Opinion | Scenarios when banks lend even if a property lacks occupancy certificate

Without an OC, while the ownership of the property may be valid, it will be deemed to be unauthorized for occupation (Photo: iStock)

Did you know that an occupancy certificate or OC is considered proof that the property has been constructed in accordance with the relevant laws and building regulations? The certificate is issued for a newly constructed property to the builder, owner or society by the local government or planning authority when the construction is complete and the property is ready for occupation.

Without an OC, while the ownership of the property may be valid, it will be deemed to be unauthorized for occupation. In fact, banks usually do not prefer providing a home loan on non-OC properties as the absence of an OC indicates that either the builder has not cleared certain dues or has made unauthorized alterations. At times, water and electricity connections are not sanctioned on such properties which makes them unsuitable for residential purposes. However, banks may grant loans on properties which do not have an OC in some special scenarios.

The exceptions

Scenario 1: OC is not required when you apply for a home loan for a property that is under construction. Jatin, aged 37, decided to buy an under-construction, three-bedroom house in Nala Sopara area of Mumbai for 90 lakh. The construction was to be completed in six to seven months. He applied for a home loan, which was approved as the property was under construction.

Scenario 2: In the case of a newly constructed property, the builder has around 12 to 18 months to obtain an OC. During this period, the property is considered as being under construction. At this stage, banks can approve a loan based on an OC application which is pending and has not been rejected or objected to by the planning or municipal authority.

Before granting a loan, banks ensure that the OC application is not more than a year old. Himanshu, 32, planned to invest in a ready-to-move-in, two-bedroom flat in Noida, priced at 32 lakh, and approached a bank for a loan. The bank asked for an OC for which Himanshu submitted a two-year-old OC application receipt, provided by the builder. However, the bank rejected the loan as an OC is normally issued within a year of application.

Scenario 3: In case a non-OC property is up for resale, banks may grant a loan if the buyer produces the following: one, receipt of property tax, and completion certificate; two, an appropriate reason by the builder for not having an OC; three, an approved building or structure plan of the property; four, an audit report pertaining to the complete structure with no adverse findings.

Pune-based Rajat, 39, wanted to buy a three-bedroom flat located in Hinjewadi and priced at 1.5 crore. The builder gave Rajat a completion certificate, property tax receipt but no OC, to which the builder clarified that the property was completed in 2006 when OC was not mandatory. Rajat applied for a home loan with the bank and highlighted this. The bank requested for a structure plan and a technical audit of the property. Since the audit report was satisfactory, the bank sanctioned a loan amount of 1.2 crore for 30 years.

It is possible that the original owner of a resale property does not have an OC due to non-payment of certain dues by the builder, but has a completion certificate. In this case, the borrower can request the original owner to apply for an OC directly to the local authority, clear the dues and get the OC issued to make the property eligible for a home loan.

How to avoid buying a non-OC property

Builders try to pass documents such as approved plans of the map, building and zoning or the completion certificate to naive home buyers instead of an OC. Understand that OC is a different document. Builders also try to mislead home buyers by giving an old receipt of the application for OC to prove that OC may be received shortly. However, banks do not accept OC applications older than one to one-and-a-half years as valid as OC is granted within a year of application.

Remember that only an OC issued by the respective local planning or municipal authority is valid. For instance, an OC issued by any other entity like a gram panchayat is not valid.

In case you are buying an under-construction property, then demand an OC when the construction gets completed and the builder offers the possession. If the builder refuses to give you a copy of the OC, don’t take the possession and file a complaint against the builder.

[“source=livemint”]