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Sept. 3, 2004

Precautions needed before purchasing a site

PURCHASE OF SITES

Though the apartment culture has captured Bangalore, the original Bangalorean still prefers an independent house. The old Bangalore Forgot password
was known for its bungalows, with vast open spaces, lawns and gardens. In present days, as the cost of land has sky rocketed, one can
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hardly afford to own a bungalow. Instead independent houses on smaller plots are preferred on the outskirts of the city.

Purchase of site is the beginning of construction of a house. "Sites in the shape of perfect square, rectangle is suitable for good
construction. Sites should be nearer to the infrastructure and civic amenities like school, hospitals, bus stops, recreation centres, milk
booths etc.

The sites are of different types based on its formation and origin. Broadly, there are BDA sites, BMP sites, Housing Co-operative Society
Sites, City Municipal Council sites, private layout sites, Converted sites and Gramathana sites, revenue sites, which are available. This
article refers to purchase of sites, but not allotment of sites from BDA.

BDA Sites:
Deccan Herald
These are the sites, which are in the layouts formed by the Bangalore Development Authority or erstwhile City Improvement Trust
Board. These sites are allotted to the eligible applicants. Legally, these sites are best, provided all the documents are correctly
DH Avenues
scrutinised. It is the development authorities, which pass the title of the site to the allottees. These development authorities follow
prescribed legal procedure to acquire the lands from public and form layouts, with all the infrastructures like power, water, and roads. DH Classifieds
Hardly there is any need to trace the title of the property before acquisition. The documents that are required to be examined are Deccan Internationl Scho
allotment letter, possession certificate, payment receipts, absolute sale deed, Khatha Certificate, tax paid receipts and Encumbrance
certificates. Apart from these documents, in case of earlier allotments lease cum sale deeds need to be verified. The development
authorities, previously were handing over the sites to the allottees on lease cum sale basis, for a period of ten years, where in the
allottees were not permitted to sell the sites during the lease period and has to construct a house within and period of three years. In
such cases, the allottees do not get absolute title over the property and their rights are only that of lessee.

The development authorities reserve powers to cancel the allotment and resume the sites if the allottee fails to comply with the terms
of lease. In such cases purchase of such vacant sites is not recommended even though the stipulated lease period has expired, as the
allottee is bound to construct the house within the stipulated period. In simple terms such vacant sites are not for sale, unless the
development authorities waive the conditions.

However from 23.10.2000 the BDA has removed the system of lease cum sale agreement and is executing the absolute sale to the
allottee. In case if one is purchasing a BDA site from a person other than original allottee, the sale agreement, sale deeds, revenue
records tax receipts in the name of the subsequent purchasers, have to be examined.

A caution here:
There are many fake BDA documents in circulation. It is necessary to check the genuiness of the documents and nature of the site with
the development authorities, before purchasing the same.

BMP Sites:
These are the sites, which are available in Bangalore Mahanagara Palike Jurisdiction. They are private properties, inherited, partitioned
acquired by individuals. Vacant sites are very few in this category and comparatively costly. Title of property is required to be traced
from the origin, with successive deeds of transfer, wills, partition deeds, family trees, encumbrance certificates and revenue records
such as Khatha endorsement, Khatha Certificate, Khatha extract, Tax paid receipts. Though many advocates restrict the tracing of the
title to 13 years, it is advisable to verify the records for at least 43 years. Apart from the records mentioned above, the records of city
survey office have to be verified. Definitely a complicated process, as many records are very old not decipherable, and non-availability

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of old documents.

Housing Co-operative Society Sites:

These sites may be placed at par with BDA sites. Government or development agencies acquire land and allot to housing co-operative
societies these societies form layouts, which are allotted to its members. Only sites formed by any approved societies have to be
purchased. Byelaws, registration details of the society have to be studied. Societies allot sites only to its members and put various
restrictions on sale of sites. Layouts formed by Co-operative Societies require approval from concerned authorities. Check all these
details and whether the seller is a member of the society. If there is any restriction on sale during certain period, insist on no-objection
certificate from the society. In most of the cases, the purchaser may have to become a member of the society. Verify the allotment
letter, absolute sale deed, Khata, Tax paid receipts and encumbrance certificates. If the society has acquired land directly, call for
conversion certificate and verify. The title of the seller from whom the society acquired the lands.

City Municipal Council Sites:

There are seven City Municipal Councils and one Town Municipal Council surrounding the Bangalore city. The sites in the limits of these
authorities are mostly owned by private individuals, some of the sites are acquired by Government. Infrastructure is very poor. The
process of tracing the title is very complicated. But some extra pre cautions need to be taken. Verify whether the betterment charges
have been paid, if not purchaser may have to pay it in the future. Many lands in the area of these local bodies are agricultural lands and
conversion to non-agricultural purpose must have to be done. Presently City Municipal Councils have stopped collecting betterment
charges and issuing Khatas. If the owner doesn't have a Khata, he cannot construct the house with the plan approved from CMC.

Site in private layouts:

These are layouts formed by private parties, other than statutory development authorities. Many reputed land developers have formed
layouts around the city. Verify all the documents as required in case of private property for a period of 43 years. Apart, from the above
check whether the land is converted for residential purpose, and the layouts are approved by BDA or BMRDA. Verify the records with
respective offices. Many numbers of private layouts with D.C. conversion and panchayat approval are available. Purchase of these type
of sites involves little risk.

Gramathana Sites:
These are residential sites, which were originally available in village panchayat areas. They can be distinguished from Kaneshumari
number, assigned to them. The agricultural lands have survey numbers. The sites of this nature are very few. Government has put
restrictions on issue of license for construction by village panchayats beyond their approved Gramathana area, original Gramathana
sites can be identified by examining old village survey maps available in survey department. Examine all the records as is done in case
of private property. In addition verify the village records and Form No. 9 and 10. Form No. 9 denotes Gramathana site and form No. 10
denotes the building, which confirm that the particular property is original Gramathana site or not. But many village panchayats issue
from No. 9 & 10, though they are not Gramathana sites. Many such sites fall in green belt area, where construction of residential
buildings is restricted. Extra caution is necessary while buying Gramathana Sites.

Revenue Sites:
These are the sites formed in agricultural land. The very word revenue sites is a misnomer. The revenue land cannot be used for any
purpose other than agriculture. Unless it is converted for non-agricultural residential purpose it remains as agricultural land. Formation
of layouts is not permitted on agricultural land. Further layouts needs approval from BDA or BMRDA. Any one who purchases revenue
site is purchasing a agricultural land. Selling and purchasing of agricultural land has strict restrictions. Only agriculturists with some
income limit are permitted to purchase agricultural land. Any purchaser in contravention of this stipulation is null and void and the
purchaser will not get any title and may have to loose the money. Most of the Revenue sites fall under Green Belt Area. As per zonal
regulation green belt area is meant only for agricultural purpose. The Revenue records such has Pahani and Mutations of these lands
remain in the name of the original owner even after it is purchased by others. Do not purchase a site in layouts formed in agricultural
lands, and which are not approved by the concerned authority. Utmost care and precaution is required in purchasing sites and guidance
of experienced advocate is necessary.

HOUSING FINANCE AT A GLANCE

India is a vast country, having a population of more than 1000 million. Many are without owned shelter. After independence, the
successive governments addressed this problem with various government-sponsored programmes. They are targeted at poorest of
poor, and houses with bare facilities were provided.

The problem was too gargantuan to be met with government alone. The Government of India, established National Housing Bank,
under the supervision of Reserve Bank of India. Scheduled commercial banks, Co-operative banks, were also directed to lend for
purchase/construction of houses. In the beginning 1.5% of incremental deposits of commercial banks during 1988 was earmarked for
housing finance sector, which was enhanced to 3% during the year 1999 and subsequent years. The banks were given freedom to
exceed this stipulation depending upon their resources. The slow down of economy, slump in the demand for loans from corporate
sector goaded banks to aggressively market housing loans. In the course of the time, banks have overtaken the housing finance
companies in market share. The easy availability of finance, the tax benefits extended by the union government and increased
earning/spending capacity of middle class, mostly wage earners have fuelled the growth of this important sector.

Change of Mindset

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Owning a house, previously was the last priority, mostly at the time of retirement from out of terminal benefits savings as one could
rarely find the means of financing the purchase/construction. This mindset has changed. The youngsters in early twenties are earning
substantial salaries, with increased spending capacity. They prefer to own houses out of borrowed funds, which is repaid over a period
of time. This helps them to avail of lower interest rates and also tax benefits for longer period.

Eligibility

The repaying capacity is the single determining factor. There must be regular monthly income, with enough surplus to meet the
monthly repayments. The maximum age limit is 55 years, which may be extended to 60 years in deserving special cases. If the
applicant is more than 50 years, any of the legal heirs may have to join as co-borrowers. Salaried person should have a confirmed job,
with at least minimum five years of balance service. The professionals like Advocates, Doctors, Engineers, Chartered Accountants,
Company Secretaries etc, should have established income of at least three years. Retired persons pensioners are generally not
entertained to avail of Housing Finance. Further rental income can be added for eligibility of increased loan.

Legal Scrutiny Report and Valuation

It is very important to have legally established ownership of the property to avail of the Housing Finance. The applicant should have all
the documents to establish his title to the property. He should verify the documents available with him/or with the seller and perfect
the title to the property. Financing Institutions will rely on the legal scrutiny report of their advocates on panel. In view of the severe
competition in the field, many institutions are ignoring the importance of the legal scrutiny, and title to the property, and are giving
much importance to the repayment capacity

Apart from perfect title to the property, the valuation of the property is also very important, based on which the loan component will be
determined. The banks have approved valuers on their panel, who will value the property and arrive at the market value.

Loan Amount

Many institutions have a maximum ceiling of one crore-per party. The loan depends upon the cost of construction, land, purchase cost,
stamp duty, registration charges, legal charges and also other additional expenses. The borrowers may have to bring is 10 to 15% of
the cost as margin money. There are institutions, which finance full cost without insisting on margin money. In addition to these
parameters, the income of the applicant, repaying, capacity of all the borrowers are being considered Maximum amount that an
individual may require is 10-15 lakhs, for a good house, which is within the reach of average wage earner.

Repayment Schedule

The loan is to be repaid in monthly instalments comprising interest and principle called equated monthly instalments (EMI). The amount
of repayment remains the same during the entire tenor of the loan.

In case of construction, the loan amount is disbursed in instalments depending upon the progress of construction. The regular
repayment commences after the completion of construction or after the expiry of certain stipulated time. Interest for intervening
period, from the date of loan to the commencement of equated monthly instalment is called pre-EMI. This has to be paid quarterly or
monthly.

Though the repayments offered vary upto a maximum of 20 years, it is preferable to avail of the period of 10-15 years, considering the
interest rates, tax benefits and repayment capacity. The repayment period of 5 years attract heavy monthly instalments, which prove
to be burden; in repayment beyond 15 years, one has to pay heavy interest. There are institutions, which offer repayment period
beyond 20 years also.

Certain banks have special schemes, under which any surplus amount available may be paid though in excess of equated monthly
instalment with facility to with draw such amount in case of necessity. The account operates like a current/over draft account. This
would be useful for business people. Such schemes are called Home Loan Saving Schemes, where by paying off the loan earlier
substantial amount of interest is saved.

Recently, the repayment has become flexible to suit the borrowers. Step up payment is useful to young borrowers, where EMI in the
beginning is small, which increases as the income of the borrower grows. Step down payment is useful for aged borrowers, where EMI
will be more during the beginning and goes on reducing as the income diminishes.

Interest

At present interest rates are very low the loans are available at 7.25% but there are signs of interest rates hardening. There are two
different types of interest rates floating and fixed.

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Floating Rate

Here the rates are not constant, but keep changing. There are linked to market condition. They may increase or decrease. The present
floating rates has reached the bottom and there may not be further reduction. The lending institutions are very reluctant to pass on the
benefits of reduced interest rates to borrowers. They adopt different strategy to keep the borrowers paying higher rates. In most of the
case the old borrowers pay higher rate than a new borrower for a similar loan.

Fixed rate

This is supposed to remain fixed through the tenor of the loan. Fixed rates are higher than floating rates but many banks/housing
finance companies have "Force Majeure" clause in their agreement, which gives absolute powers to change the fixed rates.

In general, the fixed rates for loans of long tenor, floating rates for loans of short tenor may be preferred.

Many offer a combination of both fixed and floating, where some percentage is charged as fixed or balance as floating.

Reducing Balances

Reducing balance means the period at which the instalments collected from borrowers are credited to the loan account. In annual
reducing balances the monthly instalments collected are credited to the loan account once in a year. In monthly reducing balance they
are credited on a particular day of month; and in daily reducing banks, it is credited on the same day. Annual reducing balance is
mostly costly, where as daily reducing is the best. Many have monthly reducing balance, and few have daily reducing balance.

Hidden Costs

There is no transparency in Housing Finance sector. Apart from interest the borrower has to pay processing charges legal fee, but many
other types of fees, such as administration fee, inspection fee, etc. Further the rates at which these are charged are also not clear. In
such cases, though the interest rates are low, the hidden costs increase the burden. As stated earlier, interaction with borrowers would
help.

Switch over

The borrowers have an option of switching from floating/fixed to other mode on payment of certain penalty. Generally it is 1% on the
outstanding loan amount. But recently, the financing institutions have increased fee for switching over. While switching over, consider
the penalty payable, the loan balance, the rate of interest available and the balance repayment period. If the balance repayment period
if short it is not advisable to switch over.

Transfer of Loans

The borrowers may also transfer the loan to other institutions, which take over the loans. Many borrowers transfer the loans to avail
the reduced interest rates available. The interest rates during 1990-2000 were very high. In case of transfer of loan, the borrower has
to pay some prescribed fee calculated on the outstanding loan. Apart from such fees, the institution, which takes over the loan, charges
processing fee, legal charges etc. They may offer some additional loan also. But avail of such additional loan only in case of absolute
need. While transferring the loan apart from interest rate, calculate the transfer fee, processing/legal fee, and mode of reducing
balance adopted by the institution, which takes over the loan and hidden costs. If the balance repayment period is small, transfer is not
recommended.

Tax Benefits

Home loan borrowers have two types of income tax benefits:

1. Rebate on repayment of principal and stamp duty and registration charges.
2. Deduction of Interest

The Stamp duty and registration charges paid and repayment of principal is eligible of rebate on a maximum amount of Rs. 20,000/-
within a over all limit of Rs. 70,000 under section 88 of income tax act 1961.

The interest paid in a financial year on housing loan is allowed as deduction under section 24 of the income tax act 1961. The maximum
interest allowed at deduction at present is 1.5 lakhs in case of self-occupied house. This is per individual. If there are more than one
borrower, with definite shares in property, each may avail of this deduction, subject to his share, with a maximum ceiling of 1.50 lakhs.
There is no such ceiling in case of properties, which are let out. Any amount of interest paid on the loan is allowed as deduction, and
the income from the property by way of rent is taxable.

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Insurance

Apart from insurance of property, against fire, riot, civil commotion, many insurance companies offer term policies on payment of single
premium. These term policies cover risk for certain period and repays the loan in case of any lose of life of borrower.

Selection of Financier

Housing finance is most easily available credit product. All the commercial schedule banks, co-operative banks, extend finance for
purchase/construction of houses. In addition there are housing finance companies specialised in this line. Many of these institutions are
concentrated in metro and urban centres. There is severe competition. In general the rates of interest in housing finance companies are
slightly higher than banks. Though there is intense competition, there is no transparency in Housing Finance industry. It is better to
interact with borrowers of different lending institutions and select the best. If one is a regular customer of any bank, it would be better
to borrow from such bank.

While selecting the Financing Institutions, examine the rate of interest, charges for shifting, hidden charges, transparency, and
accessibility to the financing institutions. Many institutions operate through direct selling agents, and the borrowers will rarely have a
chance to interact with the officials of the institutions. Further there is very little of select between any two institutions.

WOMEN'S PROPERTY RIGHTS

The Constitution of India, does not differentiate between males and females. Women have equal rights as that of a mean in every
sphere. Earlier women did not have any rights to the property and they were at the mercy of the male members of the family. Joint
Hindu Family, an unique institution acted as refugee home for many women widows. With the disappearance of the Joint Hindu Family,
the plight of women worsened. Gradually in course of time, the women have acquired absolute rights over the property as that of a
male. Successive Governments have enacted various laws improving / conferring property rights to women.

Hindu Women's Rights to the Property Act, 1937 dealt with the rights of Hindu widow, on the death of her husband who does not make
any Will. In such cases, the widow or widows are entitled to the share of the property as that of a son. But her interest in the property,
Hindu Women estate is limited interest.
Karnataka Hindu Law Women's Rights Act 1933 conferred limited rights to the property, to the women. This limited right is called
limited estate. Under limited estate rights, the women do not get any rights to alienate the property by Sale, Will and Gift etc. But the
women had full rights including that of alienation by Sale, Will in case of Stridhana Property. Stridhana includes ornaments, apparel,
gift received, property acquired out of her savings.

REVOLUTIONARY CHANGES

The Hindu Succession Act 1956 brought out revolutionary changes in property rights of women. Section 14 of the Hindu Succession Act,
confers absolute rights to the female in any property possessed by Hindu female. The rights are of full nature including unfettered
rights of disposal of property.
The property covered under the section 14 of the Hindu Succession Act is both movable and immovable, which is acquired by
inheritance, demise, partition, in lieu of maintenance, arrears of maintenance, gift, property acquired by her own skill, purchase,
prescription, or in any other manner and also includes Stridhana. This absolute right operates retrospectively, since the Section 14
refers to the properties acquired before or after the commencement of the act.

RIGHTS IN FAMILY PROPERTY:

Another area, which was improved upon, is Co parceners property. Co-parceners property is a Hindu undivided family property. The
member of Hindu Undivided property is called co-parcener, who attains the right in the property by birth. They are all related to the
head of the family. This Co parceners include relatives within four degrees including Kartha. Earlier females were not member of co-
parceners, hence were denied succession to the ancestral property. Many States Karnataka, Andhra Pradesh, Maharashtra, Tamil Nadu,
Kerala have amended the Hindu Succession Act 1956. Amendment to Hindu Succession act by Karnataka has come into effect from 30-
07-1994. Women who have married prior to 30-07-1994 do not have any rights in the ancestral/co-parceners properties. But this act
gives women equal status as that of a Male who are married or not subsequent to 30-07-1994. She becomes a member of Co
parcenary by birth in the same manner as that of a son. On partition of the co-parcenary property, she is entitled to the equal share as
that of a son. The property so acquired on succession is capable of being disposed by her, through Will or any other Testamentary
disposition.

In certain cases the ancestral house might be the co parcenary property. Generally, members of the joint family, mostly male co-
parceners reside in such houses. In such cases, the female member cannot force a partition of such ancestral house unless other male
members in occupation of the house opt for partition.

But the unmarried daughter, a married daughter deserted or separated from her husband, or a widow is entitled to a right of residence
therein.

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