RERA and GST impact: Buyers prefer OC-ready projects

With the RERA and GST now in force, many buyers are likely to prefer ready-to-move-in properties, even though they may cost more than an under-construction one. We examine the reasons

With the implementation of the Real Estate (Regulation and Development) Act (RERA), the residential real estate industry is witnessing significant changes. The Act strictly prohibits builders from advertising their under-construction projects, while allowing the freedom to attract buyers for projects that have Occupancy Certificates (OC) ready. With the new rules, buyers are naturally showing increasing interest in such properties, which are essentially ready-to-move-in.

It is no secret that ready-possession projects are costlier than under-construction projects. Nevertheless, buyers are now more than ready to purchase properties on an immediate basis, rather than waiting for the construction to be completed. There are very good reasons for buyers to look for properties that are ready-to-move-in, or OC-ready, in today’s market:

 

Cost differences between under-construction and ready properties

The real estate sector has gone through one of the worst downward phases in the last couple of years, resulting in lower new launches, price reductions and higher unsold inventories. These dynamics forced developers to offer attractive deals, discounts and freebies, to attract buyers. Even though the market is slowly recovering, these dynamics are still at play.

Therefore, it makes sense for buyers to invest in ready-possession projects, rather than wait for new projects to come up over protracted periods of time. While prices are beginning to rise again on the back of a gradual market recovery, this trend is still in its initial stages. This makes the current time optimal, for buyers and investors to focus on ready-to-move-in options.

 

Cost of rentals

Most of these projects will be patronised by buyers who use bank loans, implying a significant financial burden. Not only do buyers have to pay EMIs but also the rent on their current homes, while awaiting the completion of the project. Paying a little extra, to acquire a house right away, is cheaper than paying rentals over long periods.

 

Date of delivery

Under-construction projects in India are infamous for delays in completion, which leads to escalated costs, in the form of EMIs, as well as higher rentals while waiting for possession of the property. Even though the delays may be due to several factors plaguing the real estate sector, many buyers’ financial situations do not permit them to wait beyond a point in time. So, the decision to invest in ready-to-move-in or OC-ready projects, makes better sense.

 

Rental income

Many investors buy homes with the objective of earning rental income, with an eye on eventual resale to cash-in on capital appreciation. Purchasing a property in a completed project, helps them to immediately start earning out of it through rentals, rather than waiting for a few years and locking their money away in a non-income generating project.

 

Diminished incidence of dubious developers

The Indian real estate sector is still very fragmented and there have historically been a lot of fly-by-night operators, who duped buyers of their hard-earned money. With RERA, such dubious developers will reduce in numbers. Over the long term, the strict guidelines will ensure that only serious and genuine players operate in the market. For the time being though, buyers still feel vulnerable and hence, prefer the assurance that finished projects offer them.

 

Supporting infrastructure

A lot of new projects are coming up on the peripheries of major cities, where the supporting infrastructure like roads, electricity, water connection, etc., are not developed. They are promised only when the projects are completed and under-construction projects have to wait much longer for deployment of basic infrastructure. This naturally puts off buyers, who want to move into their new homes and also have decent facilities, instead of waiting indefinitely for them to be provided.

See also: GST impact: Will ready-to-move apartments cost more or less?

 

Impact of GST

The implementation of the Goods and Services Tax (GST) has resulted in reduced tax burden on buyers who purchase ready-to-move-in apartments. The tax on the entire cost of the project, including the land, will be levied at 12 per cent. This should be enough for the builder to claim input credit, thus, making OC-ready projects more economical for buyers.

Moreover, selling ready properties works well for developers, since it helps them to offload their unsold inventory and get much-required liquidity, to further invest in projects which are in demand. As per RERA, all residential projects in Maharashtra have to be registered under the Maharashtra Real Estate Regulation Act, before they can be advertised and sold. Since the rules are strict and builders need to be extra cautious and careful to follow the norms, the pace of registrations under MahaRERA is still painstakingly slow. The MMR itself has around 5,000 under-construction projects that need to be RERA compliant.

(The writer is CEO, Anarock Property Consultants)

 

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