By Sunil Sisodiya
Here, we make a comparison between these two types of options to guide an investor in taking an informed decision depending on his or her individual circumstances
By Sunil Sisodiya
There are essentially two types of residential real estate investments available for a buyer in India: under-construction and ready-to-move-in properties. Both have their own pluses and minuses, mainly depending on the buyer's time horizon, risk appetite, financial condition, and long-term objectives. Here, we make a comparison between these two types of options to guide an investor in taking an informed decision depending on his or her individual circumstances.
Lower Prices - The most crucial reason investors opt for under-construction properties is the low price compared to readymade one. Developers provide a lower price to make it eye-catching with more customers; this eventually makes the deal cheaper. It also allows a customer to pay over the time as the construction happens; this makes it easier for them to afford. This flexibility in payment can prove advantageous to those who would not wish to place a large commitment of financial terms in their hands beforehand.
Greater Returns on Investment - Construction properties usually offer an expectation of greater capital appreciation. Because the infrastructures in the locale begin to grow and the construction progresses, the value of that property increases with no exception. Most of the times it fetches lucrative returns for the investors, especially for long time, if the locality is noted for its assured growth. More investment surplus holding individuals who can wait find many times their investment returned by the time the project is completed.
Customization Choices - Applicants for under-construction flats might enjoy the flexibility of choosing a layout, interior, and finish that suits their most preferred choice. This can be one of the things that make them opt for an under construction unit if they really want a house that is specific to their needs and tastes .
Delay in Projects - There is another major risk associated with under-construction properties which is delay in projects. Sometimes regulatory approvals may take time, and issues with the developer's finances can also delay the completion time. In some cases, challenges which were unforeseen at the beginning of the project lead to delays. This would be frustrating for the buyer when such a buyer wants to move within a specific timeframe.
Market and Regulatory Risks - Since it is not on site available, the market and regulatory risks are exposed towards the buyers. Fluctuations in the real estate market may have an impact on the final value of property, and a change in government policies or tax regulations may affect the overall cost. Although RERA has brought transparency, these risks still prevail.
GST Levy - Any under-construction property is subject to GST, which adds to the overall cost of the property. Something which isn't a major determinant for some isn't something which ready-to-move-in property buyers get to enjoy.
Advantages
Some of the more important advantages for ready-to-move-in properties include that a buyer can see the finished product and can shift into it immediately. This removes uncertainty due to waiting for completion of construction. For end-users who want a primary residence, this provides a sense of security and convenience.
No GST on Purchase - Ready-to-move-in properties are not liable to pay GST. In comparison, under-construction property attracts a heavy amount of GST, which is an added cost over the actual price of the property, thus more financially lucrative. This brings down the total value of the property, plus the buyer has additional finance advantage from no extra liabilities of additional taxation.
Lower Risk - Since the property is a completed project, buyers are not risk-exposed to delays or cancellations of projects. They can view the property physically to ensure that it meets their expectations regarding quality, location, and amenities. As such, the chances of any nasty surprises post-purchase are reduced.
Rental Income Potential - Investors of ready-to-move-in property can start collecting rental income immediately. This brings stable cash flow from day one, unlike under-construction properties which may take years to yield return.
Disadvantages
Higher Purchase Cost - Re-read the intro about ready-to-move-in homes; they are usually costlier compared to under-construction properties. All the construction, approval, and funding costs have already been factored in by the developer, and absorbed into the actual final sale price. Thus, the higher purchase cost acts as a significant barrier to entry for most investors with very limited budgets.
Limited Customization Options - Under-construction properties offer more customization options than readymade flats. Buyers are stuck with whatever existing layout and design is found, which might not be according to their personal taste .
Appreciation Potential - Also, ready-to-move-in properties do not offer a similar level of capital appreciation because they are already ready, unlike the under-construction ones. Investors may lose out on the price growth, which occurs normally as a project moves towards completion.
Under-construction and ready-to-move-in properties have their advantages. It all depends on how much a buyer wants to achieve, what timeline they require for the same, and what all risks they can undertake.
If an investor wishes to have more potential returns along with the facility of paying in instalments, then under-construction properties work well. Just be prepared for possible delays as well as other risks that go with market and regulatory changes.
On the other hand, individuals seeking to take direct control with least risk and potential income-generating; may prefer readymade properties. With higher cost at outset they ensure surety and usage for present-utility hence less risky for an end-user.
In short, it all depends on the financial goals of the person and the preparedness to face risks. Both can generate a good amount if properly selected and might be a great investment for the long term.
(The author is Founder, Geetanjali Homestate. Views expressed are personal and do not reflect the official position or policy of Outlook Media Group and/or its employees. The article is for information purpose only; please consult your financial planner/s before investing.)