Is investing in under-construction property beneficial? All you need to know

As per ICRA estimates, Indian firms are expected to raise Rs. 3.5 trillion (US$ 48 billion) through infrastructure and real estate investment trusts in 2022, as compared with raised funds worth US$ 29 billion to date. This can be attributed to the uptick in demand for residential properties that have surged due to rapid urbanization and rising household income. Today, India is standing among the top 10 price-appreciating housing markets internationally. Despite several challenges faced during the consecutive waves of Covid in past years, the sentiment for the real estate sector has improved as well. According to Manik Anand, CEO, White Knights Realty, amidst the realty purchase spree, many buyers are now inclined towards investing in under-construction properties. 

"In an under-construction property, homebuyers are able to get substantially more options than in a completed project. They can also easily choose their houses from many options while in ready-to-move-in properties the options become fewer. Since you are paying a much lower price for your house, the appreciation is likely to be higher," Manik Anand added.

There are multiple factors as to why people should consider an under-construction property, such as:

Cost-effective Purchase: The price of a property is perhaps the most important thing people consider while buying; usually for various reasons an under-construction property costs significantly less than a read-to-move property. Given that under-construction projects take time to complete, an investor can book a property with only 5-10 percent of the actual cost which becomes a deciding factor for many. Moreover, post RERA, there is an added advantage of booking a unit in an under-construction for the buyers.

Lucrative Investment Opportunity: Owing to the lower cost of acquiring an under-construction property the expected appreciation is consequently higher. By the time property is fully constructed, its tentative market value is up; it may vary depending on factors such as location, development in the near vicinity, upcoming projects in the surrounding area, employment opportunities, and other civic amenities in close proximity.

Flexible Payment Options: While buying a ready-to-move-in property, a buyer has to pay the entire amount one chance. There are stamp duty, registration charges, and other miscellaneous expenses as well. But at the initial stage for an under-construction property, you are paying 10-15% as a booking amount for under-construction properties. You pay EMIs to the bank in case the property is financed or else you pay as per the construction plan. Provisions like construction-linked plans, subvention schemes, flexible payment plans, etc. are a boon to many. 

Easy Availability of Discount: Due to the fixed price of completed construction, it is rather difficult to find discounts or any offers on ready-to-move-in properties. A finished property has a number of different additions adding up to its total cost such as fixtures, faucets, paints, etc.  However, if you are buying in an under-construction project, there are several discounts and freebies offered such as gold coins, modular kitchen, air conditioner, gold coin, and free car parking among others. You can also negotiate on the final price.

Despite these advantages, there are some things that potential buyers of under-construction properties must be aware of. Under-construction properties are usually in the under-developed parts of the city and therefore, in some cases, early buyers can get stuck with their investments. Some customers have faced roadblocks pertaining to litigation cases after buying under-construction properties. One of the most common issues related to under-construction projects is a delay in possessions; in many cases, the project gets delayed due to which the buyers face the consequences; generally, the builders project a maximum 3-year timeline to complete the construction. 

Earlier there have been instances where the builder showed a sample flat with all facilities and the best quality of fittings. However, when the final project was delivered discrepancies arose due to differences in what was promised and subsequently, what was delivered. However, this type of situation arises very rarely and with unprofessional developers who deal in bad faith. After the implementation of RERA, a builder cannot change the building approval plan once sanctioned and display the same on their website.
For the safeguard of customers, RERA has also issued rules according to which a builder has to offer what he has promised during the agreement and the builder cannot change the building approval plan once sanctioned and display the same on their website.

It is crucial for potential property buyers to only buy apartments under construction from RERA state-approved builders with established projects and a credible reputation. After the RERA implementation, a builder is responsible for delivering the project within the time frame mentioned. If he does not do so, he is required to pay compensation to the buyers. Moreover, the general notion that the cost of an unfinished project will be low is true but exceptions are there since the price of a property can increase drastically with additions in the making & finishing. 

Primary factors such as assessment of one's own financial situation, the credibility of documents necessary for the purchase, and the developers' reputation, neighborhood, and the infrastructure available around the area are essential. In the end, a consumer must also assess if they are willing to lock in their money on unfinished projects and have the propensity to rise in valuation after a certain period.