A wide range of technical jargon and terminologies are thrown at homebuyers as they embark on the journey of purchasing their dream home. Real estate agents and developers can take advantage of a buyer’s ignorance and confusion and even take him for a ride. Hence, knowledge of basic terms and processes is critical as it empowers a homebuyer with the confidence to make informed decisions.
Here are answers to some of the most frequently asked questions by home buyers:
What are ‘Leasehold’ and ‘Freehold’ properties?
The difference between a leasehold property and a freehold property is defined by its ownership and control.
In a leasehold property, the ownership remains with the concerned local authority or the government. The lease period can vary from 30 to 99 years. However, the individual owner can still sell or perform other transactions with the property as long as the lease deed is registered.
In a freehold property, the ownership rights are given to the purchaser for a price, and he/she can sell/lease/rent the property as per his/her wish. Unlike a leasehold property, the owner does not require to pay an annual ground rent for a freehold property.
What are the benefits of converting a leasehold property into a freehold one?
By converting a leasehold property to a freehold one, the buyer enjoys complete ownership rights.
Freehold properties have better marketability than leasehold properties and more takers in the market too. It can be easily sold, mortgaged or kept for standing security by the owner.
What is the difference between carpet, built-up, and super built-up areas?
Carpet Area is the area in an apartment that can be covered by a carpet. This is the actual area a home buyer gets at his/her disposal. Carpet area excludes the thickness of the inner walls and gives buyers an idea of the usable area within the apartment.
Built-up Area is calculated by adding the carpet area and the thickness of the inner walls of the apartment. It also includes other areas around the apartment such as balconies, flower beds etc.
Super Built-up Area is calculated by adding the built-up area and common spaces like lobbies, lifts and stairs. Amenities such as gardens, swimming pool and club house are also included in this category.
What documents should I check before buying a new property?
Here’s a handy checklist of documents required before buying a property:
- Sale Deed
- Title Deed
- Approved Building plans
- Completion Certificate (newly constructed property)
- Commencement Certificate (under-construction property)
- Conversion Certificate (in case agricultural land is converted to non-agricultural)
- Encumbrance Certificate
- Latest Tax Receipts
- Occupancy Certificate
What are the types of home loans available?
Banks offer home buyers these nine types of loans on interest:
- Home Purchase Loan: Granted for purchasing a new residential property or an old house from its previous owner.
- Home Improvement Loan: Given for carrying out repair and renovation work.
- Home Construction Loan: Sanctioned to construct a house on a piece of land that has already been purchased.
- Home Extension Loan: Granted for extending part of an existing house such as adding an extra floor or a room.
- Land Purchase Loan: Sanctioned for the purchase of a plot of land for both residential or investment purposes.
- Home Conversion Loans: Apt for buyers who have purchased a house by taking a home loan but may want to buy another house.
- Balance Transfer Loan: Availed to transfer one’s home loan from one bank to another.
- NRI Home loans: Designed to suit the specific requirements of NRIs who wish to buy a home in India.
- Loan against Property (LAP): Granted against the mortgage of property.
Are there tax rebates on a home loan?
According to Section 80C of the Income Tax Act, a home owner is allowed separate deductions on principal and interest amount of their home loan.
A deduction up to Rs 1.5 lakhs can be claimed on the principal, while there’s a limit of Rs 2 lakhs on the interest. Stamp duty and registration amounts are also eligible for tax deduction.
Can I repay the loan ahead of schedule?
Yes, lending institutions allow home owners to prepay their loan. However, an early repayment penalty may be charged, varying from 2 to 3% of the outstanding principal amount.
How can I register my property?
Registration is compulsory by law for all properties under Section 17 of the Indian Registrations Act, 1908. Apart from protecting the owner against title disputes, registration is imperative during change in the ownership.
Registering a property requires stamping and paying of registration charges for a sale deed. It must be recorded at the sub-registrar’s office of the concerned jurisdictional area. Several states facilitate online registration of properties making the process transparent and less cumbersome.
What is Stamp Duty and who is liable to pay it? Do I get tax benefits on Stamp Duty?
Stamp Duty is the tax paid by a home buyer for the legal recognition of property. A purchaser can claim tax incentives of up to Rs 1.5 lakh on stamp duty and registration charges on a new property purchase or house construction.
What is the difference between short-term and long-term Capital Gains?
Since the property is classified as a capital asset, Capital Gains Tax is levied on the profits earned from the sale of property.
Short-term Capital Gains: If the property is held for less than three years before its sale, it is termed as a short-term capital asset and any profit earned from the sale is treated as a short-term Capital Gain. The tax applicable on short-term gains comes under section 111A of the Income Tax Act and the current rate stands at 15%, minus surcharge and cess.
Long-term Capital Gains: In case a property is sold after holding it for more than three years, it is treated as a long-term capital asset, and any financial gains from it are known as long-term Capital Gain. Such gains are taxed at the rate of 20% after indexation.
