First of all any purchase on a notarised stamp paper alone is not valid.
An unregistered sale deed is not recognised as valid sale deed as per law.
Moreover the 7/12 records cannot confer title to the owner of the property.
Only a registered sale deed or partition deed or a settlement deed or a gift deed etc., on the name of the vendor shall prove his marketable title to the property.
Just verifying the 7/12 records on his name for the said purchase is nothing but an act of ignorance of law.
Now since you have purchased and having receipt for having paid the consideration amount, you may issue a legal notice to the vendor to execute a registered sale deed in your favor immediately or you will drag him to court for this purpose for which he may be liable for the costs and consequences.
Therefore first ascertain the ownership of the property and then think about constructing a house in it.