Big house small price

So you’ve spotted your dream house but don’t have the money to buy it? Given today’s skyrocketing prices, the biggest challenge before all property buyers is probably the cost and funding. Often, buyers end up borrowing beyond their capacity or compromise on their needs and settle for a smaller property.

If buying a property of your choice is prohibitive, why not pool resources with friends to jointly buy the land and share it? This may not be practical in case of an apartment, but it definitely makes sense if you are looking at buying land and constructing a house on it.

Such a joint venture reduces the cost per individual, allowing you to go in for a bigger property. For instance, if the land rate is Rs 40,000 per sq yard, an investment of Rs 40 lakh will get you a 100 sq yard (900 sq ft) plot. But the same budget can get you a 200 sq yard plot if you team up with a friend or relative. If a third friend joins the team, it would also take care of the construction cost of three floors of 1,200 sq ft each.

The concept is just like a group housing project in which different individuals come together to share the cost of land and construction. Only, this is more exclusive and you get to choose your neighbours.

However, before you plan such a joint venture, check out the relevant local laws. In some states, land allotted by government agencies can be registered only in one person’s name. Also, if the plot is not freehold, then selling it requires permission from local authorities. Similarly, in certain areas such as Noida near Delhi, you can’t register separate floors in different names.

While joint ownership does lower your cost of owning a property, you need to be cautious in choosing your partners. What seems like a good idea at first can get complicated as time passes. Make sure you are teaming up with friends and relatives with whom you have a comfortable relationship. While that is a pre-requisite, you should make the deal legally binding on all parties. It is best to hire a lawyer for drafting an agreement for this.

The first consideration is how the title will be held. When a husband and wife buy property, the title and its transfer are very clear—even if one spouse dies, the survivor automatically becomes the sole owner.

However, in case of friends, the likelihood of a dispute and the accompanying legal hassles are more. That makes it all the more important to clearly define each partner’s share and how future transfers of ownership interest will be handled.

“You should have a written agreement as to what is going to happen if one owner decides to sell. Don’t just rely on a power of attorney like most investors do,” says Jitendra Kumar, a Delhi-based lawyer who handles property-related cases. For a joint ownership to last, each owner should have an equal right to possession of the property. If one of the partners wants to opt out he should be able to transfer his share independent of the other owners. But it is equally important that the remaining partners have the first right of refusal to purchase his portion of the house.

The partnership deed should clearly spell out all financial obligations too. “The agreement should address as many issues as possible, even those that might seem unnecessary.

For example, the agreement should say who is responsible for maintenance of the house and whether there should be a common fund for repairs,” says Soumitra Chatterjee, a Delhi-based lawyer. Issues, such as access to terrace and water connection, should be addressed in the deed.

It’s important to register the agreement with the local authorities after paying stamp duty. “While sometimes a document isn’t legally binding, it shows evidence of intent, which would be taken into consideration if you end up in court,” says lawyer Rajiv Gupta.

Co-owning property also has some drawbacks. Banks do not give loans to a group for buying or building a house. So only one of the partners can take a loan for the property. However, the partners can strike an informal arrangement to split the EMI among themselves.

One of the most common forms of joint ownership in some western countries is called “tenants in common”. All “tenants in common” possess the land equally.

When a co-tenant dies, his next of kin inherits his share of the property. The agreement can also be cancelled and the property can be sold and the proceeds distributed equitably among the owners. Real estate experts say that as the Indian market matures, these forms of ownership will also become prevalent.