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The COVID-19 pandemic has made one realise the value of real estate as an asset class, which is more reliable, as compared to the volatile and risky stock market. Moreover, interest rates have reduced, making it favourable for people who are looking to take home loans .Besides this, many developers are offering discounts and this lures the potential home buyer as he can strike a better deal.
While buying a property is no easy task, another decision that compounds the dilemma for home buyers, is whether to choose a ready-to-move-in house or an under-construction one. While there are advantages and disadvantages to both options, the choice will depend on various aspects like, what the buyer is looking for, his needs/requirements an whether one is buying for investment or end-use.
With the pandemic and work from home (WFH) becoming more prevalent, aspiring home buyers are largely favouring ready-to-move-in homes, as people find it much safer under the present circumstances. According to Amit B Wadhwani, managing director of Sai Estate Consultants, buying an under-construction property makes sense, if one is looking at it from an investment perspective, while a ready-to-move house makes more sense, if the buyer is looking for accommodation. “As the buyer is also spending his earnings on the property, it should bring profit. The investment should help the buyer in the long run, wherein, he can sell the property, if need be,” adds Wadhwani.
Points to consider, while choosing a ready-to-move-in property
Choosing a ready-to-move-in flat, helps the buyer to avoid costs associated with living in a rental accommodation and the long wait in big cities, for an under-construction project to be completed. It also gives the home buyer a sense of security. Moreover, the buyer can check the neighbours and the infrastructure in the vicinity of the house, before buying the property.
In a ready-to-move-in house, a buyer gets what he sees. There is no risk of potential changes in the future. The construction quality of the project, social and physical infrastructure and home loan eligibility can also be ascertained, before the purchase of such units. Moreover, there is no risk of delays and escalating costs, when it comes to ready-to-move-in homes.
With lockdowns, restrictions on construction and shortage of labourers, construction has been affected. This has led home buyers to choose ready-to-move-in units, fearing delays in under-construction projects. Also state real estate authorities have extended the completion deadlines of under-construction projects. According to the Real Estate Act (RERA), the registration granted for a project can be extended by a year, under the force majeure clause. During such delays, developers are not required to pay compensation for deferment.
Manish Kadam, an assistant account manager in a media agency, who bought a house in Virar, in Mumbai, states that the best part of buying a readymade house, is the absence of a waiting period. “There is a lot of inventory in the real estate sector, which gives the home buyer a broad choice of location, configuration and low risk, as the ready-to-move-in segment has no construction delays. The GST (Goods and Services Tax) is also applicable on under-construction properties. So, even if one books an apartment, where the builder asks for 10 per cent and the balance after possession, one will still have to pay GST on the full amount,” points out Kadam.
However, the disadvantage of a ready-to-move-in house, is that it usually has a higher price than an under-construction property. Hence, it may not be an ideal choice from an investment and appreciation potential standpoint. Moreover, the buyer will not have the flexibility to choose the floor or configuration, as compared to an under-construction property.
Points to consider, while choosing an under-construction property
“Under-construction properties are generally in the non-established parts of the city and hence, the potential for price appreciation due to future development is good. However, this is not true in each and every case. One has to look at the location and future plans around that area. Moreover, in an under-construction project, a buyer also has flexibility in payments, with options like construction-linked plans, subvention schemes, flexible payment plans, etc.,” states Wadhwani.
The implementation of the Real Estate (Regulation and Development) Act (RERA) and other buyer-friendly policies, aimed at bringing about greater transparency and compliance from developers, could boost home buyers’ confidence in investing in under-construction projects. However, in places where the RERA is not yet implemented, it is must for a home buyer to check the credentials of the developer and choose a reputed builder.
Delays in obtaining possession are the biggest risk in under-construction properties. An under-construction house may also be more expensive, owing to expenses incurred on development charges, GST, etc.
If an under-construction property is bought after selling another property, the construction of the new property has to be completed within three years from the sale of the old property. Otherwise, one has to pay 20% tax along with the payment of cess and surcharge on the profit earned on the sale of the property, as long term capital gains (LTCG) tax.
Tax exemption on the capital gains is allowed from the sale of a property held for more than 24 months, if the sum is reinvested in a property within 24 months or if it is invested in a house purchased 12 months before the sale of the asset or used to construct a house within 36 months. If the developer delays the possession, the owner may have to pay a huge amount as ‘capital gains tax’.
Ready-to-move-in versus under-construction property
|Parameter||Ready-to-move-in property||Under-construction property|
|Formalities||A lot of legal work and documentation required, because of transfer of title.||Relatively lesser documentation because there are no previous owners.|
|Payment||No stages of construction and hence, the buyer needs to have the finances arranged.||The buyer has more time in hand to spread the payment, registration charges, stamp duty, etc.|
|Level of risk||Higher chances of getting cheated as the property may be sold to more than one buyer. Buyer’s due diligence is very important.||Relatively simpler to buy an under-construction property. Due diligence is still required.|
|Property prices||Usually expensive, because the socio-physical infrastructure is relatively more developed.||Cheaper entry costs but usually depends upon the location.|
|Impact on your finance||You would be free of paying rent and other expenses undertaken on site visits.||If you are living on rent, the burden of EMIs will also be added.|
|Neighbourhood||You will know who your neighbours are and what to expect when you invest in the particular project.||Many surprises may await you and you will get to know only after living in the property.|
|Ease of selling||Ready-to-move-in properties can be sold, if one wishes to, after some months or years.||It is difficult to sell an under-construction property, if the possession is delayed due to some issue.|
|Source of income||Ready-to-move-in houses can be given on rent and one can earn income immediately. This can be used for paying the home loan EMI.||One has to wait till the house is constructed, to give it on rent and any delay can cause stress and affect one’s finances.|
Points to keel in mind, when investing in a ready-to-move-in or an under-construction house
- Ascertain the total budget for purchasing the property and ensure that your finances are in place, in advance.
- The property should have all the necessary approvals and licences.
- All information pertaining to the other parties associated with the project (such as banks, advisories, etc.) should be obtained, to undertand the project’s feasibility and quality.
- The desired location should be selected, based on your regular commute requirements.
- Buyers should check online and on social media, for reviews on the project, developer and locality.