If there already weren’t too many variables in the buying-a-property decision, the added burden of sensibly choosing between an under-construction Vs. ready-to-move-in property in India is another one.
If you are a prospective buyer sitting on the sidelines till now, then rest assured that there is no shortage of supply of both ready-to-move-in and under-construction properties across India. The available inventory is pretty high. And to be fair, given the stagnant property prices and low home loan rates, this might be a good time to consider buying a house if you were waiting for the opportune time.
But in this post, we discuss why it is better to choose a Ready-to-Move-In Property over an Under-Construction House. Even if it seems otherwise at first.
So let me list down a few thoughts that I have about this debate:
- If you go for a ready-to-move-in house/property/flat, one big risk you eliminate is the risk of delays in projects. You get immediate access and instant possession to the house and you don’t have to wait. It doesn’t require reminding that most housing projects in India get delayed. At times by several years. And sadly for many, some projects never see completion due to the builder going bankrupt or other similar factors. You can never be really sure about the timeline of the possession for an under-construction property. In a slow-moving real estate market, the developers might intentionally slow the pace of construction and divert money (through various legal and other means) elsewhere. You may never know. So if real peace-of-mind is what you aim for, then this is one thing in your control if you opt for a ready-to-move house over an under-construction project. In fact, a lot of people known to me are opting to go for ready-to-move-in properties these days. I am sure that this trend would be common across many places.
- When you buy a ready-to-move-in house, WYSIWYG. i.e. What-you-see-is-what-you-get. On the other hand, when you go for the under-construction option, you rely on the sample flat and snazzy brochures. You can never be sure about things like the actual size of the apartment and the rooms (deviations up to 5-8% in sizes is very common), view from the apartment, most importantly, the quality of construction, etc. There have been many cases that after just a few years of moving into a then under-construction house, residents see the flaws in construction quality. The decision of purchasing a ready-to-move-in property is based on actual things and not on the builder + buyer’s imagination.
- When you buy a house, the neighbourhood also plays a role in the decision. At least I think it is essential to consider it as a factor. Here too, ready-to-move-in houses provide more predictability. Whereas under-construction projects are more often in less developed areas where the neighbourhood too is under construction. So you would never know how things might turn out from a surroundings perspective. This is another of the what-you-see-is-what-you-get factors that given an upper hand to the ready-to-move-in category.
- With regards to the three points made above, remember the old proverb ‘a bird in the hand is worth two in the bush. So there will be no case of discrepancies between what is promised and what is delivered. Something that is almost always a big issue with buyers of the under-construction category where false promises and commitments are a given.
- Choosing a ready-to-move-in flat has another obvious advantage. You avoid the rental costs associated with living in a rental accommodation till you get possession. You get instant relief from paying rent. So in a way, you save on the double burden of paying EMI + rent if you are buying via home loan.
- One factor that goes against ready-to-move-in and in favour of under-construction is the price. In general, the ready-to-move-in category is 15-35% costlier and this is the reason why many buyers look at the cheaper under-construction option even if it has tons of risk as we have discussed till now. The developers too offer attractive payment options for under-construction properties that make them relatively cheaper. So if you are buying a house on loan, then being comparatively cheaper, the under-construction properties require smaller downpayment and because of a smaller loan amount, the home loan EMI payable would also be lesser.
- But don’t just look at the lower price of the under-construction house. Now GST is charged on under-construction properties. So this too adds an extra layer of cost. On the other hand, the ready-to-move units are free from any GST loading.
- If you are looking at things from a future price appreciation perspective, then yes, buying a costlier ready-to-move-in house may not seem to be a better bet. But another thing to note here is that just because an under-construction house is cheaper, it doesn’t mean that future price appreciation is guaranteed. And this has become evident in recent times with many projects seeing no increases whatsoever in their value over the last several years. The future price appreciation also depends on other factors like the location of the project and the future development plans around that area.
- The age of the property is another factor. If you buy an under-construction property, you obviously get a brand new property. But if you buy a ready-to-move-in one, then it might not always be a new one. At times, it might be years old. And if the property is not maintained properly, it might look old and that can be a turn off for many. This is one factor where under-construction properties have an upper hand.
- Let’s talk about home loan tax benefits here too as most people buy a house with help from home loans in India. As per the current home loan tax rules, the borrower can claim a deduction of up to Rs 1.5 lakh under Section 80C against principal repayment and up to Rs 2 lakh for interest payment under Section 24(b). But as per the tax rules for under-construction house, these tax benefits can only be claimed after the construction of the property is complete! So till the time you don’t get possession, you get no tax benefits. And if the construction project is delayed, you will continue paying the EMI without getting any tax benefit on it. Think about it.
- There is another angle here though. You are allowed to claim tax benefit on the interest paid during the construction period in 5 equal instalments starting from the year you get the possession (but within the annual limit of Rs 2 lakh per annum). But there is a small issue with this. If you know how home loans work, you will know that interest payment in home loan is high during initial years. So if your house construction project is delayed a lot, then it will result in unclaimed interest getting accumulated over the years. So when you are eventually allowed to claim the benefits after construction is complete, you may not be able to claim a deduction for the entire amount, along with the interest payment in the year after possession due to the upper limit of Rs 2 lakh on making annual claims. Since delays are very these days, those who take home loans on under-construction properties risk losing out on some tax benefits on this account. And if you don’t get possession within 5 years of having availed of the loan, then you stand to lose out even more tax benefits.
- And I don’t even want to talk about selling here (since we are right now focused on buying one). But the fact is that compared to ready-to-move-in properties, it is much more difficult to sell an under-construction property, especially if delivery is delayed or it’s stuck in some legal case.
When it comes to buying an under-construction property, your decision should never be based on the cost-arbitrage alone that these have over the ready-to-move-in category. Given what we discussed till now, I think it’s better to opt for ready-to-move-in properties even if that means paying slightly higher prices. The decision comes with a host of benefits and risk avoidances.
But if you have made up your mind about going for the under-construction property, then that is fine. It’s your decision. Just make sure that you do a complete background check of the developer and get comfortable with the delivery track record of their previous projects. Also, it’s best to buy under-construction flats only from builders who have been approved by the state RERA with have a good reputation and a verifiable track record of established projects. These are very important points so don’t rush through these when buying.
I know many of you might simply make the decision based on the cost of properties available in your cities and answering questions like how much a house costs in Mumbai, how much a house costs in Chennai, how much a house costs in Delhi, etc. But I would recommend you to buy a property within your budget and not go too overboard with it. So you should be ready to stretch your budget a bit but not too much that you end up walking on thin ice.
When it comes to home loan and EMI affordability, it’s best to keep EMIs limited to 30-35% of the net income. If this means making a higher downpayment then so be it. But don’t use all savings for downpayment and keep some buffer at hand for emergencies (i.e. emergency fund) and also not dip too deep into your long-term investments for goals like children’s education and your own retirement planning.
It’s clear that there are multiple advantages and disadvantages of under-construction flats as well as several advantages and disadvantages of ready-to-move-in properties. So when it comes to deciding “Should I buy an under-construction or ready-to-move-in property?” take your times and think of all the points we discussed. I personally feel it’s better to reduce the risks and pay a bit higher to go for ready-to-move-in properties. But to each his own. Both types of properties serve and suit different purposes and of different kinds of the buyer.
So choose between under-construction vs. ready-to-move-in property in India (2021) carefully.