Buying Pre-owned properties: Reward or Risk?

Realty investors who are not able to hold onto their property during a bust phase of the market tend to sell them off for a good discount. Such pre-owned properties are a good option for the salaried class which is forever striving to buy a home. However, there is always an element of risk and buyers must do due diligence in the following areas:

  • Upfront cash payments: The original buyer must pay capital gains tax on the appreciation in this duration. To prevent this, be/she often demands cash payments. This can be a steep amount for the new buyer if original buyer has paid say 60-70% of the cost already.preowned
  • Transfer Fee: To prevent such sales of pre-owned properties, some builders levy a transfer fee of either 10% of the total current value of the property, or a fixed amount per sft. This may be added on to the new buyer’s cost unless clarified upfront.
  • Bank Loan: If both – original and new buyers have a bank loan against this property, the banks concerned allow for a transfer of the documents, ownership and loan. However, one must be clear about the process, the timelines and charges involved. This includes penalties for late payment of the EMIs.
  • Validity of Titles: Builders provide original documents of the property only upon payment of a small fee. However, a few unscrupulous builders even show forged documents to pass off properties in projects that have a problem. It’s good to hire a property lawyer and pre-empt such situations and study the documents thoroughly.

Pre-owned properties may be a good option for people with tight finances. However, not doing a due diligence can turn out to be messy and a costly affair in the long run.

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