Ready & Under-Construction Property: Its Advantages & Disadvantages

Homebuyerstypicallyhaveachoicebetweenready-to-move-inandunderconstructionpropertieswhenmakingapurchase.Itisessentialtobeawareofthe benefitsanddrawbacksofbothofthesepropertycategoriesinadvancebecause theyserveandfitvariouspurposes&intentswithvarioustaximplications.Hereisa comprehensivedecision-makingguide.

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Evenwhilepurchasingahousethatisstillbeingbuilthasbecomeoneofthe simplestmethodstoownahomethesedays,therearestillcertaindangersinvolved, suchasdelayedpossession.Duetotheongoingprojectdeliverydelaysoverthepast fewyears,buyersofhomeshavebeguntofavourreadyapartmentsmoreandmore. Isonepropertytypesuperiortotheother,though?Intheessaythatfollows,let's examinethebenefitsanddrawbacksofareadyorunder-constructionproperty.

Advantages of buying an under-construction property Higher returns

Duetoalongerwindowbetweenthepurchasingstageandthedeliveryschedule, investinginapropertythatisstillunderconstructiontypicallyresultsinalarger returnoninvestment.Ifyousellthepropertysoonafteracquiringit,thereisagood chancethatyouwillrecoveryourcapitalinvestment.

Simpler on the wallet

Abuyer'swalletisnotasharmedbyanunder-constructionpropertyasitisbya ready-to-move-inhouseatthetimeofpurchase.Aready-to-move-inhomeislikely tocostmorethanonethatisstillbeingbuilt,providedthatotherparameterslike location,amenities,propertysize,andbuilderarethesame.Pricingdifferencescan rangefrom10to30percent.

RERA Compliance

AnypropertythathadanOccupationCertificate(OC)asofMay1,2017,hadtobe compelledtoregisterwiththerelevantState'sRERA.Therefore,propertiesthatare stillunderconstructionmustbecompliantwithfairtradepracticesandfallunder thepurviewofRERA.OntheState'sRERAwebsite,buyersmaygetinformation abouttheseproperties,andtheycanevenasktheAppellateTribunalestablishedby RERAtoresolvetheircomplaintsquickly.

Benefits of a property that is ready to move into Immediate availability

Theabilitytotakepossessionrightawayisoneofthemainbenefitsofareadyunit. Homebuyersmustmakethepayment,completethepaperwork,andthenmovein. ThissparesthemfromhavingtopayrentandtheEquatedMonthlyInstalments (EMI)forahomeloanatthesametime.

You get what you see

Homebuyerswhopurchaseareadyunitgettoviewthefinishedresultandreceive whattheyhavepaidfor.Therearefewerchancesofdifferenceswiththeclaimed layout,features,&amenities,amongothercrucialthings,becausetheunitis preparedforyoutoexaminebeforeyoufinishthepurchase.

Free from GST Effects

TheGoods&Serviceslevy(GST)assessesalevyofupto5%onthepurchaseof propertiesthatarestillunderconstruction.However,theGSTdoesnotcoverreadyto-move-inproperties.

The disadvantages of a property that is still under construction

Greater

risk

Investinginaprojectthatisstillintheplanningstagescarriessomerisk.Incertain occasions,thebuilderhasfailedtodeliverearlyor,inmoreseriouscircumstances, atall.Thiscanbelinkedtoanumberoffactors,includingashortageofmoney,an increaseinthepriceofbuildingsupplies,andanincreaseininterestrates,among others.Therefore,itisadvisedtoresearchthebuilderbeforeinvestinginaproject thatisstillintheplanningstages.

Implication of GST

Ataxincidenceofonetofivepercentofthetotalcostofthepropertyisincurred whenpurchasingapropertythatisstillunderdevelopment.Affordableresidences valuedunderRs45lakharesubjecttoaonepercentGSTfee;whereas,properties pricedoverRs45lakharesubjecttoafivepercentGSTcharge.Suchassetsresultin significanttaxexpendituresduetoadditionalstampduty&registrationfees.

Tax implications

LoansthatareassociatedwithspecifictaxbenefitsunderSections24,80EE,and 80CoftheIncomeTaxActaretypicallyusedbybuyerstofinancetheirhouse purchases.Oncethebuyerhastakenpossessionandthebenefitsunderthese provisionsareineffect,onlypropertiesthatarereadytomoveintoareeligible.Five equalpaymentsstartingwiththeyearofpossessionareallowedforthetaxbenefits ontheinterestpaidwhileapropertywasbeingbuilt.

Thereisacatch,though.Ifthebuildingisfinishedandthehomeownermovesin withinthreeyearsofreceivingthehomeloan,thereisataxdeductionofuptoRs2.5 lakhontheinterestpaidonahomeloanforaself-occupiedproperty.Onlytax benefitsuptoRs30,000canbeclaimediftheconstructionisnotfinishedwithinfive years.Onlyiftheownerresidesonthepropertyaretheseconditionsrelevant.There arenolimitationsontheamountofinterestdeductionintheeventthattheowner choosestorentitoutorleaveitvacant(deemedletout).Iftheborrowerpaysthe completeamountbeforetakingpossession,thereisnoprovisionforclaimingany reimbursementfortheprincipleamountintermsofthetaxexemption.

Peoplewhotakeoutmortgageloansforbuildingsstillunderconstructionrunthe dangeroflosingoutontaxbenefitsbecauseprojectdelaysarenowverytypical.

Discrepancy in the final product layout/features

Theriskofnotreceivingthepromisedproductatthetimeofpossessionisoneofthe mostfrequentissuesconnectedtohomesthatarestillunderconstruction.Alayout change,asmallerusableareathanpromised,andadearthofamenitiesare examplesoffrequentinconsistencies.

The negative aspects of a ready-to-move-in property

High cost

Theincreasedcostcomparedtoapropertythatisstillbeingbuiltisoneofthemost evidentdisadvantagesofpurchasingaready-to-moveflat.Builderschargemorefor thesepropertiesbecausetheydeliverafinishedhomequickly.

Quality of construction

Whenacquiringapropertythatisstillbeingbuilt,homebuyershavethechanceto periodicallyinspecttheconstructionqualitybyexaminingtheworkthatisbeing done.Amongotherimportantfactors,buyerscanexaminethematerialsused,the stabilityofthefoundation,&thestructuralintegrity.However,areadyunitis exemptfromalloftheseinspections.

The property's age

Incontrasttoapropertythatisstillbeingbuilt,purchasingareadyunitdoesnot alwaysguaranteeyouabrand-newhouse.Itmayhavebeenavailableforaverylong time.Consequently,ifithasn'tbeenproperlymaintained,itmayhaveproblemslike seepage,harmedwalls,&rustedironfixtures,tonameafew.

Being exempt from RERA

TheinclusionofolderreadyunitswithOCasof1May2016isnotrequiredunder RERA.Theinformation'spromotersarethereforenotrequiredtomakeitaccessible onapublicplatform.Thisraisesquestionsaboutthehandlingofcomplaintsandthe seller'sresponsibilityintheeventofanyanomalies.

Tax on capital gains

Ifyouwanttopurchaseanunder-constructionpropertybyliquidatinganexisting asset,theconstructionofthatpropertymustbefinishedthreeyearsafterthesaleof theexistingasset.TheLong-TermCapitalGains(LTCG)onthesoldpropertyare taxedat20%togetherwiththepaymentofcess&surchargeifthebuildingtakes longerthanthreeyears.

Accordingtoincometaxregulations,capitalgainsonthesaleofapropertyheldfor morethantwoyearsareexemptfromtaxation.Itonlyappliesifthemoneyobtained isreinvestedinrealestatewithintwoyears,investedinahomeboughtayear beforetheassetwassold,orusedtobuildahomewithinthreeyears.Ifthe developerdelaysgivingyoupossessioninsuchacase,youwillbeforcedtopaya sizablesumincapitalgainstax.

Homebuyersmustcarefullyweighthebenefitsanddrawbacksofbothreadyand under-constructionproperties.Tomakethebestfinancialoption,theproperty's needsandpurposemustbeassessed.

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