Anirban almost always suffers from dilemmas.
The situation became worse after he got married because his wife and mother generally do not agree on any point. He feels helpless as he must take one’s side and upset the other.
The three of them have been staying in a rented home for a long time and felt they should buy an apartment.
Anirban’s salary can easily entitle him to a considerable home loan and he can buy a spacious apartment in a gated community.
But it is not as easy as Anirban found out.
While his wife was willing to wait on an under-construction property, his mother was keen on a ready-to-move property.
After considering both sides of the argument, Anirban finally made a decision after talking to a professional property advisor.
But before I reveal his decision let me tell you about the pros and cons of both options.
Why You Should or Shouldn’t Buy an Under-construction Property
There are indeed some good reasons to buy an under-construction property. Some of the arguments are quite compelling.
On the other hand, certain disadvantages also exist.
Let us delve a little deeper to understand them.
The most lucrative benefit of buying an under-construction property is the price. The price of an under-construction property is much below a similar ready-to-move property. This is the reason why the return on investment of an under-construction property is higher than a ready-to-move property.
The second advantage of buying an under-construction property is that the buyer does have considerable time to arrange the finances for purchase, registration charges, and stamp duty.
An under-construction property, especially in a gated community, presents the homebuyer with ample choice as regards the choice of flat, floor, internal configuration, and scope for interior decoration.
Another point in favour of purchasing an under-construction property is simpler documentation as there is no previous owner. However, due diligence is still required. The home loan provider gets a major part of due diligence done.
However, if you are investing in real estate for rental income then you have got to wait till the project is complete to rent it out.
What are the Pros & Cons of Buying a Ready-to-move Property?
Some homebuyers prefer to buy ready-to-move properties for certain benefits that are not available with under-construction properties.
We will consider these benefits, and also find out the drawbacks of buying them.
Let’s go.
Choosing a ready-to-move property offers one great advantage to the homebuyer. The freedom to start living immediately. There is no waiting period as in under-construction properties.
The buyer gets what is in front of the eyes. There is no scope for potential changes. He can also ascertain the construction quality and the project infrastructure easily.
There is no fear of price escalation or any delay. Home loan eligibility is also determined without any difficulty.
When you decide to buy a ready-to-move property, you are sure of what kind of project you are buying into, especially in the case of gated communities. In the case of under-construction properties, you are not always doubtless of the like-mindedness of neighbours.
However, the disadvantage of a ready-to-move-in house, is that it usually has a higher price than an under-construction property. Hence, it may not be an ideal choice from an investment and appreciation potential standpoint. Moreover, the buyer will not have the flexibility to choose the floor or configuration, as compared to an under-construction property.
Buying a ready-to-move pre-owned property generally involves stricter due diligence. A lot of legal work and documentation is required, because of the transfer of title.
For buying a ready-to-move property, the buying price, registration charges, and stamp duty must be arranged in one go.
Generally, ready-to-move properties are priced higher than comparable under-construction properties in a similar location. Therefore, buying a ready-to-move property is not very efficient if you are looking for a high return on investment.
What are the Tax Implications?
The tax treatment of ready-to-move and under-construction properties are not the same.
GST on under-construction properties like flats, apartments, and bungalows is 5% on all except affordable homes. On affordable homes which comply with government-determined parameters, it is only 1%.
A housing unit in a metropolitan city qualifies to be an affordable house if it costs up to Rs 45 lakhs and measures up to 60 sq metres (carpet area).
A ready-to-move property does not attract any GST if the property received the occupation/completion certificate.
In the case of premium/luxury properties, savings are substantial in the case of ready-to-move properties.
However, if you buy a property with the proceeds of selling a property, you must take into account the effect of Long Term Capital Gains (LTCG) tax.
If an under-construction property is bought after selling another property, the construction of the new property has to be completed within three years from the sale of the old property. Otherwise, one has to pay 20% LTCG tax along with the payment of cess and surcharge on the profit earned on the sale of the property. Of course, there is the indexation benefit.
Tax exemption on the capital gains is allowed from the sale of a property held for more than 24 months, if the sum is reinvested in a property within 24 months or if it is invested in a house purchased 12 months before the sale of the asset or used to construct a house within 36 months. Any delay in possession, therefore, will open up possibilities of payment of a significant amount of LTCG tax.
In such a scenario, buying a ready-to-move property eliminates any risk of delayed possession in any case.
What Should You Do?
You should consider your need as well as your finances before you decide whether to buy an under-construction property or a ready-to-move one. If you are willing to wait for the completion of the project, then an under-construction property offers potential value enhancement.
For Anirban’s wife, there is an additional point. Buying an under-construction property will give her the advantage of personalized home decor. Everybody wants to decorate his/her first flat with a lot of emotion.
In the case of Anirban’s family, it is natural for his wife to opt for an under-construction property. Waiting for a couple of years is not so daunting after all.
For homebuyers in a relatively lower age bracket, this is the preferred choice.
Considering all of the above points, Anirban went in to buy an under-construction property. His wife suddenly got excited as she became aware of her huge responsibility to decorate the new home.
