What type of property should I buy? Ready to move in house, An under-construction property or an upcoming property?

 In India, buying a home means investing your hard-earned money for a lifetime.

what type of property should i buy? 

Owning a dream home is the biggest achievement of any individual’s  life. If you are a “Rich Dad Poor Dad” fan, you will recognize this quote, “your home is the biggest investment you will ever make”.

From the first decision to invest in a property to actually buying a house, there is a lot of work to be done. We often come across a few choices, whether to buy a ‘Ready to Move in Apartment‘ or an ‘Under Construction Property‘ or a property where the ‘Construction has not begun’. In the back of our mind, one constant question keeps triggering, “Is this the right decision?”. Hence, to pull you out of this dilemma, in this article we have discussed in detail how to compare different types of properties, their numerous benefits, and risks involved with respect to the various stages of construction.

So, let’s understand what are the three different stages of construction:

1. Ready to Move in Property: It is the stage where the construction is fully completed and is ready for occupation.

2. Under Construction Property: In this stage, the foundations are laid and the construction is started; however, it will take a long time to be completed.

3. Construction Not Begun: It is the stage where except for the compound walls there is no construction in existence and the project site is still a vacant piece of land.

You should make a wise decision, don’t just get carried away by the attractive brochures, discounted rates, and offers.  List out the pros and cons and analyze the different situations as buying a property is a major decision. The wrong choice can obliterate your returns.

Here are top eleven criteria for comparison when you decide on what type of property you should invest in:

1. Eye Candy (You buy what you see)-

 Ready to Move in House- Here, you get the exact look and feel of the property, which makes it easy for you to take a decision.

Under Construction Property / Construction Not Begun- This is based on trust. The look and the feel component is entirely missing here. You only get to see the floor plan and the apartment prototype, therefore your entire decision is based on the reputation of the builder. Later, upon possession, if it doesn’t match your expectation, you will hardly have any choice but to compromise.

2. Design (Floor Plan Design and Specifications)- 

Ready to Move in House- There is no scope of doing any structural modifications.

Under Construction Property / Construction Not Begun- For the apartment/villa, where construction has not yet begun, the buyer has a choice to get it customized and change the specifications as per his requirements.

3. Pricing- 

Ready to Move in House- The value will be as per the current market price, which is high as compared to any under construction project. Also, in this case, the appreciation value will not rise much in the future.

Under Construction Property / Construction Not Begun- The price is low as compared to the ready to occupy houses and hence the appreciation value is also high.

4. Payment Schedule – 

Ready to Move in House- The payment is to be made in two-three installments. Initially, you pay a token amount, then usually twenty percent of the total amount at the time of agreement and the balance at one go at the time of the registration of ‘Sale Deed’. Hence, in this case, the payment schedule is fixed and tight and you cannot think of this option unless you have the capital to invest, or can avail a loan.

Under Construction Property / Construction Not Begun- The payment is to be made in more than two-three installments, so it makes it easy for the buyer to pay when the demands are raised. Down the line, you get two to five years depending on the progress of the construction to make payments which is often doable. Also, with some builders, you have the flexible payment plans which can ease your pressure on the purchase.

5. Tax Benefits on Home Loan –

Ready to Move in House- Under section 80C of the Income Tax Act, the tax benefits for repayment of the principal amount of the home loan is allowed only after the construction is complete.

Under Construction Property / Construction Not Begun- You may have availed home loan and would have started paying EMIs but, according to Section 24 of the Income Tax Act, if the property is still under construction, then the exemptions of Rs.1.5 lakh and Rs.1 lakh cannot be deducted from the income tax payment.

6. Service Tax and VAT –

Ready to Move in House- Once the Occupancy Certificate is obtained, these taxes are not applicable for ready to move in property.

Under Construction Property / Construction Not Begun- For such properties, there is an additional burden of paying Service Tax and VAT.

7. Legal Documentation –

Ready to Move in House- If you are planning to buy a ready to move in property, you need to first check if you are buying from a builder or an investor. There may be a scenario where the builder might already have investors for the same property, which may lead to some legal issues later.

For instance, suppose A is a builder, who has an investor B, who entered into an Agreement to Sell at the time when the property was under construction. Later, investor B transferred his interest in the property to some other investor C by way of an Assignment Agreement. Now, when the building is fully completed, the investor C wants to sell the property to the buyer. The common challenge the buyers will face is the possibility that all the agreements between the builder and the investors are not registered and stamp duty not paid. This implies that although investors may claim ownership of the property, the title of the property has not passed from the builder to the investors. 

Ideally, in such situations, the builder should execute a sale deed in the favor of a buyer where the investor should be made the confirming party avoiding the likelihood of the investors or their legal heirs claiming right over the property, which may lead to serious legal battles.

Under Construction Property/Construction Not Begun- In many states in India, the builders collect eighty percent of the price by just providing the allotment letter to the buyers (situations are changing for the better with the new Real Estate Act). As an informed buyer, it is your duty to always remember to make the payment only after checking the terms and conditions properly. It is also important to check if the stamp duty is paid. Such documents have the sanctity of law and can be enforced against the builder if required.

8. Possession –

Ready to Move in House- Once the sale deed is executed, the possession is immediately delivered.

Under Construction Property / Construction Not Begun- In India it’s very rare that the project is completed on time. Due to delay in construction, there is a long wait and the duration of possession is usually fixed by the Agreement to Sell/Construction. Hence, even after investing the entire amount the delivery of actual possession depends upon sheer luck.

Although you may have bought your property at a cheaper rate, you need to be mindful of the EMI’s and the loss of rentals if your projects get unduly delayed.

9. Rentals –

Ready to Move in House- If you already invested in a ready to move in apartment/house, then that can be rented out; the rentals accrued can be paid for the bank EMI’s. In this case, the Ready to move in house option shall be a lucrative one.

Under Construction Property / Construction Not Begun- If you are staying in a rented house, then your expenses will be high, as your rental will be clubbed with the monthly EMI’s. Further, if the project gets delayed, then it will add on to your financial difficulties.

10. Building Bye Laws and statutory compliance – 

Ready to Move in House- In case of a ready to move in house, you can ask the builder for all the relevant property documents like the sanctioned building plan, occupancy certificate, betterment charges, and khatha/mutation document etc.

Under Construction Property / Construction Not Begun- As mentioned earlier, the entire property purchase is based on trust. Let’s look at this example- The builder takes the advance money from you for 13th Floor, but he has approval only for the 10th floor. You paid the advance thinking he might get approval for 13th floor as well, but what if the builder is not able to get a permission; your entire investment goes waste.

It is a very common scenario in all states where once the construction starts, the builder deviates from the building regulations and norms, and for this reason, the Completion or Occupancy Certificates are denied, and the building is not legally approved, which later has its dire consequences.

11. Litigation – 

Ready to Move in House- Properties, where the construction is fully completed and ready to be occupied are less prone to litigation. Still, you need to be careful and check if a property that you intend to buy is not sold or agreed to be sold to others.

Under Construction Property / Construction Not Begun- It has become a prevailing practice in India that as soon as the compound walls are built and the foundation work starts, the litigation suit pops up and if there is any stay granted on the construction, the entire project gets delayed. In this scenario, it is wise to make an agreement with the builder that the financial losses will be borne by the builder.

Investment in real estate is your personal choice and we do not intend to provide any opinion nor any judgment on that matter. But clearly from the above analysis, it proves that the ready to move in property is a very secure option, as the possession will be given immediately and the quality can be verified before you purchase a house, but it is also clear that the price is much flexible and easily payable when a property is under construction.

As an informed buyer, it is important that along with the two important considerations- financial and legal, you should also check the builder’s capacity, past projects, performance, delivery records, website and feedback of customers etc.