Propertt takes a look at some frequently asked questions and suggests options available to a plot-holder along with a list of basic guidelines for developing the property.

Q: I have an ancestral property that our joint family, which includes me, my wife and our children, partially occupy. Tenants occupy the rest of the space.

Our family has expanded and the area we occupy is not sufficient. What shall we do?

A: If the entire floor space index/floor area ratio (FSI/FAR) of your land has not been utilised, one of the options is to demolish the existing structure and get a new one constructed by a developer.

The new building might provide independent flats for your expanding family.

Q: If it is not possible to develop the property, what shall we do?

A: You can consider exchanging your existing property with a flat of your choice in a new apartment complex being built by an established developer.

If you opt for such an exchange, you might even be able to save on stamp duty if the builder agrees to pay the duty.

You would not also have to pay capital gains tax in such a scenario.

Q: I own a plot and am holding on to my investment in the hope that the value of the land will appreciate.

What is the advantage of giving the plot to a realtor for developing it?

A: If you are holding a plot and waiting for its value to appreciate — which may or may not happen within a targeted period — the better option may be to develop that property by constructing a building.

In India, one cannot get finance from a bank on a plot for personal need or for further investment. But one can easily get finance against a built-up property, particularly one that is earning rent.

The money loaned from the bank can also be utilised to buy another property where the returns in the form of rent or appreciation is higher than the interest one pays on borrowed funds.

In such cases, the concept of leverage can be used to cash in on the difference between the rate of interest one pays on borrowed funds and returns one can get on the property.

This way, one can build a large property portfolio.

Q: How should I consider an offer from a developer or a builder?

A: As the value of your share of apartments depends on the quality of the proposed building, which includes the design as well as the type of construction, a high percentage of the owner’s share does not necessarily mean a better offer.

While considering an offer, you should check out the reputation of the builder and his architect, together with the quality of the building materials to be used for windows, flooring, plumbing, lifts and facilities like generators, intercom and firefighting equipment.

The time for completion of the project should be the essence of the contract.

The owner should have the right to terminate the agreement if the developer defaults on any condition of the development agreement.

If the work is not completed in time, the owner should be able to get it completed through another developer.

Q: How much money can I get as security deposit from the builder?

A: Normally you can get 5-10 per cent of the value of the property offered to the developer as refundable/non-refundable security deposit.

In case of a non-refundable security deposit, you would be entitled to that much area less from the share worked out in accordance with the plan discussed earlier.

Q: How do I check the track record of the builder?

A: Check the builder’s reputation for his competence, reliability and commitment by calling land-owners whose properties have been developed in the past by the builder.

You can also physically check the quality of work undertaken by the builder in the past by visiting buildings he has already constructed.

Also, check with the occupants who have purchased apartments in such buildings about the quality of post-sale services.