Unregistered society? You can still buy a flat

While the houses in unregistered societies are usually cheaper than those in registered ones and you have the option of starting your own society, it is important to conduct due diligence before buying one.

    Amint condition flat in Mumbai at a 10% discount, and bank loans for the taking… So what's stopping Gopal Tiwari from grabbing this deal? "The developer has not yet handed over the project to the tenants despite its completion five years ago," says the 35-year-old marketing professional. 

    However, Tiwari need not avoid this deal, and should first find out why the builder has not transferred the possession legally, say experts. There could be various reasons for this, including the probability that there is no registered housing society. If it does exist, one can typically source the information about a property from the housing society. Says Sandeep Sadh, CEO ofMumbaipropertyexchange.com, a Mumbai-based realty portal: "The developer may not have received the occupancy certificate (OC) from the civic authorities. He has to take permission for 40-45 things from 30 departments and this takes time." 
    Another explanation could be that the developer hasn't yet used the authorised floor space index or does not want to hand over the possession to buyers till he sells his entire inventory. Of course, it is also possible that the developer is not getting the OC because he is indulging in an illegal activity. This is why due diligence on the part of the buyers is crucial. 
    Assuming all is above board, Tiwari could buy the flat and kickstart the process of registering the society. If more than 60% of the flats are sold in a project, the residents can form the society on their own. 
How to get a society registered 
The residents will first need to conduct a general body meeting of all the flat owners to elect the chief promoter. Typically, a 14-day notice is given to call such a meeting. As the developer has the first right to act as the chief promoter for registering the society (under the flat owners type of cooperative society), if he hasn't done so, the registrar will first issue a notice to him for non-cooperation. If he does not respond, an ex-parte decision will be taken for registering the society. This additional step makes the process longer. 
    After electing the chief promoter, the next step is to propose a name for the society. The proposal should be signed by at least 10 promoters who have attended the meeting. If the number is less, the flat owners will have to take special permission from the state government. They will also have to form an ad hoc managing committee, electing members to function as chairman, vicechairman, secretary and treasurer. The registrar will allot the name and also grant permission to the society to open a bank account. When this is done, the chief promoter has to collect the share capital and entrance fee from the promoters and deposit these in the account. Where the developer takes on the role of the chief promoter, this amount is collected when the property is sold. The money cannot be withdrawn from the bank till the society is registered, except with the prior written permission of the registrar. 
    Lastly, the chief promoter should submit the registration proposal along with the supporting documents (see box) to the registering authority within three months of the Letter of Reservation (for reservation of the name) being issued in the name of the proposed society. Once the society is registered, it becomes a legal entity and its running is in the hands of the elected managing committee.
The pitfalls 
Before you rush headlong to invest in an unregistered society, remember that the associated risks are not always couched in legalese. Advocate Vinod Sampat, a Mumbai-based property lawyer, points out, "A buyer can find out if the house is mortgaged or has outstanding dues by contacting the housing society. However, in its absence, one has to rely entirely on the word of the developer," he explains. Ravi Goenka, high court advocate at Goenka Law Associates, takes another angle. According to him, in a registered housing society, the members are in control of all the expenses of their property. "When the property has not been handed over, the developer controls the maintenance expenses and members have no clue about the taxes payable. Often, the developer doesn't spend the society money on promised welfare activities, but there is little that the members can do," he says. 
    The bottom line is that if you are planning to buy property in an unregistered society, you will have to take more precautions than you would for a registered one. Sadh suggests you opt for a housing loan in such a case. "The bank will conduct due diligence and the risks involved will be minimised," he explains. 
Additional charges 
Make sure that the fat discount that lured you to the property is not balanced out by any additional charges that you incur. Says Ramesh Prabhu, a real estate expert and chairman of Maharashtra Societies Welfare Association: "Take the no-objection certificate, which buyers need if they want to take a home loan. The maximum that a housing society is known to charge for it is around 25,000. However, if the society is yet to be registered, the investor will have to get the certificate from the developer, who can charge 4-6% of the value of the transaction." Sometimes, the fee charged by the developer runs into a couple of lakh rupees. 
    Also, in case the developer has not transferred the property due to the absence of the OC, you will have to pay excess municipal charges (water and property taxes) to the civic authorities. The final problem is the fact that there will be no monthly break-up of maintenance charges as offered in housing societies. "In the case of unregistered societies, the members have to make a lump-sum payment in advance to the developer," says Prabhu. 
    So should you opt for such a property? If you conduct due diligence and are willing to take a risk, a discounted flat in an unregistered society can be a good buy. 
Documents required to 
    register a society 

• Application for registering the society. 

• Information about the proposed society and the promoter. 

• Statement of accounts. 

• Bank balance certificate. 

• RBI/treasury challan for payment of registration fee of `500. 

• Title clearance certificate from an advocate. 

• A copy of the approved building plan. 

• Letter of authority granting permission to commence construction work/completion certificate. 

• An affidavit from at least 10 promoters stating that they reside within the proposed society. 

• An affidavit from the chief promoter. 

• A certified copy of the agreement registered between the builder, promoters and buyers. 

• Names of 60% of the flat owners of the total number of flats constructed or proposed to be built.