Steps to consider before buying a property in India

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Question: I want to buy a residential unit in a building which is under construction. However, I want to make sure that the builder is constructing on a plot of land which has clear title so that no disputes arise later. I am told that many house buyers have suffered as a result of defective title of the land. What precautions should I take?

ANSWER: Before booking a residential property in a project, you have to ensure that the company with whom you enter into an agreement has registered the project under the Real Estate Regulations & Development Act. Once the project is registered by the builder with Rera, you have to further ensure that title insurance has been obtained by the developer. The advantage of doing so is that such insurance provides indemnity to the developer as well as the owners of residential units against losses and risks pertaining to defects in the title which may be raised by third parties who claim title to the property. If any claim is raised in future, the insurance company will indemnify all the home buyers to the extent of any loss which may be incurred, including legal costs. Under the Rera Act, title insurance is mandatory as it covers risks arising from defects in the title to the land. Of course, the cost of property which you book in such building will be higher as the premium which is to be paid in one single instalment is substantial. The policy is generally valid for a period of seven to 12 years. However, home buyers would stand to gain as the resale value of such property is high.

Question: Some banks in India invest in alternate investment funds in order to boost their bottom line and show better profits to shareholders. These funds are sometimes involved in giving loans to the same company which has borrowed money from the bank. Is this misuse being dealt with seriously by the Reserve Bank?

ANSWER: Recently the regulator has taken measures to ensure that banks, non-banking financial companies and other entities do not violate exposure and lending norms. These institutions sometimes indulge in ‘evergreening’ of loans. Evergreening refers to the practice of extending a loan to another entity, like an AIF, which in turn gives a loan to the bank’s borrower that is used to repay the existing bank loan. Alternate investment funds represent pooled resources from diverse investors. Therefore, if a bank or a non-banking financial company (NBFC) invests in an AIF scheme and it is found that the AIF has in turn made an investment in the debtor company, such bank/NBFC is required by RBI’s regulations to exit the scheme within 30 days. In case this is not done within the stipulated 30 day period, the bank/NBFC is required to make a hundred per cent provision in its books in respect of such investment.

Question: I am planning to return to India for good. I have expertise in foreign exchange trading and I have been told by my friends that I can continue this activity when I am back in India. Do I have to take any precautions?

ANSWER: While foreign exchange transactions are permitted through banks and authorised dealers, you should ensure that transactions which you execute electronically should be only on platforms authorised by the Reserve Bank of India as per terms and conditions specified by it. Any illegal activity which is in contravention of RBI guidelines would invite stringent penalties. The RBI is further strengthening controls to ensure that banking channels and authorised electronic platforms are not misused for illegal forex trading. The Ministry for Electronics & Information Technology is working with the Reserve Bank to identify illegal electronic platforms. More technology controls are sought to be introduced for this purpose. The Reserve Bank has taken cognizance of misleading advertisements issued by unauthorised electronic trading platforms offering forex trading facilities, including on social media platforms, search engines, over-the-top (OTT) platforms, gaming apps, etc. Therefore, the RBI has issued advisories to traders cautioning them against dealing with unauthorised entities or on such platforms.

HP Ranina is a practising lawyer, specialising in tax and corporate laws of India.