Are You Paying an Advance for Your New Home? Don’t Miss This!

A real estate project is granted an OC by the local authorities after they deem that the constructed property meets the approved building plans, regulations, and civic needs like sanitation, electricity, water, etc. Once granted, homeowners can occupy their property.

The OC ensures that all the building regulations set by the National Building Code of India are complied by the agencies that are involved in building construction work. These regulations mainly include administrative regulations, development control rules, fire safety requirements, etc.

Builders must apply for an OC within 30 days of completing their project. If there aren’t any discrepancies in the building documents provided that abide by the building regulations, then builders can receive the occupancy certificate within 30 days. Here lies the first pitfall.

In late 2021, Mr. Praveen Bhol, a Chartered Accountant, wanted to buy a property and contacted a builder in Greater Noida, Devsai Sportshome. The builder asked Mr. Bhol to pay an advance and stake a claim as the cost of the property will increase after the building gets its OC, which was likely, as per the builders’ employees, to be received within 3-4 weeks.

Mr. Bhol, trusting the builder, applied for a home loan to pay the advance and to buy the property.

During this process, he found out that the construction was financed by not-so-known banks but not by any big and reputed banks like SBI, HDFC Bank or Kotak Mahindra Bank, which made him wary of the investment. He researched further, questioned the builder and found out that OC will be received only after sports facilities are developed to an extent in that area as that region was allocated by the authorities for sports purposes.

The absence of an OC poses serious threats to the property's legality and safety. It implies that the construction violates building regulations and may not adhere to the sanctioned plans.

If the property owner occupies the home and lives in it without the OC, the local authorities can take action against them.

Often, due to deviations in the building plans, builders don't apply for an OC but promise property buyers that they will get the OC soon and ask them to pay an advance for the property.

If the developer fails to get the occupancy certificate from the local authorities, possession of the property can take a long time.

RERA has stipulated that if the handover timeline is violated, the builder is liable to return the payment for the property the buyer paid, with interest, if the buyer wishes to back out of the project.

If the buyer does not wish to back out, the builder is then liable to pay the buyer interest at a prescribed rate for every month of delay until the buyer hands over possession of the property.

Despite these provisions, buyers still face severe financial risk living in a property that does not have an OC. It is highly risky, as a significant portion of your net worth is tied up in the home loan taken for the property.

Thus, buyers must verify the existence of an occupancy certificate before conducting any transaction for the property.

No. We spoke to Mr. Pritpal Singh of Delhi, who told us that he had paid an advance of ₹10 Lakhs to a home-owner in Patel Nagar.

However, when he applied for a loan with a bank, they didn’t sanction the loan.

It was because the owner of the property had passed away and the person who was pretending to be the owner of the property was one of the three sons of the deceased owner.

Without all legal formalities and the transfer of property in one son’s name, any one son of the deceased person can not claim ownership of the property. Hence, the bank did not sanction the loan.

Mr. Singh had to run from pillar to post to get his advance back. It was stuck for over six months despite trying their level best to recover the money.

Thus, before buying or paying the advance for a property, buyers must insist on the OC for the property from the developer before paying the advance and in the case of a constructed property, get the property sanction done from a well-repufted bank.

Getting a title due diligence may not be feasible for a retail buyer, so they can rely on property sanctions given by reputed banks. Please note that the Devsai Sportshome project was financed by some government-owned banks as well. So, a government-owned bank sanctioning a project doesn’t necessarily mean that the project is good from a legal point of view.