6 things you must consider before buying an under-construction property

One of the biggest dreams of every Indian is to buy their own house. Owning a house is considered as a sign of prosperity in our country. We often move from small towns to metro cities in search of business or job opportunities and plan to settle there going forward. However, it has become really difficult to find a ready possession property in metro cities due to growing urban population and limited supply.

Also, ready-to-move properties cost 40-50% more than the under-construction properties in metro cities. A bigger worry for home buyers is the delay in possession that could lead to severe financial difficulties as the home loan EMIs would continue but the possession might not happen in a time bound manner. However, not many choices are left apart from either taking a chance by buying an under construction project or paying a hefty premium for a ready-to-move house.

In this article, we are going to cover the important aspects that should be kept in mind before planning to buy an under-construction property.

RERA registration: After the bill was passed for the Real Estate (Regulation and Development) Act in 2016 by the Parliament of India, every builder must register their property. Be it under construction, ready-to-buy property, or commercial or residential property, every detail is available for the buyer. One should check the RERA registration number and verify the property details on the state RERA website to get details about the project.

Credibility of real estate developer: This is one of the most important factors to consider while buying an under-construction property. Credibility of Real Estate developer must be checked before buying. Following are the ways to have some sense of credibility:

• How many projects have been delivered by the developer in the past?
• Were the earlier projects delivered on time or with slight delays.
• Were the amenities promised by the developer delivered in these projects.
• Whether there have been any defaults by the developer in his banking channel.
• Whether they have any complaints against them in consumer courts.

Agreement to sale document: This is an agreement entered into by builder and purchaser dues. This is very important as all the terms and conditions with respect to the said property are mentioned in the agreement. One must thoroughly go through all the clauses and seek clarification where necessary. Ensure that the tentative date of possession along with the penalty clause for delayed possession is mentioned in the agreement.

Pre-approved loans by banks: One should go for the project, which is approved by major banks like SBI, ICICI, HDFC etc. Usually, these banks carry out strict due diligence before making it an approved project. An approved project is where the bank has conducted all the verification related to title of the project and will grant loan to eligible borrowers in swift manner.

However, one should not consider this as a holy grail of credibility. Banks won’t be liable for any losses in case of delayed possession. You will still have to pay full EMIs even if the possession is delayed. This step just acts as a security layer.

Costs associated with under-construction projects: GST at 5% on agreement value is applicable on under-construction projects apart from the stamp duty and registration cost. However, a ready-to-move apartment is not liable for GST. In some cases, the builder charges a maintenance cost for up to 2 years to maintain the property until society formation happens. All these costs are to be considered at the time of booking the apartment. The maintenance cost is usually recovered at the time of possession of the apartment.

Account for unexpected delays: This situation arose during covid times where there was acute labour and transportation shortage. All the real estate projects were stalled for a minimum of 4-6 months. Apart from the pandemic situation, there could be multiple other reasons due to which a project can be delayed.

As a home buyer, one should always consider a few months’ delay due to reasons beyond the control of the builder or buyer. This is especially important for people who are living in a rental apartment and paying rent as well as EMI at the same time. Having an extra liquidity of 6-9 months would ensure a smooth ride.

To conclude, the most important factor here is the credibility of the real estate developer. One should prefer going with the developer who has a strong brand name and a track record of delivering projects on time.

There is a possibility that such projects might cost 5-10% more than others but they do come with the assurance that the project gets delivered on time with all the amenities promised at the time of entering the agreement. Each city has its own well-known and credible developers. Researching properly or taking help from a professional real estate broker could make things easier.

Rohit Gyanchandani is Managing Director at Nandi Nivesh Private Limited