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What is the bearing of the Reputation of the Builder on obtaining a Home Loan?

When you decide to buy a new property choosing the right builder is as important as choosing your home. An important part of the home buying process lies in determining that you are dealing with a builder who is able to deliver the property as per your expectation , choosing a wrong developer can lead to multiple consequencies such as delay in possession, amenities not as per agreement, rejection of loan by the bank due to bad reputation of developer, etc.This makes it crucial for you to scrutinize your builder carefully before you set your heart on a property.

Here are some parameters on which you must carry out this scrutiny:

  1. Track record of the builder:

The internet is a goldmine of information when it comes to real estate – make good use of it. If the builder has been around for long , it is easier to find out the past performance for under construction properties, whether it has been able to complete each project as promised or has it lingered on? For newer builders make sure you check out things such as discussions on property forums, blogs as well as posts on various property websites. If possible also check with earlier customers and local brokers who have made successful sales of the builder’s previous projects.

  1. Financial standing of the builder:

The source of funding that a builder has and the debt burden are also important factors to take into consideration. Cash flows of the builder are what you should be concerned about. If the builder has enough cash flows it is an indication that the projects will be completed on time. Also check if the builder has had some defaults in the past and has been able to tide over such problems successfully. Some builders give this information readily when asked. If your builder seems ambiguous about answering tough questions, you should smell a rat. You can rely on the local market information about the builder on his financials.

  1. Regulatory and legal approvals

You need to carry out a thorough check on the builder and see whether they have the necessary approvals to go ahead with the construction. Such checks become all the more necessary if the builder in question is a relatively new entrant.

Things you should look out for are:

  • Land title deed - In the land title deed check out whether the land on which the construction is coming up is registered and the development rights have been transferred.
  • Certificate for construction of property on the land under development
  • Clearance from municipal authorities- Sometimes builders start pre-launch bookings even before the local regulatory bodies give the approvals for basic necessities such as water.
  • Latest tax receipts- At times, some regulatory approvals are kept on hold if the builder has been errant on tax payments.
  1. Ratings of the builder:

Buyers usually have inadequate information about the reputation of the builder and the feasibility of his projects. This is where independent ratings from domestic rating agencies come in handy. For instance CRISIL has a rating called the CRISIL Real Estate Star Ratings. This can provide crucial information to the buyer. The parameters on which a rating is awarded are:

  • Project Sponsor Quality

This parameter focuses on the developers' construction and legal track record, and comments on their financial strength and ability to complete the rated project.

  • Project Construction Quality

By providing an independent assessment of aspects such as structural quality, amenities, likelihood of time and cost overruns, and after-sales services, this parameter assumes critical importance.

  • Project Legal Quality

This parameter examines the land title, sales agreement and various other statutory approvals and clearances of the project. 

  • Project Financial Quality

This parameter assesses the viability of the project, financial flexibility and accounting quality of the developer.

  • Project Innovation Quality

This parameter examines the innovation in the project, and covers aspects such as construction technology and building design, among various aspects.

A particular project under construction can also be rated under the same head and in such cases, CRISIL provides valuable information to the buyer about the progress of the project along with photographs on their website. Once you have carried out a thorough check on the background of the builder and are satisfied with its reputation you may consider getting into a transaction with it. However, do bear in mind that you are completely sure before things go down in black and white.