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Is It Safe To Invest In An Under-Construction Property?

Is It Safe To Invest In An Under-Construction Property?

Is It Safe To Invest In An Under-Construction Property?
The actual cost of an under construction property is not too clear. (Wikimedia)

Is investing in an under-construction property safe. When it's about investing in an under-construction property, it is often seen as a gamble. Selling an under-construction property, on the other hand, is usually a good deal for developers. If you are setting out to buy a property and are considering whether to go for an under-construction property or a ready-to-move-in one, here are a few guidelines taking into account the pros and cons of both.

The real cost of under-construction properties

The actual cost of an under-construction property sometimes is not very clear. The offer price may not include the cost of other amenities and facilities provided by the developer. The developer keeps the initial cost/base price low just to attract more buyers. If the additional costs are high, it may make an under-construction property an unprofitable investment. The developer may charge more for amenities such as clubhouse membership. The developer will levy value-added tax and service tax, too. Buyers will also be expected to pay for property registration. So, get some clarity about all these expense heads before deciding on the property.

Know the difference between pre-launch rate and present rate

The price of a property depends on market trends and the neighbourhood. The developer sets a pre-launch rate that will fluctuate over time, depending on the market trends. The current rate of the property depends on supply and demand. A steep rise in property is likely only if market conditions are favourable.

Resale of under-construction property

Before purchasing a property from a developer, it is better to check the rate of the property in the secondary market. While selling off the property later, it may land you in trouble if you do not know what the market rates are. Seek the opinion of people who are more experienced.

The agreement to sell

When you book a flat at the pre-launch stage, the developer gives you an allotment letter. This is a simple note that mentions the details of the buyer and   developer, and some information related to the property purchased. Buyers should be careful. This is not a registered document. The legal proof which the buyer should procure at the very beginning of the purchase of an under-construction flat is 'agreement to sell'. This legal document can be registered only when the developer gets permissions like commencement certificates and sanctions for the project plan. This document is enforceable, and contains details like the date of possession, amenities, and the area of the house. The 'agreement to sell' is crucial because the developer cannot deviate from it.

To get better rates, approach existing owners

If you are looking for an under-construction property, it is better to first approach the existing owner of flats in the same or similar projects. Developers offer attractive prices at a small premium, and that might tempt you. But the true picture may turn out to be completely different. Find what others have paid for comparable properties.

Do not forget to take the 'Title Certificate'

The possibility of a legal dispute on an under-construction property can sometimes be high. Any deviation from the approved plan, disputes among landowners and the developer, government approval, dispute on land title, etc, are some of the common reasons for disputes. So, it is better to take 'Title Certificate' from a property lawyer before investing in an under-construction property.

Understand the Pre-EMI terms

The pre-EMI waiver scheme may sometimes be not as attractive as it appears. If you are opting for an under construction property, Pre-EMI is mandatory. It is much lower than actual EMI, because you are not contributing to the principal component yet. The negative side of Pre-EMI interest is that it raises the cost of the property exponentially. To make it simpler, Pre-EMI interest is the price you pay to acquire the property. If there is any delay in the project, then Pre-EMI in this period is a burden. Consequently, you end up paying more for an under construction property.

To decide whether to invest in an under-construction property, take  a hard look at the pros and cons listed below.

Advantages

  • In an under-construction flat, the payment is linked to the progress of construction. This is a relief for buyers because they do not have to make the payment upfront.
  •  There is a wide range of choices available for buyers when it comes to the preferred floor, the direction of the house, etc. 
  • If you pay from your own pocket, buying an under-construction property may be a profitable investment.
  •  According to your requirements, modifications are possible during construction.
  • You can choose interiors according to your own needs and requirements.

Disadvantages

  • While buying an under-construction property, the likelihood of legal hassles is the biggest disadvantage. Developers start constructing a project without always receiving necessary permissions. When problems arise, buyers face troubles. The commencement certificate from development authorities is not enough. Developers also need to get approvals from the Pollution Control Board, Water Supply, Electricity, etc. 
  • Maintenance charges are not clear. Later, this might be a source of shock. Developers sometimes do not make such charges clear, because paying such charges is a lifelong affair. Publicising such charges may affect the future valuation of flats. Depending on the facilities provided by the developer, charges may vary. 
  • You may not be happy when the construction is complete. Buyers purchase an under-construction flat based on the construction plan. You may not like some features that did not strike you when you were looking at the construction plan.
  • The major problems like water seepage are often reported from new flats. You may be able to better judge a flat when the construction is complete. 
  • Delay in projects is a common problem faced by many buyers. 
  • The interest payment can be high. 
  • There may be hidden costs if the developer is not credible. 
  • Under-construction flats are sometimes built on land that is far from the city centre. So, you may need to compromise on the amenities associated with a good neighbourhood.
Last Updated: Thu Aug 11 2016

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