Things To Know Before Buying A property Under Construction
Discounts of 15-30% are lure enough to opt for realty projects that are work in progress. However, be prepared for endless delays and other problems that plague such properties.When 30-year-old Gurgaon-based Vikas Aggarwal decided to buy a house last year, he opted for one that was being constructed. "I had leased a house for a year, so I thought it would be a good idea to go for a flat that is inching towards completion. The developer was offering a 15% discount on the market rate and promised to hand it over in January this year, says Aggarwal, a CA who works with an MNC. But it has been three months past the deadline and Aggarwal is yet to get possession."
Every time we go to the builder, he gives us some or the other reason for the delay. Instead of shifting to our own house and saving on rent, we had to renew the lease, says Aggarwal's wife, Archana.
Wake up to the reality Aggarwal's case isn't unique. These days, project delays have virtually become a norm, which is why the buyer needs to be careful.
"When you buy property during a soft launch or before launch, check the location, the future prospects of the project and whether the developer is capable of delivering on time, says Pankaj Kapoor, managing director, Liases Foras, a Mumbai-based realty research firm. "If the market crashes suddenly, or the developer runs out of money, or the bank stops funding, the project could be in a limbo, he adds.
Usually, a small developer does not have the necessary funds when he announces a project. To ensure liquidity, he tries to sell it to investors or buyers during pre-launch. If he does not get the minimum number, he may decide to postpone the project.
"Buyers should also research and verify a developer's reputation, says Sanjay Dutt, CEO, business, Jones Lang LaSalle India, a property consultancy firm. "Many developers, who are responding to the sudden property boom in suburban areas, are simply traders who are launching the only project they will build in their entire lives. They have no experience or technical knowledge and, often, don't have the backing of banks. Most emerging suburbs also don't have undisputed land titles.
Besides, since 1 April last year, a service tax of 3.5% is being levied on property that is being built. So, a property is considered 'under construction' till the builder receives a completion certificate from the relevant authorities. Though the builder is supposed to pay this tax, it is ultimately passed on to the buyer. If a buyer purchases such a property, he has to bear the additional burden of this tax.
Every time we go to the builder, he gives us some or the other reason for the delay. Instead of shifting to our own house and saving on rent, we had to renew the lease, says Aggarwal's wife, Archana.
Wake up to the reality Aggarwal's case isn't unique. These days, project delays have virtually become a norm, which is why the buyer needs to be careful."When you buy property during a soft launch or before launch, check the location, the future prospects of the project and whether the developer is capable of delivering on time, says Pankaj Kapoor, managing director, Liases Foras, a Mumbai-based realty research firm. "If the market crashes suddenly, or the developer runs out of money, or the bank stops funding, the project could be in a limbo, he adds.
Usually, a small developer does not have the necessary funds when he announces a project. To ensure liquidity, he tries to sell it to investors or buyers during pre-launch. If he does not get the minimum number, he may decide to postpone the project.
"Buyers should also research and verify a developer's reputation, says Sanjay Dutt, CEO, business, Jones Lang LaSalle India, a property consultancy firm. "Many developers, who are responding to the sudden property boom in suburban areas, are simply traders who are launching the only project they will build in their entire lives. They have no experience or technical knowledge and, often, don't have the backing of banks. Most emerging suburbs also don't have undisputed land titles.
Besides, since 1 April last year, a service tax of 3.5% is being levied on property that is being built. So, a property is considered 'under construction' till the builder receives a completion certificate from the relevant authorities. Though the builder is supposed to pay this tax, it is ultimately passed on to the buyer. If a buyer purchases such a property, he has to bear the additional burden of this tax.
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How to minimise your risk
Fortunately, there are certain safeguards that can help restrict your losses. To ensure that the builder is faithfully following what he has promised you, ask for a copy of the project's drawings duly stamped by the municipal authorities. The developer is allowed to make some changes in the original plan."Certain necessary alterations are usually permitted and also mentioned in the agreement. Once the construction begins, there may be grey areas in the blueprint that come to light later, explains Dutt. Sometimes, this may involve new regulations regarding parking space or other aspects beyond the developer's control.
There are also some advantages in booking a house while it is being constructed. "Depending on the stage of construction, as well as the response that the project has already elicited from other buyers and investors, the developer could offer you a 15-30% discount, says Dutt.
Niranjan Hiranandani, chairman and MD, Hiranandani Group, says that nearly 85% of the flats in his projects are booked before the construction is complete.
Apart from the discount, the other incentive is that the buyer needs to pay only the booking amount and gets at least a year, if not more, to arrange for the remaining funds. This is not possible in a fully constructed property.
Also, you can opt for a construction-linked payment plan in case of a home loan, where you pay according to the progress of the building's construction.So, even if the project is delayed, your money doesn't get blocked. If you're buying property for the first time, do it through an attorney who has experience in handling real estate-related issues. He can check the project's authenticity and also if the developer has the requisite approvals.
Source: Economic Times By AMIT SHANBAUG Things to know before buying a property under construction
Fortunately, there are certain safeguards that can help restrict your losses. To ensure that the builder is faithfully following what he has promised you, ask for a copy of the project's drawings duly stamped by the municipal authorities. The developer is allowed to make some changes in the original plan."Certain necessary alterations are usually permitted and also mentioned in the agreement. Once the construction begins, there may be grey areas in the blueprint that come to light later, explains Dutt. Sometimes, this may involve new regulations regarding parking space or other aspects beyond the developer's control.
There are also some advantages in booking a house while it is being constructed. "Depending on the stage of construction, as well as the response that the project has already elicited from other buyers and investors, the developer could offer you a 15-30% discount, says Dutt.
Niranjan Hiranandani, chairman and MD, Hiranandani Group, says that nearly 85% of the flats in his projects are booked before the construction is complete.
Apart from the discount, the other incentive is that the buyer needs to pay only the booking amount and gets at least a year, if not more, to arrange for the remaining funds. This is not possible in a fully constructed property.
Also, you can opt for a construction-linked payment plan in case of a home loan, where you pay according to the progress of the building's construction.So, even if the project is delayed, your money doesn't get blocked. If you're buying property for the first time, do it through an attorney who has experience in handling real estate-related issues. He can check the project's authenticity and also if the developer has the requisite approvals.
Source: Economic Times By AMIT SHANBAUG Things to know before buying a property under construction