The resale housing market, particularly the brand new, ready-for-possession segment, offers home-buyers a chance to side-step the risks of buying under-construction properties that are prone to inordinate delays. The usual 10-15% cost premium of ready-to-move in properties, however, has dissuaded buyers from investing in them. With this premium coming down, should home-buyers tap into the quick-possession resale market, or does it make sense to wait for 2-3 years and invest in an under-construction property?
Erosion in premium
Recently, there has been a substantial jump in inventory in the resale market. This pile-up has made purchasing a possession-ready property a more viable option now. Experts reckon home-buyers will find good deals in the resale market rather than from developers. Kishor Pate, CMD, Amit Enterprises Housing, says, “Never in the history of the Indian real estate market have properties ready or almost ready for possession been so cost effective.”
Quality properties from reputed developers, in good locations, are now available for possession at prices previously available to buyers willing to wait for two years or more for possession, Pate adds. Excess inventory has helped check prices. Shveta Jain, MD, Residential Services, Cushman & Wakefield, says, “Jump in cost for properties after completion of construction is no longer visible these days owing to the excess build-up of inventory.”
The provisions of the new real estate Bill have also pushed developers to complete projects faster, adding to the inventory pile. “Projects that were held up are now coming through thick and fast as developers rush to ensure they don’t fall foul of the Real Estate Regulatory Act. A muted demand has prevented prices of these homes from rising as before,” says Jayashree Kurup, Head of Content and Research, Magicbricks.
The primary benefit of buying a possession-ready house is that you save on rent. And, if you do not plan on using it as your residence, you can let it out on rent and start earning an income right away. With an under-construction property, there is always the chance of the builder not handing the possession on time.
The financial implications of the delay are too many. There’s the double whammy of having to shell out EMIs on the home loan as well as paying rent on one’s current accommodation. Buyers also stand to lose out on a chunk of tax benefits on interest payment towards the housing loan, if they do not get get possession within five years of having availed of the loan. For someone in the top income tax bracket of 30%, such a delay can lead to a sharp drop in tax benefit: from Rs 60,000 to just Rs 9,000 a year. Not surprisingly, a staggering 59% of the respondents to our survey were more interested in buying a new ready-to-move in property, while just 16% said they would prefer an under-construction house.
The choice also depends on the affordability of a property, availability of funds and the possession timeline. If you do not have the funds and can wait for some time, an under-construction property is the better option. But if you have the money and want to see the back of your landlord, go ahead and buy a ready-to-move in property. “If the buyer needs the property for immediate use, and has the finances, it makes sense to invest in a possession-ready home,” says A.S. Sivaramakrishnan, Head, Residential Services, India, CBRE South Asia.
Things to bear in mind
Apart from the inherent higher cost, a possession-ready, resale property has a few more disadvantages. The choice of properties in the resale market is limited compared to projects under construction. The latter allows you a wider choice with regards to floor preference, view etc. You also have to do more legwork to arrange for documentation in the case of possession-ready, resale properties.
“The key factor to be considered when opting for an unused resale property is the title clearance—the passing of ownership of the house from the seller to the buyer,” says Sivaramakrishnan. A lot of legal work is required to ensure everything is in order. Unlike in an under-construction property, buyers of possession-ready property have to start paying EMIs on their home loan immediately, besides shelling out the down payment, registration and stamp duty.
While developers these days offer attractive payment schemes and freebies, you would be foregoing these luxuries in a possession-ready property. Also, the scope for capital appreciation is muted in this case. Where the property is more than a few years old, a lot of the development around it has already taken place and is likely priced-in.
Credits ET Realty