Under Construction Vs. Ready-To-Move-In Property: Which One Is Better For You?

By | January 28, 2019
Under Construction Vs. Ready-To-Move-In Property: Which One Is Better For You?

If you’re caught in the dilemma of whether to buy an under-construction or ready-to-move-in property, you need to read this. 

If you’re sick of bickering with your landlord over inflated electricity bills and his refusal to share his PAN Card number that you can show on your rent receipts, buying a house may be the only way you can show him the door (pun intended). But this solution is expensive and is likely to tug at your purse strings for a good two decades. Of course, taking out a Home Loan can relieve you from the burden of paying such a huge amount upfront, but even then you should be sure of the most crucial detail: is your house a ready-to-move-in or under-construction property? While both are feasible options, each comes with a specific set of implications that you need to bear in mind before you arrive at a decision.  

Additional Reading: What Has Credit Score Got To Do With Home Loans? 

But First, Know The RERA Act: 

Launched on the 1st of May, 2017, the Real Estate Regulatory Authority (RERA) Act creates a regulatory body that addresses issues pertaining to project delivery delays, property pricing, quality construction, title, etc. in a transparent manner. It was created with the aim of safeguarding the interests of homebuyers and establish an arbitrating mechanism for speedy redressal of disputes. Here are some of the provisions of the RERA Act: 

  1. All residential and commercial real estate projects (new or ongoing) with a land coverage of over 500 sq. m. or eight apartments will need to register with the RERA authority 
  1. Ongoing projects that are yet to receive a completion certificate from the local municipal body on the date of commencement of the Act will have to apply for RERA registration within 3 months. These applications must be either approved or rejected by the RERA authority within 30 days from the date of registration 
  1. Real estate agents who mediate real estate deals will also have to register themselves with RERA. They will be issued a single registration number for each State or Union Territory and will have to produce this number during every sale 
  1. After the registration of a property is successful, the promoter of the project will be provided with a registration number, login ID and password. Applicants will have to log in and fill the requested details on the website 

Additional Reading: Top 5 Reasons For Home Loan Rejection 

How Will RERA Protect Homebuyers? 

The RERA Act is a law brought in place by the central government. But since real estate is a state subject, the implementation of the Act will be carried out by the state and union territory governments through their own Regulatory Authorities (RA). These local bodies will frame regulations in accordance with the RERA Act and will oversee its day-to-day implementation. Following are some of the provisions of the RERA Act that are intended to safeguard the interests of homebuyers: 

  1. Affidavit: In addition to the required documents as per the Act, the promoter of the property will also need to produce a written declaration supported by legal affidavit that will state all the information including the timeline of the completion of the project or the specific phase 
  1. Final date of possession: The committed date of delivery of project is the choice of the developer, and has to be adhered to by both the parties. Since the time period for the delivery can be different amongst builders, the sale agreement will specifically carry the date of possession and the rate of interest that will be charged in case of any default.  
  1. Maintaining a separate escrow account: The Act mandates that builders will now be required to create a separate escrow account in which 70% of the amount received from buyers will have to be deposited maintained by a scheduled bank. The withdrawals from the account will depend on the extent of completion of the project, and will only be allowed to cover the cost of construction and the cost of land. Also, the project will need to be certified by an engineer, an architect, a chartered accountant and will undergo a six-monthly audit. This is to check diversion of funds received from the buyers to other projects.  

Additional Reading: The Dos And Don’ts For Home Loan Prepayment 

Ready-To-Move-In Properties (RTM): 

Under the new GST regimen, RTM property does not attract GST. That means if you buy an RTM property, you save 12% GST straightaway. However, the price of RTM properties is much higher than their under-construction counterparts and demand upfront payments of large amounts. This makes them prohibitive for most people. RTM properties also offer limited scope for capital gains if you plan to sell them in the near future. All of this might seem palatable to you if you want to skip the tiring wait and get your own pad as soon as possible.  

Under-Construction Properties: 

While you may save GST on RTM properties, under-construction properties can work out to be a more favourable deal for you in the long run, given how you can make payments in tranches for them and even benefit from capital gains arising out of them. However, most are more wary of buying under-construction properties because of the risk of delayed possession, cancellations and bankruptcies. The RERA Act has sought to allay these concerns by bringing into force rules that stipulate an exhaustive list of conditions that projects need to fulfil for RERA registration. This will ensure that the project is feasible and is completed within the stipulated timeframe. The RERA Act also ensures that homebuyers’ money is not misused by mandating the establishment of escrow accounts so that funds raised for a project are deployed in it and not diverted to some other project.  

What’s The Way Out? 

Besides your affordability and how long you’re willing to wait to move into your dream house, your decision should be based on one simple rule of thumb: opt for properties registered under RERA. That way you will have a legal recourse if something goes awry. To check if the property in question is duly registered under RERA, just visit the official portal of the state RERA directly.  

Scouting for a Home Loan that is matched to your needs? Home Loan rates on BankBazaar start at 8.25%.  


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