How to sell an under-construction property?

Selling an under-construction property in India can seem challenging, but it’s a feasible option if approached correctly. Whether due to changing financial priorities, relocation, or other personal reasons, homeowners often find themselves needing to exit such investments before possession. However, selling an under-construction property comes with its unique set of considerations, including legal permissions, documentation, and understanding the market value. With the right preparation and knowledge of the process, you can successfully navigate this transaction while ensuring compliance with regulations and securing the best value for your investment. Keep reading to discover the steps and tips to make the sale seamless and profitable.

Is selling an under-construction property legal in India?

Selling an under-construction property in India is legal, but it requires adherence to specific rules and regulations. The sale typically involves a “transfer of rights” agreement since the property is not yet complete or registered in the owner’s name. This means you are transferring your contractual rights to the buyer under the agreement you have with the builder or developer.

Before proceeding, it’s essential to check your sale agreement with the developer for any clauses regarding resale or transfer. Some developers may impose restrictions or charge a transfer fee. Additionally, obtaining the developer’s consent is usually required to ensure the process is legally binding and smooth. Consulting with a legal expert is advisable to avoid any disputes and to ensure compliance with the laws governing such transactions.

Can you sell your under-construction property back to the builder?

While it is possible to sell the property back to the builder if they agree, it is likely to result in a loss for you. To begin, contact the developer and review the contract for any cancellation clauses. If a refund is arranged, follow the outlined procedures, ensuring all communication is documented. In cases of cancellation, refund policies may allow for partial or full repayment within a specified period. However, GST is non-refundable, so you could lose around 10-12% of the property cost if the booking is canceled.

Additionally, developers may impose cancellation fees, typically around 10% of the property value. As the buyer, you would have already paid stamp duty and registration fees. For example, in Mumbai, stamp duty is 6%, and registration charges are 1% of the property value. This means that canceling the deal and returning the property to the developer may result in a loss of approximately 20-25% of the total property cost.

What if the builder refuses to let you sell the under-construction property?

In some cases, the developer may not allow you to sell the apartment before possession. If this happens, you will need to find a buyer who is willing to pay the remaining amount on your behalf. If you have taken a home loan and are short of funds, the buyer should pay you the balance amount required to settle with the developer. Once you take possession, you can transfer the loan to the buyer.

To illustrate, suppose you purchased a property for Rs 1 crore, and you are unable to take possession. You’ve already paid 15% (Rs 15 lakh) as the booking and registration charges. To complete the payment, you will need to find a buyer who can provide the remaining Rs 85 lakh. If the buyer can only manage Rs 35 lakh, you would need to take out a home loan of Rs 50 lakh in your name to cover the balance. After taking possession, you can transfer the home loan to the buyer and proceed with the sale.

In such cases, it is essential to ensure that you trust the buyer and that all legal paperwork is carefully handled. Given the significant financial commitment involved, both parties should have a clear understanding and solid documentation. Keep transparent communication with the developer to seek guidance and explore potential solutions to unexpected challenges. Conduct thorough market research to determine a fair selling price, which can improve your chances of a successful resale. Evaluate all options carefully, considering the volatility of the real estate market, and seek professional advice to make informed decisions.

Transfer of under-construction properties

Traditionally, the transfer of an under-construction property is carried out through a tri-party transfer deed, where the seller and buyer sign the agreement, and the builder acts as the confirming party. However, a new approach, known as the bi-party transfer, is gaining traction in regions like Delhi, Uttar Pradesh, Maharashtra, and Haryana. The process for a bi-party transfer is as follows:

• The seller identifies a buyer and then approaches the builder.
• The builder issues a No Objection Certificate (NOC), confirming no objections to the transfer of ownership to the buyer.
• With the NOC in hand, the seller and buyer sign the sale agreement or transfer deed.
• The seller submits a copy of the sale agreement to the builder.
• The builder updates their records to reflect the new ownership.

Selling an under-construction property: Key documents required 

Selling an under-construction property in India involves meticulous documentation to ensure a smooth and legal transaction. Here are the key documents you’ll need:

• Allotment letter: Provided by the builder, this document confirms the allocation of the property to you.

• Builder-buyer agreement: This agreement outlines the terms and conditions between you and the developer, serving as proof of ownership rights.

• Payment receipts: Clear records of all payments made to the builder are essential for transparency.

• No Objection Certificate (NOC): Required from the builder to proceed with the transfer of rights.

• Transfer agreement: This document formalizes the transfer of rights to the buyer.

• Identity and address proof: Aadhar card, PAN card, or other government-issued identification for verification purposes.

Choosing the right time to sell and under-construction property

When you sell a real estate asset for a profit, the income generated is subject to capital gains tax. Typically, short-term capital gains result in a higher tax burden as they are added to your total taxable income, while long-term capital gains are taxed at a fixed rate of 20% (with indexation) or 12.5% (without indexation). Consulting with your real estate agent can help you determine the optimal time of year to sell for maximum tax savings or profitability. While it may seem reasonable to pay the higher tax if property prices are expected to rise in your area, experts caution that market unpredictability should be taken into account before making such decisions.

Evaluating the market value of the under-construction property

Before selling an under-construction property, determining its accurate market value is crucial. Start by analysing the current real estate trends in the area and comparing prices of similar under-construction properties nearby. Factors such as the project’s location, amenities, builder’s reputation, and construction progress can significantly influence the property’s value. Consulting a professional property valuer or a local real estate agent can provide an unbiased assessment. Setting a realistic and competitive price not only attracts potential buyers but also ensures you don’t undervalue your investment.

Selling an under-construction property: Taxes and charges

Selling an under-construction property in India involves several tax and financial implications that sellers must understand. If you sell the property before possession, it is treated as a sale of rights in the property, and the income is subject to capital gains tax. The tax rate depends on the holding period: short-term capital gains apply if the property is held for less than 24 months, while long-term capital gains apply for longer durations. Additionally, sellers may need to account for GST if the sale includes transferring the construction contract. Other charges, such as registration fees, stamp duty, or broker commissions, may also apply.

Selling an under-construction property: How to attract buyers?

Attracting potential buyers for an under-construction property requires a strategic approach to highlight its unique features and benefits. Start by creating a detailed listing that includes high-quality images, floor plans, and information about the property’s location, amenities, and expected completion date. Emphasize any advantages, such as discounted pricing, flexible payment plans, or proximity to key landmarks.

Leverage online real estate platforms and social media to expand your property’s visibility. Additionally, offering site visits can help buyers visualise the space and build confidence in their investment. Partnering with a trusted real estate agent or broker can also connect you with serious buyers and streamline negotiations.

Selling an under-construction property: Negotiating and finalizing the deal

The negotiation and finalisation phase is critical in ensuring a smooth transaction for your under-construction property. Be prepared to answer buyers’ queries regarding construction timelines, project approvals, and any additional charges. Transparency builds trust, which can give you leverage during negotiations. It’s important to remain flexible but firm on your property’s value.

Understand the buyer’s expectations and be open to minor adjustments in price or payment terms to close the deal. Once an agreement is reached, ensure that all terms are documented in a formal sales agreement. Collaborate with legal experts to draft this document, covering all aspects such as the transfer of ownership, payment schedules, and penalties for default. Finally, register the property sale as required by law, ensuring that the transaction is legally binding and protects both parties’ interests.

Selling an under-construction property: Seek professional assistance

Navigating the complexities of selling an under-construction property in India can be daunting, which is why seeking professional assistance is highly beneficial. Engaging a real estate agent can help you find the right buyers, market your property effectively, and negotiate favorable terms. Agents have access to networks and platforms that can significantly speed up the selling process.

Additionally, consulting a property lawyer ensures that all legal aspects, such as drafting agreements, verifying documents, and complying with local regulations, are handled correctly. A financial advisor can also help you understand the tax implications and optimize your profits.

By leveraging professional expertise, you minimize risks and enhance your chances of a smooth, successful transaction.

Selling an under-construction property: Tips to avoid common pitfalls

Selling an under-construction property in India can be a complex process, with several potential hurdles. Being aware of common pitfalls and knowing how to avoid them can save you time, money, and stress. Here are some practical tips to help you steer clear of mistakes:

• RERA compliance: Ensure the property is registered under RERA and that the sale complies with all RERA regulations. Non-compliance can lead to legal issues.

• Builder’s NOC: Obtain a No Objection Certificate (NOC) from the builder before initiating the sale. Selling without it can invalidate the transaction.

• Transfer fees: Understand the fees involved in transferring ownership to a new buyer. These charges vary between builders and can impact your profit margins.

• Builder’s approval: Check if the builder imposes any conditions for resale and ensure they are agreeable to the transfer.

• Construction updates: Share accurate and up-to-date information about the property’s construction progress and expected completion date.

• Disclose costs: Clearly outline all costs, including transfer fees, maintenance charges, and pending dues. Hidden charges can deter buyers and harm your credibility.

• Market research: Avoid overpricing or underpricing by researching comparable properties in the area. An unrealistic price can either scare away buyers or lead to financial losses.

• Professional valuation: Consider hiring a property valuer to assess the market value of your property for an accurate price point.

• Incomplete paperwork: Ensure all required documents, such as the builder-buyer agreement, NOC, payment receipts, and title documents, are in place. Missing paperwork can delay the sale.

• Avoid errors: Double-check the documents for errors or inconsistencies that could raise legal or financial concerns.

• Capital gains tax: Be aware of how the sale will impact your tax obligations, particularly long-term or short-term capital gains tax.

• GST: Understand the GST applicability on the property sale, especially for under-construction units.

• Targeted advertising: Avoid generic marketing strategies. Instead, tailor your advertising to attract genuine buyers who are interested in under-construction properties.

• Professional listings: Use high-quality photos, engaging descriptions, and detailed specifications in online listings to generate interest.

• Be open to negotiations: While being firm on your property’s value, remain flexible enough to negotiate terms that work for both parties.

• Lack of expertise: Selling an under-construction property involves various legal, financial, and marketing aspects. Engage real estate agents, legal advisors, and valuers to guide you through the process and minimize errors.

• Thorough due diligence: Avoid rushing into agreements without understanding all terms and conditions. Take your time to review every aspect of the transaction carefully.

Housing.com POV

Selling an under-construction property in India can be a challenging yet rewarding process if approached with diligence and preparation. By understanding the legal requirements, ensuring proper documentation, evaluating market trends, and seeking professional guidance, you can navigate the complexities of this transaction effectively. Avoiding common pitfalls like non-compliance with RERA, incomplete paperwork, and improper valuation ensures a smoother and legally sound sale. With strategic planning, transparent communication, and expert assistance, you can turn this task into an opportunity to maximize your investment’s potential while meeting your financial or personal goals.

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