Remember when buying land you can never be too paranoid.
1. Loan-ability : Ask this question: Will the land qualify for a bank loan? Even if you DON'T need the money to buy the land, asking this question to the seller will come up with all kinds of truths. If the land does not qualify for a bank loan , the papers are probably dodgy.
Banks in India have instructions NOT to fund land purchases. This is in order to reduce land speculation. However banks are allowed to give loans on land which are approved for residential construction. You must build your primary home on that land within 2 years or else either repay the loan amount or be prepared to pay a higher interest. Every bank has a different set of rules.
But for the purpose of this discussion, we are using bank loan-ability as a check to see if the land titles are good.
2. Land Title : The land developer or the seller should posses a clear title of the land he is selling. Believe me , YOU are not qualified to check it ! Nor your friend who has just introduced you to the seller ! You need a professional lawyer who specialises in scrutinising Land Titles. Don't expect a court going criminal lawyer to check the papers. It would be like going to a Dentist when you have stomach pain.
The seller should have purchased the land in his name and should have a sale deed to prove this. If the seller is a broker or a developer , he may not have a sale deed in his name. He may be operating with a "sale agreement" from the actual seller or with a POA (power of attorney). While these are legally valid, they are fraught with risks of fraud and forgery. You need to employ a lawyer of great skill to study these situations.
The land should further have a "Patta" in the name of the owner. Patta is akin to the "katta" in Karnataka and N.India. While the sale deed is a document verified by the SRO ( Land office of the Sub Registrar), the Patta is issued by the district Collector's office, represented by his Taluk administrator. Your seller may not have the Patta and may give you the excuse that he has the Patta in the PREVIOUS owner's name etc etc. This is not acceptable. If you buy such a land, you may spend several months or even years working the complex system to get your Patta. There is NO assurance this will happen and you will be open to several risks including claims by the previous Patta holders.
3. Approval to build : There is no wriggling out of this. The land should have any one of these :
CMDA Approval. If the development is within the city limits , it will have a CMDA ( Chennai Metro Development Authority) approval. If the township has been planned and promoted by the developer he will have a CMDA approval number on his layout drawing. Ask for a copy. If the land is being re-sold and if it is in a crowded old locality in the city like T.Nagar or Anna Nagar, please take the document to your lawyer and ask if the plot qualifies for construction. Do NOT assume just because there is an old house on the plot, automatically you will be allowed to demolish and build anew.
If your lawyer is unable to give a clear picture, consult an architect or a licensed surveyor in the locality and get his view. Many plots within the city have strict rules on offsets ( distance between your and neighbouring buildings). If your neighbour has violated and has built closer to his boundary than approved, it will be on YOUR head to leave MORE gap than required. Your architect will be able to advice you on this. The point is, neighbouring conditions will affect the value of your plot.
DTCP Approval : If the plot of land is outside Chennai metro limits, and if your plot is within a layout, then the development should have a DTCP (District Town & Country Planning Approval). The DTCP approval number will be with the developer. A DTCP approved layout will follow minimum standards when it comes to road width, public spaces like park etc.
More than 80% of the lands being sold by developers around Chennai are "unapproved" layouts. This is an oxymoron. It is like saying you are in an unapproved marriage ! Many developments along the beach and along ECR are so called "unapproved" layouts. This is because there is an official ban on construction within 500 meters from the sea due to the CRZ ( Coastal Regulation Zone). Being 300 meters away from the sea is not better than 100 meters from the sea. Even if your plot is 490 meters from the sea, the CRZ rule will still apply.
PANCHAYAT Approval :
So almost no plot of land on the seaward side of ECR going towards Pondicherry can get approval. Yet, you ask, there are several multi-million dollar beach houses along Chennai to Pondy road. This is due to a grey area in the development rules called the "Panchayat Approval System" . Every village outside the city comes under some Village Panchayat or other. These bodies have local administrative powers over the organic growth of their villages and have authority to give approvals for houses ranging from 750 SFT upto 2000 SFT depending on the size and facilities in the Panchayat. The Panchayat elected council is supposed to apply the DTCP rules at the local level. For example one of the rules state that no house can be built within 90 meters from a cremation ground.
Today through the Panchayat system you can get an approval to build on almost any plot of rural land as long as the Patta for the land is in your name. This means you need to FIRST buy the land and THEN apply for the approval. Panchayats are keen to give approval to even the most suspect requests, because new houses pay taxes adding to the local revenue. An approval to build is normally valid for 2 years and if you do not build within this period, you may have to re-validate the approval.
An approval is pre-requiste to getting electricity from TNEB ( Tamilnadu Electricity Board). Most villages anyway do not have piped water or sewage systems. If in the rare occasion they do, you will be entitled for a connection to those systems at extra cost.
If you are buying land in an "unapproved layout", creative developers will obtain a letter from the local village Panchayat giving "a no objection to making housing sites" This does not automatically mean that your plot of land is a legal entity. The panchayat letter is supposed to be sent to the DTCP office for scrutiny along with the developers proposed layout. The DTCP will most often turn down such a proposal citing various legitimate concerns. Voila ! Thus is born an "unapproved layout" !
But your wife likes the sea view you say, and you always dreamt of living by the beach. So why don't you buy a boat instead ?
4. No Encumbrance Certificate : The Sub-Registrar office under whose jurisdiction the proposed land comes, will issue an E.C (Encumbrance Certificate) of the land. It will show previous transactions, buyers and seller names of yester years, whether the land has any lien or loan on it etc. Your lawyer should check the extent of the land to see if it matches the sale deed and the patta. The EC is not a bullet proof document , due to clerical error some entries may be missing or not clear. So it is important to study the same with other parent documents.
5. Possession certificate : This is a little known but crucial document which even your lawyer may overlook. In fact if you press him for it, he may murmur that you are paranoid. Remember it is YOUR money and you have to be paranoid when it comes to land dealings. This certificate is issued by the VAO or VO ( Village Administrative Officer). The VO is appointed by the Tahsildhar who in turn reports to the District Collector. The VO is supposed to be intimately aware of the goings on in every village - but in reality he won't , but in turn will depend on the village "Thalayari" a local govt appointee. All these chaps used to be part of the British administrative system of revenue collection and spying. But today we have to deal with these relics to get our certificates. Anyway, the VO will demand that the land owner pays up his land taxes , usually a paltry Rupees Three hundred or less, before issuing a possession certificate.
6. Identity Verification: Now that you have become sufficiently paranoid, you will agree with me that one crucial detail that we overlook in all the bonhomie with the broker, is if the seller indeed is who he claims to be ! There are enough part time actors with forged identities who can be called upon to play the role of the seller on that fateful day. Your Sub registrar office neither has the time nor inclination to checking these frivolous details.
Politely but firmly ask to see the originals of at least 3 different identity papers of the seller. Passport, Pan card , voter's id, driving license are all good. Make sure you retain a photocopy of the same. It is within your right to check if the property was purchased by the seller using his own funds. If it is a recent purchase and he has paid through cheque or demand draft, you can ask for those bank transaction details. Is this important ? Not entirely, but there has been cases of Mr X buying the land with funds being provided by Mr Y's account, perhaps a friend or relative, who many years later files a case stating that he should have been part of the purchase / sale etc. So if the value of the land is high, ask your lawyer to verify this.
7. Legal Heirship: Any person who has purchased a land with his OWN funds is at liberty to sell if she/he is in sound mind. However if the property is ancestral or has been devolved through "settlement" between family members or through a divorce settlement your lawyer should demand legal heirship certificate to verify number of claimants and scrutinise court orders on confirmation of WILL etc.
8. Measure the Land: If you are too lazy now to physically verify the land, believe me you will be very busy with this subject few years from now. So please visit the site and get it measured by the local village surveyor. make sure the extent is as per document and ask the surveyor to make a drawing over the existing FMB (Field Map Book) drawing published by the government and ask him to sign with his official seal. Do not use a private surveyor. His word means nothing in the court. Getting the government surveyor may involve a bit of running around as these chaps are elusive figures. But your local Village Officer should be able to help you. Include this drawing as part of the sale deed when registering the property. If any dimensions or extent is amiss, renegotiate the price with the seller.
9. Proof of Payment: Try and make all your payments by cheque or draft drawn out in favour of the actual seller preferably mentioning their bank a/c number as well. I know it is often tempting to short change the government of the taxes buy paying out substantial amounts in "black" money or as cash. If the seller is motivated, remember, he will find ways to account for the cheque money you give. It is up to you to insist this, after all you always have the choice of buying something else. Assuming you want to be above board, trying to save 10% of the cost by way of registration fee, is not worth the underlying risks.
Your seller may insist he receives the cash component few hours or days ahead of the actual official registration. Even if he were to hand over the original parent documents as a collateral , you are still open to the seller renegading on his promise.
Your seller or broker may unfairly claim that some or all the money you gave was "short" or had "counterfeit notes".
All large transactions are tracked by our ( albeit lacklustre) vigilance system. After a large transaction if your seller is found to possess largely unexplained cash, the trail will lead back to you, giving you perpetual headache.
If and when , God forbid, the government wants to acquire your land for some purpose such as road expansion or military purpose , they would be more amenable to paying compensation equal to the amount actually shown in your purchase document.
Finally by paying cash and not disclosing the actual amount, you will be simply postponing the problem. Some day, when you wish to sell the land hopefully the price of land will be high and you will make a handsome profit. But as your luck may have it, if you deal with an honest buyer, who insists on paying everything above board, you will end up paying a large capital gain tax!
More later. But for now , start worrying but keep buying. Remember when buying land you can never be too paranoid.
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