Home Truths: It pays to buy a completed house

The decision to buy a home comes with many smaller decisions to be taken. Besides selecting the location, size and features, you must choose whether you want to book in a project that is just being launched or one that is completed or nearing completion.

Buyers must consider the trade-offs in deciding during which stage of the project they want to buy.

Tradition wisdom has been to be an early bird and book a home in a project that is just being launched. For one, these come with a lower price tag and the prices shoot up as the project progresses. Also, your payments are more manageable as you would need only a small amount to book. Later instalments are needed as the construction progresses. This can be more easy on your wallet.

Another benefit is that if you want small alterations to be made in the floor plan — say location of sinks, etc — they can be very easily handled. Builders are often open to requests for changes, provided the structural design is not altered.

That said, the experience of many home buyers shows that the benefits of waiting to buy a home in a project far outweigh the risks in booking early. Sample this. Unitech’s Vistas project in Gurugram was launched in mid-2009, to be delivered in December 2012.

Home buyers did not get possession even in 2015 and had to seek remedy through court. This is not an isolated incident; there are many cases filed by buyers in nearly all cities against builders, big and small, for inordinate delays in handing over.

Buyers have to factor in concerns over project delays. For one, there is interest lost on the amount paid.

If the home was bought with a housing loan, EMI payments must be made, besides the monthly rent that you may be paying for your current residence — a huge financial burden. Not just that, you cannot deduct home loan interest when the house is under construction.

Pre-construction interest can be claimed only after the construction is over. This can be done in five equal instalments beginning from the year of completion of construction.

Another risk is the quality of construction. Even established builders may cut corners and sometimes deliver a lower quality home, to save on costs. So, it is safe to inspect a completed home before deciding to buy, even if it means you ending up paying a higher price.

Ganesh Vasudevan, CEO, IndiaProperty.com, advises that although newly launched projects come at a lower price compared to a competed project, a buyer should always check the builder’s track record in terms of project delivery and quality of construction.

To add to this, Goods and Services tax differences are another deterrent. Under-construction properties attract GST at 18 per cent rate. From this, the price of land (at one-third the value) is deducted. So, the effective tax rate charge is 12 per cent. On the other hand, ready-to-move properties do not fall under GST, making them more attractive currently.

Also, data shows that there is unsold inventory of completed homes in nearly all the cities. Developers are eager to unlock cash from these and are willing to negotiate with interested home buyers. With discounts or other benefits thrown in, buyers can find some value picks.

Data from IndiaProperty shows that buyer preference in buying new projects is not high — only 35 per cent buy a new home while the majority take a wait and watch.

Data also shows that owners who opt for new homes has declined in the last year — possibly due to fewer launches and higher uncertainties in the market. This trend is likely to continue until the GST issue is sorted out and launches pick-up pace.

That said, with RERA, the risks of buying an under-construction property have certainly reduced. Developers are required to submit project timelines and will be penalised for delays. You can also take comfort from the fact that unlike in the past, when your payments may have been diverted by the builder to other projects, RERA ensures that your money is kept in an escrow account.

Buyers should decide whether they want to treat home as an asset — that provides returns and come with risks — or as an end-use product.

Just as you would not buy a car or appliance that is under construction, it is better to opt for a finished product, if your goal is to have a place to live.

If you are looking at price appreciation, you must make an informed decision on an under-construction home after understanding the risks and weighting the returns.

The writer is co-founder, RaNa Investment Advisors

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