Following article appeared in The Economic Times Mumbai on 14th Jan 2011 and may be interest to readers of the blog:
Things To Do Before You Sell Your House
And, before you rush to buy a new house from that money, get your paperwork in order to avoid nasty surprises
Vidyalaxmi
PLANNING to sell your old house to buy a new one? You may have settled for a smaller house constrained by your budget and the size of the family. Today, a better-paying job, an asset in the form of an old house may make the dream of buying a new house possible. Typically, it’s never too difficult to put a flat on sale in metros such as Delhi, Mumbai or Chennai. There is always a demand for real estate in these cities, which will fetch you the market value or even higher, depending upon the amenities, suburb and the area of the house. But it is important to ascertain the right value of the house and wind up the process in time so that you are not homeless from the time you leave the old house to the time you occupy the new one.
Evaluation Of The House: The value of a property depends upon several factors, such as the location, size of the house other amenities and the overall market trends in terms of appreciation and depreciation. But before putting your house on the block, you have to get the right value for your house, “Typically most individuals are aware about the rates in and around their locality. But if an investor is keen on selling, he should ideally get a surveyor or a couple of brokers to check out with your neighbours. Get the property evaluated by 2-3 brokers to get an accurate quote,” says Gulam Zia, director, National Advisory Services, Knight Frank.
Document Checklist: A buyer may not insist on all the documents but if he is planning to avail of a housing loan, then the bank will insist on the smallest document related to the house. Hence, it is always better to do a document check before you start negotiating with potential buyers. The most important documents required to sell a residential property are the housing society share certificate and the sale/ purchase deed. The sale deed will confirm the land/flat is on your name (the seller’s name) and only you have the full right to sell the land/flat. You need a copy of previous deeds if you have also bought it as a resale property. The previous deed/deeds are required to confirm the authenticity of the deal and the property. You also need original copies of the stamp duty and registered house documents. The seller will also require a no-objection certificate (NOC) from the housing society. In case of joint ownership, the owner/owners have to submit documented consent from the joint owners. “Homebuyers insist on these documents if they are opting for a housing loan. Apart from the title clearance and NOC, the precise details regarding the age of the building, the floor plan, the carpet and built-up area, the conveyance of the society, car parking status, land title (free hold/lease hold/collectors land) and transfer charges of the building and the apartment need to be attended to,” Zia adds.
The Case Of Missing Documents: Often houses which are 30-40 years old may not have proper registration. There have been announcements for homeowners to update the required paperwork. If you have not completed the required procedure, you should ideally pay off the outstanding stamp duty and file for a registration. “In the case of a missing share certificate, the intending seller should request the housing society to issue a duplicate copy. If the sale/purchase deed and/or chain of agreements/deeds are misplaced, an indemnity bond needs to be furnished by the seller along with a confirmation letter from the housing society,” explains Mrunal Duggar, V-P, homebay residential, Jones Lang La-Salle Meghraj. Similarly, if the original copy of stamp duty and registered house documents are unavailable, an indemnity bond must be furnished by the seller. “In any case, the deed must be registered after paying up the valid stamp duty. A public notice will also have to be issued,” Duggar adds. But remember you cannot sell the mortgaged property. Borrowers tend to take the payments in tranches and pay off the loan from one such instalment. But if the buyer insists on 100% paperwork before he pays the first instalment, then you cannot carry forward the deal if you are servicing the loan.
Tax Implications: When you sell a house and make a profit, in financial jargon, you are supposed to have made capital gain. You have to pay a certain tax on this profit, which is called the capital gains tax. But you can be exempted from this tax if you invest in another house subject to certain conditions (see table). The long-term capital gain on the sale of a house can be claimed as exempt from tax under Section 54 whereas the long-term capital gain on the sale of any asset other than a house can be claimed exempt under Section 54F. To claim full exemption under Section 54, you must invest the amount of long-term capital gains in a residential house whereas under Section 54F you are required to invest the amount of net sale proceeds in a residential house. Further, exemption under Section 54F cannot be claimed if you own more than one house at the time of sale of the asset. Under both the Sections, the new house can be purchased either within a year before the date of sale or within two years from the date of sale. If you cannot make the required investment before the due date for filing of return of the year in which the property is sold, the amount of capital gain or net consideration, as the case may be, is required to be deposited in a separate account (called Capital Gains Tax Saving Scheme Account) in a nationalised bank before you file the return. You can use the balance in this account to make payments for your purchase of house. Note that, you can reinvest only in a residential property. This does not include a commercial property or a vacant plot of land. Similarly, short-term capital gains enjoy no exemption under either of the Sections.
“The house you are planning to sell would be classified as short-term capital asset if the holding period is less than three years. There is no exemption available on reinvestment, be it a new house or capital gains tax saving bonds,” explains Vaibhav Sankla, executive director, Adroit.
Stay Put Till The New House Is Ready: It’s important to buy a flat which is ready for possession. Typically, builders promise a certain timeline by which they hand over the house to you. But there is no legal binding on such deadlines. Since this timeline is not mentioned on the agreement, you are at the builder’s mercy till the project is completed. Hence, always opt for a ‘ready for possession’ house if you plan to sell the old house. Otherwise, you may have to stay in a rented flat and foot the double expense of a rent and a loan.
The need for bigger space is justified. But first get the paperwork in place for both the houses, arrange for the loan and other finances, finalise the buy-first followed by the sale within a short span of time. Otherwise, you may end up paying a huge bill or end up being homeless.
LEST YOU FORGET BEFORE SELLING THE OLD HOUSE
Get your property evaluated by surveyors or brokers to arrive at its right market value.
Get all the documents in place according to the bank’s requirement for a housing loan.
If you have misplaced the sale/purchase deed and/or chain of agreements, furnish an indemnity bond with a confirmation letter from the housing society.
You may take payments from the buyer in tranches and pay off the loan from one such instalment, But on paper, you cannot sell your mortgaged property.
Pay off the outstanding stamp duty and apply for missing documents before putting the house on sale
…& BUYING A NEW HOUSE
Ask for intimation of disapproval (IOD) that lists out the conditions on which the building should be constructed
The IOD document is usually valid for one year and has to be revalidated thereafter
Ask for the commencement certificate. It is issued by local authorities. It gives licence to the builder to begin construction only after all the terms and conditions have been met
Ask for occupation certificate. It is issued by the local municipal body after the builder provides for basic amenities such as water and electricity.
If you are buying a house on resale, you must not forget to ask for the title deed.
