Which property buying is the best under-construction project or ready possession?! This question creates anxiety for many first-time homebuyers. Taking opinions from friends and families adds to confusion than clarity. To add to the misery, marketing advertisements and salesperson’s sales pitch entices homebuyers with price points, offers, and discounts for both types of projects.
This blog analyzes the pros and cons of buying a property in an under-construction project versus buying a ready possession and aims to help homebuyers with the points they need to keep in mind while deciding to choose the type of project.
Choice of Unit
In a newly launched under-construction project, homebuyers get a wide range of options to choose from – unit types, unit sizes, preferred floor, preferred Vastu direction, etc. as several units are available for sale. Homebuyers may NOT get some of the choices if they wait for an under-construction project to become ready-to-move. They would be left to choose a property from available stock.
Choice of Customization
Some under-construction project offers a wide range of customization option to homebuyers – changing room sizes, flooring material, electrical points, bathroom fittings, doors and windows, wall painting, etc. On the other hand, a developer may NOT like to accommodate any major customization requests in a completed project.
Base Price Difference
The big differentiating factor between an under-construction property and a ready-to-move property is the price point. Developers sell initial units at lower price points to avoid or minimize taking construction loans, for which they must pay at least 50% more interest than a homebuyer would do for a home loan. Developers would be happy to pass the interest benefit to the homebuyers who buy early in the project. As the interest gets accumulated, it shall be loaded on the unsold inventories.
GST
For under-construction residential projects in the affordable category, a buyer must pay 1% GST without ITC (earlier 8% GST with ITC) on the total consideration value. For other than the affordable category of under-construction residential projects, a buyer must pay 5% GST without ITC (earlier 12% GST with ITC) on the total consideration value. However, GST is not applicable once a completion certificate is obtained for a project. Developers leverage NO GST as a marketing point for ready-to-move projects. However, some developers increase the base price for ready-to-move projects to recover the GST paid for the material purchases.
Timely Delivery
The biggest concern that a homebuyer has is on timely delivery of the project. In the past, developers used to advertise early possession dates to grab bookings only to fail on timely handover. Before the introduction of the Real Estate Regulation and Development (RERA) Act, 2016, several homebuyers were left with no option but to wait for the developer to give possession or fight a long and tiring legal process to get compensation and relief. The introduction of RERA has forced developers to ensure timely delivery of projects to avoid paying a hefty penalty. This has boosted the confidence of the homebuyers to buy a property in an under-construction project.
However, when the CoVID-19 pandemic struck, many developers struggled to deliver under-construction projects on time, especially large community residential projects. The appellate authority has also given a time extension for the projects considering the scenario. In such cases, it becomes a double burden for a homebuyer to stay in a rented property yet pay Pre-EMI for an under-construction project till one gets possession.
Price Escalation and Force Majeure Clauses
Not many home buyers are aware of force majeure and price escalation clauses mentioned in the construction agreement. These clauses may not be of big concern for small community projects, typically low-rise buildings. However, for large-community residential projects, these clauses may wreak havoc on a homebuyer. You may have heard news reports of spiraling steel and cement prices due to the Russia-Ukraine war. Developers can enforce these clauses to increase the base price of the sold units as well as for the unsold units. This will have a compounding effect on the GST, stamp duty, and registration charges.
Conclusion
Choosing the type of project ultimately boils down to two factors – are you an end-user or an investor? How much risk-taking capability do you have?
If you are a home-buying investor, you should look at investing in an under-construction project at a lower price point. You should see a good price rise when the project is ready for possession. You should also look at the rental returns that the property can fetch in the long run before you decide to invest.
If you are an end-user, you should evaluate your financial capability and risk-taking ability. Risk-tolerant buyers prefer under-construction projects as it provides several advantages at the time of homebuying. Risk-averse buyers prefer ready-to-move projects – either new or resale properties, depending on their financial capability.
Therefore, it is pertinent for homebuyers to resist the temptation of offers and exercise the necessary prudence to know about the developer’s credibility, financial capability, quality of construction, timely delivery, and goodwill among the buyers before they decide.
About Traventure Homes
Traventure Homes, established in 2014, was started with a core philosophy to provide a continuous pleasant home-buying experience. We have delivered more than 40+ completed projects. There are 11 ongoing projects at some of the City’s prominent locations such as Saligramam, Virugambakkam, Anna Nagar West, KK Nagar, Besant Nagar, and Madipakkam. Check out testimonials of buyers who bought their dream homes from us.