Developers typically launch their projects in various phases, which enables them to manage cash flow and minimise financial risks. The funds developers obtain through sales in the initial phase give them the financial cushion for developing the next phases. For years, the real estate sector had remained unorganised and buyers often faced project delays and risks due to lack of financial management by developers. However, the implementation of RERA in 2016 paved the way for improved structure and transparency. With regulatory control today, it is safer for buyers to invest in under-construction projects but doing basic checks on developer’s track record for timely project delivery will help them avoid unpleasant experiences. In this article, we share a guide for homebuyers who plan to invest in later phases of residential projects.
Pros and cons of investing in later phases of a project
Developers construct residential projects in different phases – 1, 2 and so on. Buyers have various properties in the recent launches. It is safer for homebuyers to invest in later phases of a project. It indicates that the project construction is taking place. Each time a developer launches the new phase, the project is closer to completion. Moreover, when construction is in progress, buyers can see if the builder has obtained all necessary approvals.
Another aspect that buyers need to consider is that property prices may vary within the same project. Developers generally typically offer lower prices initially to raise funds while they increase prices in later phases. So, the subsequent phases in a project, often come at a premium. In comparison to buyers in the earlier phase, a buyer may have to pay a higher amount for a similar-sized apartment. High cost of the property, may also mean lower chances of appreciation in the initial years of one’s ownership. While this is true, there are chances of developers lowering prices if the units in the initial phase have remained largely unsold.
The risks of buying a property in later phases may increase for buyers, especially if they do not conduct due diligence or if the developer does not have a clear track record. Buyers could face risks if the project is stalled or delayed. It is important for buyers to note that a developer can face delays due to several reasons. Delays may be caused in obtaining regulatory approvals. There could be legal disputes or unforeseen situations that can slow down a project. However, they now have the option to approach relevant authorities and get relief. In case of delayed possession, homebuyers can seek compensation. It includes refund of the amount paid along with interest, legal costs, etc.
Factors that favour investment in new phases of projects
Sale and delivery may not be an issue
Developers showcase their capability by ensuring the successful completion of a project in several ways. The timely completion of the first phase in a large multi-phase project boosts buyers’ confidence. It generates greater interest in the subsequent phases of such projects from buyers compared to other newly-launched projects in the same region.
Consequently, the sales stream and thus, the revenue stream of the developer, are likely to be in a healthy state, on account of the delivery of the first phase. A healthy revenue stream in the would also mean faster and timely delivery of projects.
The ability to make an informed decision
Buyers have the scope to wait and watch. They can inspect the initial stages and make an informed decision on the project’s specifications, amenities and overall look and feel. Besides, newly launched projects are not fully occupied by residents, whereas there are high chances that the finished project will have full occupancy. After the initial project launch, buyers can gauge the market response and seek feedback from the existing occupants in the first phase.
Banks lend easily
It is easier for buyers to obtain home loans if the first phase a project has been completed and delivered on time. Such projects are likely to be in the clearance or sanctioned list of banks. So, those investing in later phases of a residential project are at an advantage.
What should buyers do?
Buyers should study the previous phase of such projects and speak to the buyers from the first phase. Ask them relevant questions about the ease of transaction process and the disclosures made by the developer. Ascertain the hidden charges and the possession details. If the developer has been professional with buyers in the first phase, it is likely that you are entering a good deal. A project with an incomplete initial phase and delays, may have problems at a later stage of the project too.
