Things to Know Before Investing in Property in India

Investing in property in India is considered by many a lucrative way to save on taxes and have a stable asset at the same time. However, there are many factors that you should consider before buying a property – residential or commercial in India.

1. Financial Aspects

• Purchase vs Lease: The most important aspect to consider is whether to purchase the property or take the property on lease. In India, if you purchase a property, the interest rate on your housing loan is, on average, 8-9%. This is much higher compared to a leased property’s interest rate, which is, on average lower than 3%. In the absence of the expectation of an increase in property prices, the lease option would be financially more attractive.
• Stamp duty: This is a tax payable to the State Government on the purchase, sale or lease of an immovable property. Stamp duty is generally levied as a percentage of the agreement value, which refers to the value of the property mentioned in the property agreement papers. The rate of stamp duty varies from State to State and normally ranges from 3% to 8%. In order to prevent tax evasion, state authorities notify minimum area-wise property rates. Stamp duty has to be paid based on the area-wise rates, even if the agreement value is below it.
• Registration fees: All transactions for purchase or sale, or lease of immovable property require registration under the Transfer of Property Act, 1882, for a valid legal title. Registration fee is the fee payable for registration of a document that details the transfer of the said property to you from the owner of the property. The registration fee is charged at 1-3% of the agreement value.
• Transfer fees: This is the fee charged by a housing society for transferring the shares or rights to a property from the seller’s name to the buyer’s name. 
• Town planning and other authorities fees: In certain cases, town planning authorities such as the Mumbai Metropolitan Region Development Authority or City and Industrial Development Corporation of Maharashtra charge a fee on the transfer or lease of property. This fee can vary vastly.
• Brokerage: This is the commission paid to a real estate agent or broker for facilitating the transaction between the buyer and seller. Brokerage can range from 0.5% to 2% of the agreement value, depending on the type and location of the property.

2. Regulatory Aspects

• Real Estate (Regulation and Development) Act, 2016 (RERA): This is a central law that aims to protect home buyers and promote transparency in real estate transactions. RERA mandates that all real estate projects (residential and commercial) with more than eight units or 500 square meters of land area must be registered with a state-level regulatory authority and disclose all relevant information such as project details, approvals, layout plans, the status of construction, etc. on their website. RERA also provides for a speedy dispute resolution mechanism and imposes penalties for non-compliance by developers.
• Title verification: This is a process of verifying the ownership and legal status of a property before buying it. It involves checking various documents, such as sale deeds, conveyance deeds, mutation certificates, encumbrance certificates, etc., to ensure that there are no disputes or claims on the property by any third party. Title verification can be done by hiring a lawyer or through online platforms that provide title verification services.
• Due diligence: This is a process of inspecting and evaluating various aspects of a property, such as location, infrastructure, amenities, quality of construction, building plan approval, environmental clearance, fire safety clearance, etc., before buying it. Due diligence can help avoid any unpleasant surprises or hidden costs after purchasing the property. Due diligence can be done by visiting the site personally or through online platforms that provide virtual tours and ratings of properties.

3. Tax Aspects

• Income tax benefits: If you purchase a residential property with a housing loan, you can claim deductions under Section 80C for principal repayment up to INR 1,50,000 per year and under Section 24 for interest payment up to INR 2,00,000 per year (INR 3,00,000 if it is your first property). You can also claim an additional deduction of INR 1,50,000 under Section 80EEA if the property value is less than INR 45 lakhs and the loan is sanctioned between April 1, 2019, and March 31, 2022. However, these deductions are subject to certain conditions, such as the property should not be sold within five years of possession, the loan should be taken from a specified financial institution, etc.
• Capital gains tax: If you sell a residential property after holding it for more than two years, you have to pay long-term capital gains tax at the rate of 20% on the net profit (sale price minus cost of acquisition and improvement). However, you can claim exemption from this tax if you reinvest the net profit in another residential property within two years of sale or in specified bonds (54EC Bonds) within six months of sale, subject to certain conditions and limits. If you sell a residential property within two years of holding it, you have to pay short-term capital gains tax at your applicable slab rate on the net profit.
• Goods and Services Tax (GST): If you purchase an under-construction property from a developer, you have to pay GST at the rate of 5% (1% for affordable housing) on the agreement value. However, if you purchase a ready-to-move-in property or a resale property, you do not have to pay GST. GST is also not applicable to land transactions.

4. Builder’s Reputation and Track Record

Before buying a property from a developer, it is important to check the builder’s profile and history. Look at the builder’s past projects, delivery record, quality of construction, customer feedback, legal disputes, etc., to assess the builder’s credibility and reliability. Also, verify if the builder has obtained all the necessary approvals and clearances from the authorities for the project. Buying a property from a reputed and trustworthy builder can save a lot of hassle and risk in the future.

5. Location and Infrastructure

The location of the property is one of the most crucial factors that determine its value and appreciation potential. Look for a property that is well-connected to the workplace, schools, hospitals, transport, markets, etc. Furthermore, consider the future development plans of the area, such as metro connectivity, road widening, etc., that can enhance the accessibility and livability of the location. Moreover, check the availability and quality of basic infrastructure, such as water supply, electricity, drainage, etc., in the area before buying a property.

6. Resale and Rental Potential

Another thing to know before investing in property in India is its resale and rental potential. Look for a property that has a high demand and low supply in the market, which can ensure a good return on investment. Also, consider the factors that can affect the resale value of the property, such as age, condition, maintenance, amenities, etc. Similarly, look for a property that can fetch a good rental income, which can help in servicing the loan and generating passive income. Furthermore, consider the factors that can affect the rental value of the property, such as location, size, furnishing, facilities, etc.

7. Air and Lighting

One more thing to know before investing in property in India is its air and lighting quality. Look for a property that has ample natural light and ventilation, which can improve the health and well-being of the occupants. Also, check the direction and orientation of the property, which can affect its exposure to sunlight and wind. Ideally, look for a property that faces east or northeast, which can ensure maximum sunlight and minimum heat during the day. Avoid properties that are close to sources of pollution or noise, such as factories, highways, railways, etc.

8. Amenities Offered

Property amenities offered by the developer or society are another aspect you should consider before purchasing one. Look for a property that has modern and functional amenities that can enhance the comfort and convenience of living. Some of the common amenities are security systems, power backup, water storage, parking space, lifts, gymnasiums, swimming pools, gardens, playgrounds, clubhouses, etc. Also, be aware of the maintenance charges and usage rules of these amenities before buying a property.

9. Construction Quality

The quality of construction is another important factor that affects the value and durability of a property. Check the quality of materials, fittings, fixtures, electrical wiring, plumbing, etc., used by the developer or builder. Look for any signs of defects, cracks, leaks, dampness, etc., in the property. Furthermore, you can hire a professional inspector or engineer to conduct a thorough inspection of the property before buying it.

10. Market Trends

The market trends of a property are another vital factor that influences its appreciation and demand potential. Study the past and present trends of the property market in terms of price movements, supply and demand dynamics, inventory levels, absorption rates, etc. Analyse the future prospects of the property market based on factors such as economic growth, infrastructure development, policy changes, demographic shifts, etc. Consult a real estate expert or agent to get an insight into the market trends.

11. Personal Goals

The personal goals of a property buyer are another significant factor that determines the choice and preference of a property. Know the purpose and objective of buying a property, such as self-use, rental income, capital appreciation, tax saving, etc. Be aware of their budget and affordability of buying a property, such as down payment, loan eligibility, monthly instalments, maintenance costs, etc. Furthermore, consider your lifestyle preferences and choices while buying a property, such as location preference, size requirement, design preference, amenity preference, etc.

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