Considering purchasing a house that is still under construction? Here’s everything you need to know about it.
SOURCE: IPO INFO
A property that is still under construction might provide flexibility in house design as well as appealing payment options. However, if something goes wrong, you may have to wait years to receive your ideal home.
Real estate developers utilize glossy full-page advertisements, flexible payment plans, incentives, freebies, and decorated sample apartments to entice potential homeowners to newly-launched properties. If you do decide to acquire an apartment in an under-construction project, be sure you understand the benefits and drawbacks of doing so. While there are benefits to purchasing an apartment in a complex that is still under development, there are also risks. Before you make a decision, weigh the advantages and disadvantages.
Let’s start with the positive aspects.
Competitive pricing
In most cases, new ventures are launched at a low cost. “That’s usually at a significant discount to current property rates,” said Rajan Sood, PropTiger.com’s business head. Developers hope to entice prospective purchasers and investors looking for a profit by keeping the pricing competitive.
However, it is also dependent on how quickly you want to move in. “Homebuyers who aren’t in a hurry to move in will benefit from this (purchasing into an under-construction project).” According to Indrajit Sidhanta, principal partner and head of business development at property technology platform Square Yards, “launch rates are attractively lower than a home that has progressed past the early stages of construction.”
Flexible/easy payment plan
Payment arrangements are also spread out throughout the building. Low payments are necessary at the beginning stages, according to Sood of PropTiger.com. For example, developers often charge up to 5% of the property’s value as a booking fee, and then want 10% to 25% of the property’s value within three months to a year. As building develops, which normally takes three to four years, the remaining 75% of the property value is required. When you take possession of the flat, you must pay about 5-10% of the property value.
In comparison, a ready-to-move-in property would require the entire amount to be made within two to three months.
More choices and possible customization
In contrast to a secondary or resale market, where you must buy only what is available, an under-construction property gives you a lot of options. For example, you can select a higher or lower floor, a view (such as a park view or a club view), and the direction (east, west, north, or south) in which you want your home to face, among other options.
“An early-bird homebuyer can also choose their favorite unit in a project based on Vastu (an ancient Indian science of architecture) and customize it to match their tastes,” Sidhanta explained. At a small additional expense, some developers accept requests to, for example, add an extra slab in the kitchen, upgrade bathroom fittings, and so on.
Project Delay
However, there are some significant disadvantages to working on a project that is still under construction that you should be aware of.
The most serious of them all is the time it takes to complete a project. Project delays can be caused by a variety of factors, including funding challenges, failure to secure all necessary permits on time, legal issues, and so on. “Newly launched projects require a slew of building authority approvals, which might take a long time to get. Furthermore, if the builder does not receive the necessary approvals or is not financially strong enough to begin the project, it may be canceled,” Sidhanta warned.
He went on to say that if market conditions aren’t favorable, the builder may unduly prolong the project.
Things happen that are out of a builder’s control at times. For example, because of the ongoing Covid-19 outbreak and lockdowns enacted last year, most under-construction projects have been put on hold. Consider the National Capital Region, where construction work was recently paused for roughly a month to reduce rising air pollution produced by construction-related activities.
“If the project is delayed, the end-user may be forced to pay the EMI (equivalent monthly payment) as well as the rent (which the potential buyer is now paying) for an extended term.” “It can be financially draining,” Sood explained. “While RERA (Real Estate Regulation and Development Act, 2016) has introduced various new safeguards, construction-related hazards are far from over,” said Santhosh Kumar, vice-chairman of property consultancy ANAROCK Group.
Deviation in the construction plan
Not only is it unpredictable whether projects will be completed on schedule; it is also uncertain whether they will be delivered according to the intended layout. It’s possible that the advertised quality, fittings, and exterior will not be delivered. Furthermore, a difference in apartment size (which, in most circumstances, increases in the final computation) may need additional payments that you may not have anticipated.
Limited exit options
It’s difficult to leave during development, especially if sales are slow and the developer still has unsold units. Furthermore, a weak real estate market makes it more difficult to sell. In addition to low pricing, you may be charged transfer fees if you leave early. Your developer can also impose restrictions on early sales, such as a lock-in period or increased transfer fees.
The ease of payment plans and schemes, such as 20:80, no EMI till possession, and so on, make purchasing an apartment in an under-construction property appealing. However, before making a decision, conduct thorough due diligence and a background check on the developer. It would be wiser to invest early with a strong, reliable developer—whether it is a national player or a well-known local one—to take advantage of reduced rates.
If the developer does not have a track record for completing projects on schedule, Kumar recommends investing in either a ready-to-move-in property or a project where the work is at least 75 percent complete and you can witness the ongoing construction activity.
Also, look over the material on the state RERA website and compare it to the developer’s pledge. Don’t just take your developer’s word for it, especially if it’s a verbal agreement. Even now, developers verbally pledge to complete projects in 36-42 months, however, the RERA website’s delivery dates contradict this. To avoid penalties and cases in the event of a delay, most developers mention 72 to 84 months when registering project completion periods with the RERA.