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Smart Homebuyer's Handbook: Key Things to Keep in Mind Before Investing in Under-Construction Property

Blox Social
Posted on
Nov 28, 2023

Congratulations on your decision to invest in real estate! As you embark on this journey, one of the earliest decisions you must make is whether to purchase a fully constructed or under-construction property. Although a completed property may seem more appealing because you can move in right away, investing in an under-construction flat or apartment offers several advantages.

Top reasons to invest in an under-construction property

Under-construction properties cost less than ready-to-move properties. This is the most significant advantage of investing in a project during the pre-launch or under-construction stage. In many cases, the price difference before and after completion may be as much as 10-15 per cent. In a major city like Mumbai or Pune, this can mean a great difference to the budget of the homebuyer.

Real estate investors often prefer investing in under-construction projects due to the development prospects of a locality or neighbourhood. If investors anticipate the arrival of metro connectivity or infrastructural development work in a neighbourhood, they presume that property prices will likely rise. Therefore, even though the property is still being constructed, its value is expected to go up. Other reasons may include pre-launch offers or discounts by developers, choice of floor and flat, and availability of multiple units.

Things to keep in mind before buying an under-construction property

  • Location, plans, and layout – The one advantage of investing in a ready-to-move apartment is being able to physically verify the layout of the unit before buying. In an under-construction property, much is left to the buyer’s imagination. It is very important, in these cases, to closely study the layout, the approved unit and floor plans, and any computer rendition of the project or flat if available. These will help you in deciding if the property fulfils your requirements.
  • Builder reputation – The reputation of the developer and the track record of delivering high-quality homes on time is perhaps the most important thing to look for when investing in an under-construction property. When you invest in a property just after launch or when it is under construction, you are reposing your trust in the developer and expect to find the finished home to live up to their promises. A reputed developer with a legacy will likely live up to their commitments.
  • Title and building permits – Verifying land titles, approved plans, and building permits are vital to successfully investing in an under-construction project. One of the most important things to keep in mind before buying an under-construction property is that due diligence will help keep your investment safe. Since many documents, such as the completion and occupancy certificates, will be available only when construction is completed, verifying all other permits and titles is important before investing.
  • RERA and building plans - The Real Estate (Regulation and Development) Act of 2016 is an important legislation that protects home buyers. It is important to check the RERA registration details of the property before investing. The RERA registration on the state RERA website offers complete details about the details of the project, the materials, construction processes, etc. It is also essential to check the building and unit plans to understand the layout of the flat you are booking.
  • Builder-buyer agreement – Investing in an under-construction property can be risky, as there is always the possibility of delays in delivery or even projects being cancelled altogether. It is, therefore, essential to carefully examine the builder-buyer agreement, which outlines the terms of your payment, the size and dimensions of the property, and the deadline for completion. The agreement also includes penalty clauses that safeguard your finances in the event of any delays.
  • Home financing and loans – Most home buyers opt for a home loan or financing when investing in a property. Banks and NBFC prefer to lend against properties that are completed but also extend loans for under-construction real estate. You must read the terms of your loan and financing agreement before investing. The bank or lender may also require several documents like approved plans, titles, and the commencement certificate in case of an under-construction property. You must get these from the developer.

Buying an under-construction property can help you buy property at a considerably discounted price. However, one of the things to keep in mind before buying an under-construction property is that it attracts a GST of 5 per cent. Consider consulting a financial expert about the tax implications and deductions available on repayment of the home loan when the house is in the construction stage.