Can you sell a property to a developer?

Selling a house is a strategic move as it allows a property owner to secure funds for reinvesting in a bigger home. In many major cities in India, where land is limited and the scope for redevelopment is higher, many builders are eyeing redevelopment and joint development projects. Hence, selling a house to a builder can be a profitable option for property owners. However, this can be a legally complex process that involves multiple approvals and regulatory compliance. In this guide, we will delve into the legal aspects of selling a property to a developer in India.

Selling a property to a developer vs selling to a buyer

Selling a property outright to a buyer differs from selling it to a developer in many ways. In the former case, the sale process is simple and involves signing a sale deed and transferring property ownership to the new buyer. The approach of independent buyers is quite different when it comes to evaluating properties. Buyers mostly look at the liveability aspects, the property’s condition and location advantages. They may turn down an offer in case of construction and structural defects in the property and other issues that can result in high repair costs. On the other hand, builders evaluate the value of the property and land over which it is built, overlooking minor issues. This is because builders are most likely to demolish the house and reconstruct it, with the intention of selling it at a higher price.

Another aspect that distinguishes property sales to a builder is the selling season. Homebuyers look for resale properties during specific seasons, while builders may be active year-round. Besides, there may be no broker costs if the builder deals directly with the seller.

Types of sale transactions when selling to a builder

Property owners can choose different transaction methods when planning to sell their property.

Direct sale

This is a simple transaction in which the owner sells the property to the developer at a mutually agreed price. The process involves signing a sale deed and transferring ownership of the property to the developer. This is mostly seen in independent houses and small plots. The seller’s responsibility ends after the property transfer is completed.

Joint development

This trend is seen in metro cities and urban areas where the development rights of the property are shared between the landowner and the builder. A joint development agreement (JDA) is signed between the two parties. The builder takes responsibility for the reconstruction, including securing the necessary approvals. After development is completed, profits or revenue are shared between the owner and the builder as per the agreed terms. This process is legally complex, involving registration of the JDA.

Redevelopment

Redevelopment trends are seen in cities such as Mumbai, Pune and Bangalore. In this model, housing societies allow developers to redevelop the society, which often has older buildings, and to construct new properties within the complex. Developers typically sign deals with existing building owners by selling the newly constructed properties. The redevelopment process is also complex, like joint developments, where builders sign redevelopment agreements and seek approvals from the society and other local authorities.

Why do builders buy private properties?

Builders see many advantages in purchasing private properties from owners. Firstly, the limited availability of land in urban areas, especially major metro cities, has increased the demand for resale properties. Developers cash in on redevelopment opportunities by purchasing properties from private owners. Moreover, the process is less complex than development on large land parcels. In cities with ageing structures, developers opt for redevelopment and build newer properties, capitalising on higher FSI.

Tips for selling a property to a developer

Legal due diligence

Before approaching a developer, property owners should conduct title verification to check property ownership and ensure there are no encumbrances – pending dues, disputes or legal claims. Before signing a deal with a builder for joint development or other transactions, sellers should check for necessary approvals, such as approved building plans, society NOC and RERA approvals, fire safety and environmental clearances, and other state-specific approvals. Owners should verify the builder’s credibility and track record. Ensuring RERA compliance is a crucial part of the due diligence process.

Documentation

Before selling a property, owners should ensure all the required documentation is in place, such as:

• Title deed/ sale deed
• Encumbrance certificate
• Land records (Patta, Jamabandi, Khata, etc.)
• Approved building plans
• Occupancy certificate
• Society NOCs
• Identity proofs
• Receipts of paid taxes and utility bills

Negotiation and agreement signing

To negotiate effectively with a builder, property sellers must conduct thorough market research to understand price trends and the neighbourhood’s future potential. Before signing the agreement, sellers should read and understand the terms and conditions. Some key clauses to check in the agreement include the consideration amount, payment schedule, penalties for project delays, exit and termination clauses, etc.

Housing.com POV

Selling a property to a builder can provide excellent returns for a property owner. However, it is critical to navigate this process with utmost care and due diligence. When pursuing joint development, sellers should pay close attention to the contractual terms and conditions. They must stay away from any ambiguous terms related to construction timelines, payments and tax liabilities. Moreover, they should ensure the agreements are duly registered. Approaching a property lawyer can help sellers handle the complexities of the property sale process.

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