Auction property is a slightly riskier investment and as such, needs to be diligently investigated before the purchase is done. Here is what you should keep in mind

In the event where a home owner defaults on the loan taken, the lender is entitled to legally repossess the property. Such repossessed properties are ultimately sold through physical or electronic versions of auctions. Before you decide to buy such an auctioned property, here are the precautions you need to take.

Auction property Outstanding municipal tax and society dues

Generally, default in payments of EMIs for a home loan, is a person’s last resort. So, it is very likely that the home owner must have defaulted in paying local taxes and society charges. Since the properties are sold under ‘as it is where it is basis’, it is the responsibility of the prospective buyer to discharge such outstanding dues. Always ascertain outstanding amounts in respect of society charges and municipal taxes in case these payments are to be made by the property owner itself. Bidding for a property without knowing the liability of such dues may enhance your cost.

Auctioned property Legal due diligence

In the case of a property auctioned by a bank, the legal titles are not with the bank. Also, the bank does not take responsibility for the title as it does not become the owner of the property simply because it has taken over possession of the property. So, when buying a property, under auction or otherwise, it is always advisable to get the ownership of the title to the property duly investigated by a lawyer. This may increase your cost a little, but it is better to spend more early on, than go through hassles later.

Arrangement of funds

In case of an under-construction property or even for a ready flat, the payment schedule is generally convenient or is decided on the basis of mutual discussion. However, in the event of an auction, if your bid for the property is successful, you have to pay the balance amount at a relatively shorter notice. Should you default, you may lose your earnest money deposit. Hence, it is very important to plan the funding of such purchases well in advance, with adequate provision for contingency.

You can also get a home loan for such property, but you have to arrange for the full auction amount first from your own sources and then the home loan lender can issue the cheque. In case you intend to take a home loan for such a property, you should acquire an in-principle approval for the loan amount based on your income.

Auction property TDS on purchase consideration

As per the provisions of income tax laws, the home buyer has to deduct tax at source at 1%  from the purchase consideration, in case the value of the property exceeds Rs 50 lakhs. This applies to properties purchased through auction as well. Though you are buying the property from the bank (which is not the owner of the property), the TDS has to be deducted and credited to the account of the original owner. So, you need to obtain the PAN details/copy  of the original owner of the property as you need to credit the TDS to PAN . In case you do not get the PAN details of the owner, you will have to deduct the tax at 20% instead of the stipulated rate of 1%.

Moreover, you need to arrive at an agreement with the bank about the amount of the TDS to be treated as part of the purchase consideration. In case the auctioning bank does not agree, your cost of purchase  will go up by this 1% TDS which you are supposed to deduct as it will be almost impossible for you to recover the amount of TDS from the original owner of the property.

With such small precautions, you may be able to purchase property under auction successfully and sometimes cheaper as well.

Rental Income if you are planning to invest in property to earn returns, which type of property should you choose – residential or commercial? We analyze the benefits and drawbacks of each

Rental income is an important consideration, for people who want to invest in the real estate sector. Property buyers are often confused over which would provide better income option – an investment in a residential property or a commercial one and looking for information

Rental Income : Risk versus rewards between commercial and residential properties

• Tax benefits: Commercial and residential properties that are let out, attract tax on income from house property. However, a house property that is taken on a home loan, qualifies for tax breaks under Section 24 and Section 80C of Income-Tax Act.
• Risk and volatility: This is perceived to be higher in a residential property, due to frequent change in tenants, higher maintenance and upkeep costs and lower returns. Commercial properties offer stable, long-term rentals, with predictable income streams.
• Entering and exiting an investment: Both are illiquid assets. However, with Real Estate Investment Trust (REIT) regulations, it would be easier to create a portfolio of commercial properties than residential properties. Also, since the supply of Grade A pre-leased assets is low, the demand is much higher, making it more liquid than residential properties.

Rental Income: Benefits and drawbacks of investing in residential property

Benefits	Drawbacks
Lower entry ticket	Low rental yields / rental incomes
No minimum / lowest size applicable	Investment in interiors, etc., to make it rent-friendly
Loan facilities easily available	Rental agreement usually cannot exceed 36 months
Leasing process is usually easier
Comparatively lower holding period for returns, as against commercial property

Benefits and drawbacks of investing in commercial property

Benefits	Drawbacks
Higher rental yield and returns	The capital values of commercial properties tend to remain stable for longer periods of time
Longer term lease possible, i.e., up to nine years	The property may need to be of a specific minimum size, to be commercially viable
Leasing can be in bare shell or warm shell	Difficult to offload, as there are fewer buyers in the market
Commercial values are not very volatile

Resale Commercial Properties Documents Check List which are preferred by many buyers as compared to under construction ones. Here’s a list of important documents you must check before closing the deal.

Buying a commercial property generally involves a huge amount of money and major care must be taken while conducting such a deal. A resale commercial property has many advantages and is preferred over under-construction projects by many people. However, you must make sure the property has clear ownership titles and all the government permissions are in place. Here is a checklist of all the documents that must be scrutinized by you, while purchasing a commercial property which is up for resale.

Check list for buying Resale Commercial Properties

1. Resale Commercial Properties Sale deed

The sale is the most important document that you must check from the seller of the resale property. The sale deed is the proof of the sale that must have happened between the current owner and the previous owner. It is the sale deed which must have formed the basis of transfer of ownership of the property to the current owner from the previous owner. You must read all the contents of the sale deed thoroughly and you can even ask questions related to some of the aspects of the sale deed from the current owner, if you have any doubts.

2. Resale Commercial Properties Building plan

The building plan is another important document that you must check and make sure whether the property has a sanctioned building plan or not. A building plan is usually approved by the municipality of the area. The plan has the blueprint of the property including the equipment layout and various utilities. Any additional construction to the sanctioned building plan is liable to be pulled down by the local authorities as it would be considered illegal.

3. Completion certificate

A Completion Certificate is very important and will ensure that the building has been constructed in accordance with the local laws and is ready to be occupied by people. This certificate is issued by the municipal authority of the area and is necessary for getting loans from banks or NBFCs. This is also important for getting water and electricity connections in the building.

4. Tax-paid receipts

Any building has to pay various taxes to various government departments. You must check that all taxes have been paid and ask the current owner for the receipts.

5. Encumbrance certificate

This certificate ensures that there are no dues or obligation against the building. This document is also very important and can be obtained from the sub-registrar’s office where the property has been registered.

6. Conversion order

If the land on which the commercial property stands currently was agricultural or residential land, then a conversion of the use of the land must have been filed by the builder. This is called Change Of Land Use. Such a conversion order must also be verified by you to avoid any problem in the future.

7. Possession certificate

The builder must have given a Possession Certificate of the property in question, to the first owner. This document is not re-issued for the purpose of resale but the current owner must hand over the document to you.

An agreement for sale of an immovable property is not the same as a sale deed for the same property. We look at the differences that home buyers and sellers should be aware of, from a legal standpoint

refer The Transfer of Property Act 1882

While buying a property, people enter into an agreement with the seller. The form and format of the agreement may be different. It may either be an agreement for sale or it may be a sale deed. People generally do not understand the difference between these two documents and treat both as synonymous. However, it is not so.

What is an agreement for sale?

An agreement for sale, is an agreement to sell a property in future. This agreement specifies the terms and conditions, under which the property in question will be transferred. The Transfer of Property Act, 1882, which regulates the matters dealing with the sale and transfer of house property, defines the contract for sale or an agreement for sale as under:

A contract for the sale of immovable property, is a contract that a sale of such property shall take place on the terms settled between the parties” – Section 54. Section 54 further provides that “It does not, of itself, create any interest in or charge on such property.

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From the above definition, it becomes amply clear that an agreement for sale contains a promise to transfer a property in question in future, on satisfaction of certain terms and conditions. So, this agreement itself does not create any rights or interest in the property, for the proposed buyer

What the sales agreement creates, is a right for the purchaser to purchase the property in question on satisfaction of certain conditions. Likewise, the seller also gets the right to receive the consideration from the buyer on complying with his part of the terms and conditions.

In case of failure of the seller to sell or hand over possession of the property to the buyer, the buyer gets a right of specific performance, under the provisions of the Specific Relief Act, 1963. A similar right is available to the seller under the agreement, for seeking specific performance from the buyer.