A quick guide to choosing between a ready-to-move-in and under-construction house

The COVID-19 pandemic has made one realise the value of real estate as an asset class, which is more reliable, as compared to the volatile and risky stock market. Moreover, interest rates have reduced, making it favourable for people who are looking to take home loans .Besides this, many developers are offering discounts and this lures the potential home buyer as he can strike a better deal.

While buying a property is no easy task, another decision that compounds the dilemma for home buyers, is whether to choose a ready-to-move-in house or an under-construction one. While there are advantages and disadvantages to both options, the choice will depend on various aspects like, what the buyer is looking for, his needs/requirements an whether one is buying for investment or end-use.

With the pandemic and work from home (WFH) becoming more prevalent, aspiring home buyers are largely favouring ready-to-move-in homes, as people find it much safer under the present circumstances. According to Amit B Wadhwani, managing director of Sai Estate Consultants, buying an under-construction property makes sense, if one is looking at it from an investment perspective, while a ready-to-move house makes more sense, if the buyer is looking for accommodation. “As the buyer is also spending his earnings on the property, it should bring profit. The investment should help the buyer in the long run, wherein, he can sell the property, if need be,” adds Wadhwani.

Choosing a ready-to-move-in flat, helps the buyer to avoid costs associated with living in a rental accommodation and the long wait in big cities, for an under-construction project to be completed. It also gives the home buyer a sense of security. Moreover, the buyer can check the neighbours and the infrastructure in the vicinity of the house, before buying the property.

With lockdowns, restrictions on construction and shortage of labourers, construction has been affected. This has led home buyers to choose ready-to-move-in units, fearing delays in under-construction projects. Also state real estate authorities have extended the completion deadlines of under-construction projects. According to the Real Estate Act (RERA), the registration granted for a project can be extended by a year, under the force majeure clause. During such delays, developers are not required to pay compensation for deferment.

Manish Kadam, an assistant account manager in a media agency, who bought a house in Virar, in Mumbai, states that the best part of buying a readymade house, is the absence of a waiting period. “There is a lot of inventory in the real estate sector, which gives the home buyer a broad choice of location, configuration and low risk, as the ready-to-move-in segment has no construction delays. The GST (Goods and Services Tax) is also applicable on under-construction properties. So, even if one books an apartment, where the builder asks for 10 per cent and the balance after possession, one will still have to pay GST on the full amount,” points out Kadam.

Points to consider, while choosing an under-construction property
“Under-construction properties are generally in the non-established parts of the city and hence, the potential for price appreciation due to future development is good. However, this is not true in each and every case. One has to look at the location and future plans around that area. Moreover, in an under-construction project, a buyer also has flexibility in payments, with options like construction-linked plans, subvention schemes, flexible payment plans, etc.,” states Wadhwani.

The implementation of the Real Estate (Regulation and Development) Act (RERA) and other buyer-friendly policies, aimed at bringing about greater transparency and compliance from developers, could boost home buyers’ confidence in investing in under-construction projects. However, in places where the RERA is not yet implemented, it is must for a home buyer to check the credentials of the developer and choose a reputed builder.

If an under-construction property is bought after selling another property, the construction of the new property has to be completed within three years from the sale of the old property. Otherwise, one has to pay 20% tax along with the payment of cess and surcharge on the profit earned on the sale of the property, as long term capital gains (LTCG) tax.

Tax exemption on the capital gains is allowed from the sale of a property held for more than 24 months, if the sum is reinvested in a property within 24 months or if it is 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 the possession, the owner may have to pay a huge amount as ‘capital gains tax’.