Ready-to-Move-In vs. Under-Construction Homes: The COVID-19 pandemic has highlighted the value of real estate as an asset class that is more reliable than the volatile and risky stock market. Furthermore, interest rates have fallen, making it easier for people to obtain home loans. Aside from that, many developers are offering a discount, which lures potential home buyers because they can get a better deal.
While purchasing a home is not an easy task, another decision that adds to the dilemma for home buyers is whether to choose a ready-to-move-in house or one that is still under construction. The choice of an option will depend on factors like the buyer’s needs/requirements, the type of investment, and whether he is purchasing for investment purposes or end use.
With the pandemic and work from home (WFH) becoming more common, aspiring home buyers are increasingly preferring ready-to-move-in homes, as they are much safer under the current circumstances.
Points to consider, while choosing a ready-to-move-in property
Choosing a ready-to-move-in flat allows the buyer to avoid the costs of living in a rental property as well as the long wait in major cities for an under-construction project to be complete. It also provides the buyer with a sense of security. Furthermore, before purchasing the property, the buyer can investigate the neighbours and the infrastructure in the area.
A buyer gets what he sees in a ready-to-move-in house. There is no possibility of future changes. Before purchasing such units, the construction quality of the project, social and physical infrastructure, and home loan eligibility can all be determine. Furthermore, when it comes to ready-to-move-in homes, there is no risk of delays or escalating costs.
Construction has suffered by lockouts, restrictions on construction, and a labor shortage. Fearing delays in under-construction projects, home buyers have opted for ready-to-move-in units. In addition, state real estate officials have extended the completion dates of under-construction projects. The Real Estate Act (RERA) allows for a one-year extension of a project’s registration under the force majeure clause. Developers are not require to pay compensation for deferment during such delays.
The disadvantage of a ready-to-move-in house is that it is usually more expensive than an under-construction property. As a result, it may not be the best option in terms of investment and appreciation potential. Furthermore, unlike an under-construction property, the buyer will not be able to select the floor or configuration.
Points to consider, while choosing an under-construction property
Under-construction properties are typically located in less-established areas of the city, so the potential for price appreciation due to future development is high. This, however, is not true in every case. One must consider the location as well as the future plans for that area. Furthermore, in an under-construction project, a buyer has payment flexibility, with options such as construction-linked plans, subvention schemes, flexible payment plans, and so on.
The Real Estate (Regulation and Development) Act (RERA) and other buyer-friendly policies aimed at increasing developer transparency and compliance could boost home buyers’ confidence in investing in under-construction projects. However, in areas where the RERA has not yet taken effect, a home buyer must check the credentials of the developer and select a reputable builder.
The most serious risk in under-construction properties is a delay in obtaining possession. An under-construction house may also be more expensive due to development charges, GST, and other costs. If an under-construction property is a purchase after the sale of another property, the new property must be complete within three years of the sale of the old property. The profit earned on the sale of the property must also pay long-term capital gains tax (LTCG) of 20%. Capital gains from the sale of a property held for more than 24 months are exempt from tax if the proceeds are reinvested in a property within 24 months, 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 possession, the owner may be require to pay a large sum as “capital gains tax.
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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 keep in mind, when investing in a ready-to-move-in or an under-construction house
- Determine your total budget for purchasing the property and ensure that your finances are in order ahead of time.
- All necessary approvals and licences should be obtain for the property.
- To understand the project’s feasibility and quality, all information pertaining to the other parties associated with the project (such as banks, advisories, etc.) should be obtain.
- The desire location should be chose base on your regular commute need.
- Buyers should look for reviews about the project, developer, and neighbourhood on the internet and on social media.
