Buying a new home vs resale property in India is a dilemma many buyers face. Each option has its resale, and new home properties have advantages and disadvantages. Choosing between the two can be challenging as many factors come into play. For example, while a resale home may be cost-effective, a newly built construction can offer ultra-modern amenities. Hence, it is essential to look at the pros and cons of each and decide for yourself. Let’s dig deeper into the concept and understand the property type you should invest in.
Understanding new home vs resale property
new home: Also known as new or under-construction property, it refers to homes or apartments that are newly built or in the process of being built. These properties are often bought directly from developers or builders.
Resale property: These are properties that have been previously owned and occupied. Buyers purchase these homes from the current owners, not directly from the developer.
New home vs resale properties: Key factors to consider
Cost and pricing
New home: Typically comes with a higher price tag due to its newness and modern amenities. Builders often offer various payment plans and pre-EMI options, which can ease the financial burden.
Resale property: Generally priced lower than new properties. The cost may also include the premium for a well-established location or specific features unavailable in new constructions.
Location and accessibility
new home: New developments are often located in emerging areas or on the outskirts of cities, where land is more affordable. While these locations offer long-term growth potential, they need more immediate infrastructure and amenities.
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Resale property: Typically situated in well-established neighbourhoods with better access to infrastructure such as schools, hospitals, and public transport. The convenience of a developed locality often adds to the appeal of resale properties.
Condition and maintenance
new home: This property comes with modern design, up-to-date construction standards, and minimal maintenance in the initial years. Buyers can often customise certain aspects of the property during the construction phase.
Resale property may require immediate repairs or renovations, adding to the overall cost. The condition of a resale property can vary greatly, depending on how well previous owners have maintained it.
Amenities and features
new home: New constructions often include contemporary amenities such as gymnasiums, swimming pools, and landscaped gardens. Builders frequently market these properties with promises of high-end facilities and modern living standards.
Resale property: The amenities were initially included in the development. If the property is in an older building, it might lack modern features, although some resale properties may have been renovated to include contemporary amenities.
Legal and documentation aspects
new home: Buyers need to verify the builder’s credentials, the project’s legal clearances, and compliance with local regulations. There is a risk of delays or issues with project completion that could affect the occupancy date.
Resale property: Legal checks include verifying the title deed, previous ownership history, and encumbrance status. A resale property might come with an existing legal dispute or unresolved issues that must be carefully assessed.
Investment potential
new home: Offers the potential for appreciation as the property value increases with the development of surrounding areas. Buying early in a developing area can lead to substantial returns on investment if the area becomes more desirable over time.
Resale property: The property’s location, condition, and overall market trend influence the investment potential. Established areas with good infrastructure and demand often provide steady returns, though appreciation might be slower than emerging areas.
Developer reputation and reliability
new home: Researching the developer’s reputation, past projects, and financial stability is crucial. Delays and quality issues are common concerns with new properties, so choosing a reliable developer can mitigate these risks.
Resale property: While the developer’s reputation is less concern, understanding the property’s history and previous ownership can provide insights into potential issues.
Customisation and personalisation
new home: Offers the opportunity to customise the property according to personal preferences, such as interior design, layout modifications, and choice of materials.
Resale property: Limited in customisation since the property has already been built. However, buyers can make modifications and renovations as needed.
Tax benefits and incentives
new home: Buyers can avail of tax benefits under Section 80C and Section 24(b) of the Income Tax Act for principal repayment and interest payments on home loans. Additionally, there might be benefits such as GST credits on under-construction properties.
Resale Property: Similar tax benefits apply, but the GST does not apply to resale transactions. Buyers may also benefit from exemptions on capital gains if the property is held for a certain period.
Financing and loan availability
new home: Banks and financial institutions typically offer home loans with favourable terms for new constructions. The process might involve disbursements based on construction milestones.
Resale property: Home loans for resale properties are straightforward, with the loan amount usually based on the property’s market value. The process is generally simpler compared to financing under-construction properties.
Pros and cons of new home property
Pros
- Modern Features: Often feature modern amenities built with current standards, potentially offering better infrastructure in emerging areas.
- Low Maintenance: New properties require less immediate maintenance and repairs.
- Customisation: Opportunities to personalise the property during the construction phase.
- Warranty: Builders often provide warranties on construction and fittings.
- Enhanced protection with RERA: Since May 1, 2017, RERA has mandated that all under-construction and new properties be registered, ensuring greater transaction transparency. The RERA Appellate Tribunal also safeguards your interests against developer delays or defaults.
- Flexible payment plans: Buying an under-construction unit often allows for customised payment plans, like the construction-linked plan, making it easier to manage payments.
- Quality and longevity: Built with contemporary materials and standards, it is expected to last around 100 years if well-constructed.
Cons
- Higher Costs: Typically more expensive than resale properties.
- Uncertain Quality: Risk of construction quality failing to meet expectations.
- Delayed Possession: Booking an under-construction unit carries the risk of delayed possession, potentially leading to paying both EMI and rent despite RERA’s protections.
- Uncertain Surroundings: Future developments around the property could affect views and the overall living experience. New home properties are often situated on the outskirts, leading to longer commutes, additional time, and strain on daily transportation.
- GST on new purchases: Buying in the primary market incurs a 5% Goods and Services Tax (GST) on the total property cost, whereas a ready resale property is exempt from this levy.
Pros and cons of resale property
Pros
- Immediate availability: In the resale market, ready-to-move options are more readily available, allowing you to purchase an apartment close to possession and move in within a few months.
- Affordability: Resale flats are generally more affordable compared to new projects. For instance, the 6-year-old flat being considered is priced at ₹60 lakh, a good deal compared to newer, more expensive options in Bangalore.
- Established neighbourhood: Located in well-developed areas with existing infrastructure.
- Negotiation power in a slow market: During a market slowdown, you can leverage negotiation to secure significant discounts in the secondary market, as investors and sellers may reduce prices to exit or stimulate sales.
- Known condition: The property’s condition and any issues are visible.
Cons
Payment challenges in the secondary market
The secondary market often requires a lump-sum payment or a few instalments within a short period, making arranging a hefty down payment challenging.
Broker fees
In resale deals, broker involvement can lead to additional costs, with fees typically ranging from 1-2% of the total transaction value.
Risk in older properties
Older properties with an Occupation Certificate before May 1, 2017, are not covered by RERA, making them a riskier real estate investment.
Transfer fee costs
Some developers charge a transfer fee when reselling a property, adding to the overall cost.
Quality and longevity
Shorter remaining lifespan and potential for wear and tear, which might require additional repairs or upgrades.
Potential for hidden costs
The cost of interiors and possible repairs can increase the total cost of purchasing a resale flat. Additionally, older flats might have issues that require addressing.
Market sentiment
The resale value of an older flat may be less than that of newer properties, and its resale potential could be affected by the overall market conditions.
Approval issues
Older buildings may need help with construction approvals, especially if there are unapproved floors. It’s essential to verify these details to avoid legal complications.
Loading factor: A key advantage in resale homes
One of the most significant differences between new constructions and resale properties is the concept of loading. In real estate, loading refers to the proportion of a property’s super built-up area (which includes common areas like corridors, lobbies, and amenities) compared to the carpet area (the actual usable space inside the home).
Lower Loading in Resale Homes
Resale homes typically have a much lower loading percentage compared to new constructions. This means that the carpet area in a resale property is generally more significant than the super built-up area, providing buyers with more usable space. For instance, if a new home loads 30%, only 70% of the total super built-up area is usable living space. In contrast, resale homes often have a loading percentage as low as 20% or less.
More Space for Less Cost
Due to lower loading in resale homes, buyers enjoy more space for the same or even lesser cost. The reduced loading means a higher percentage of the area is livable, which can significantly impact the home’s overall value. For example, if you’re buying a new house of 1,000 sq. ft. with 30% loading, you get around 700 sq. ft. of usable space. In a resale home with 20% loading, the same 1,000 sq. ft. home would provide 800 sq. ft. of carpet area — a substantial difference.
Why Does New Construction Have Higher Loading?
New constructions tend to have higher loading due to modern amenities and larger shared spaces such as recreational areas, fitness centres, or landscaped gardens. While these additions can enhance the lifestyle, they also inflate the loading percentage, reducing the carpet area compared to older resale properties, where the focus was more on maximizing living space than standard amenities.
Resale homes are an excellent option for homebuyers who prioritize usable space over shared amenities. Lower loading makes resale properties more affordable in terms of cost per square foot and offers a more spacious and functional living area.
How does the price vary between new homes and resale properties?
Prices vary based on factors such as city, locality, construction company brand, and the age of the flat.
Source: Economic times
Can you avail PMAY on a resale property?
No, when purchasing a resale property, you cannot avail yourself of the Pradhan Mantri Awas Yojana (PMAY) benefits. PMAY is specifically designed to provide subsidies on home loans for new constructions, including new housing units or properties under construction. The scheme focuses on enhancing affordable housing for urban and rural areas by offering financial assistance to first-time homebuyers and those from economically weaker sections (EWS) or lower-income groups (LIG).
Since resale properties are not considered new constructions or projects under development, they do not qualify for the benefits under PMAY.
GST implications on new home vs resale properties
New homes
GST is applicable for new home properties, including newly constructed or under-construction homes. The standard GST rate for residential properties is 5% of the property’s value. However, a reduced % GST rate of 1% may apply for properties under the Affordable Housing scheme if the property falls within a lower-value segment. It’s important to note that GST is only charged during construction. Once the building is completed and the property is ready for possession, GST is no longer applicable. Developers can claim Input Tax Credit (ITC) on taxes paid for construction materials and services, which often translates into lower costs for buyers as these savings are typically passed on through reduced property prices.
Resale properties
On the other hand, resale properties do not attract GST. Since the transaction of a resale property involves the transfer of existing ownership rather than a new construction, GST is not applied. Buyers of resale properties are only responsible for stamp duty and registration fees.Â
A step-by-step process for transferring property in India
Step 1: Conduct due diligence
Verifying ownership and title: Confirm the seller’s legal ownership and the property’s title history.
Checking encumbrances: Ensure no existing mortgages or legal claims exist on the property.
Reviewing legality: Confirm that the property complies with all local construction laws and regulations.
Engage a lawyer: A legal expert can help scrutinise essential documents such as the sale deed, title deed, encumbrance certificate, building approvals, and property tax receipts.
Step 2: Execute the agreement to sell
Once due diligence is complete:
Draft agreement: Prepare a deal to sell outlining the transaction terms, including sale consideration, payment schedule, and possession date.
Legal binding: Ensure the agreement is legally binding and signed by both the buyer and seller. This document sets the stage for the formal sale deed.
Step 3: Execute the sale deed
With the agreement in place:
Prepare sale deed: Draft the sale deed, a legal document that transfers ownership rights from the seller to the buyer. Include details like property description, sale consideration, and the rights and obligations of both parties.
Sign and notarise: Both parties must sign the sale deed. It should be notarized to ensure its authenticity.
Step 4: Pay stamp duty and registration fees
Calculate stamp duty: Calculate the applicable stamp duty based on the property’s market value or sale consideration (whichever is higher). This varies by state.
Make payment: Pay the stamp duty at a designated bank or online, as per state regulations.
Register the sale deed: Submit the sale deed and proof of payment to the local sub-registrar office for registration. This legally formalises the property transfer.
Step 5: Handover and possession
Complete financial settlements: Ensure all payments are settled as per the sale deed.
Transfer possession: On the agreed possession date, the seller hands over the property. Conduct a joint inspection to confirm that the property is in the agreed condition.
Step 6: Mutation and record updates
Initiate mutation: After possession, update the property records with the local municipal corporation or panchayat office to reflect the new ownership.
Submit documents: Provide necessary documents, including the registered sale deed, updated property tax receipts, and identification proofs, to complete the mutation process.
New vs resale properties: Making the right choice
Choosing between a new home and a resale property depends on various factors, including budget, intended use, and personal preferences. Here are some tips for making the right decision:
- Evaluate your needs: Consider location, amenities, and space requirements. Determine if you need a modern property with new features or if a well-located resale property meets your needs.
- Budget considerations: Assess your budget for purchase price and additional costs such as maintenance, repairs, and renovations.
- Market research: Research current market trends, property prices, and future developments in the area you are considering. This will help you understand the potential appreciation or depreciation of the property.
- Legal checks: Ensure all legal documents and approvals are in place, regardless of whether the property is new home or resale.
- Consult experts: Seek advice from real estate agents, legal experts, and financial advisors to make an informed decision.
- Visit properties: Whenever possible, visit multiple properties to compare and make an informed choice based on firsthand experience.
Housing.com POV
Both new home and resale properties offer unique advantages and challenges. New home properties provide modern amenities and customization options but have higher costs and potential delays. Resale properties offer established locations and immediate availability but may require maintenance and lack modern features. By carefully evaluating your needs, budget, and the property market, you can make a well-informed decision that aligns with your long-term goals.
FAQs
What is resale property?
A resale property is a home or apartment previously owned and occupied and sold by the current owner to a new buyer.
Is it worth buying resale property?
Resale property can be worthwhile if it is in a well-established location, is priced lower than new properties, and does not require significant repairs. However, it might lack modern features and could have hidden maintenance issues.
Is it good to buy a 20-year-old house?
Buying a 20-year-old house can be good if it is well-maintained, located in a desirable area, and priced reasonably. However, it may require upgrades or repairs, and its condition should be thoroughly evaluated.
What are the disadvantages of a resale flat?
Disadvantages of a resale flat include the potential for hidden maintenance issues, lack of modern amenities, and the need for immediate repairs or renovations. The property’s age might also affect its overall condition.
Can I avail PMAY on a resale property?
No, PMAY benefits are not available for resale properties. The scheme is intended for new constructions and under-construction properties to provide subsidies on home loans.
Can I get a home loan for a resale property?
Yes, you can get a home loan for a resale property. The loan amount is usually based on the property's market value, and the process is generally straightforward compared to new constructions.
How does the financing process differ between new home and resale properties?
New home financing often involves milestone-based disbursements and includes GST. Resale properties typically have simpler loan terms and no GST.
What legal checks are crucial for buying a resale property compared to a new home property?
For resale properties, check the title deed, ownership history, and encumbrances. For new home properties, verify the builder’s credentials and project clearances.
