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The RISKS of buying an under-construction home

Last updated on: February 21, 2013 14:00 IST

The RISKS of buying an under-construction home

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Joseph Samson

There are advantages too. But BUYERS BEWARE!

Buying property involves long-term financial commitment, and one has to be in a position to afford the investment. A property under-construction would definitely be cheaper than one available for purchase or ready-to-move houses.

Buying an under-construction home is the most popular and preferred mode of buying a home. The initial requirement would be to find a reputed builder and check the track record of the builder or developer. It is always advisable to invest with a known and well-placed builder.

Under this, a builder advertises in newspaper, TV and other media about a new housing complex coming soon. Agents start going around the companies, markets, malls, and even houses to advertise about the new housing complex coming up in the town. The goal of the builder is to sell as many flats as possible before the housing complex is built.

In most of the cases, more than 75 per cent of the flats of known builders are booked even before a single brick is laid.

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Advantages of buying an under-construction home

Cheaper

Buying an under-construction home is always cheaper as compared to buying the one that is already built. The difference in the cost is very significant.

In the Delhi and NCR region, a ready-to-move flat with two bedrooms can costs home buyers about Rs 40 to 50 lakh (Rs 4 to 5 million). However the same can be bought anywhere in the range of Rs 30 to 40 lakh while the flat is under-construction, depending on the location.

On an average, the difference is significantly between 20 per cent and 40 per cent and this is a big difference for majority of the home buyers.


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Low EMI

The EMI is paid according to the work in progress hence the initial EMIs are very low in the case of an under-construction home.


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Beneficial for both buyers and sellers

Buying an under-construction home is a win-win situation for both customers as well as builders. The builder gets a ready set of customers even before s/he starts laying the foundation while home buyers get the cost benefit.


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High returns

Since the prices are lower, one might get higher returns on the under-construction home. Such high returns are not possible in a ready to move home.

However, with higher returns come with higher risks too.

To give an example, people who invested in Noida authority plots earned high returns while people who invested in Samshabaad in Hyderabad are still waiting for the real estate rates in that area to pick up.


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Drawbacks of buying an under-construction home

High risk

All the conditions are not favourable for under-construction home buying. In many instances, the builders might not complete the housing complex and buyers end up losing their money.

Real estate sector is full of such stories where the builders could not complete a housing project because of higher interest rates, cash crunch and high raw material costs.


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False promises

This is another common complaint that customers come up with. They usually do not get what was promised in the documents before buying the home. Even more distressing is the carpet area that buyers are promised after the home is constructed.

The carpet area is usually 70 per cent of the super built area. The swimming pool and golf course may never come up as promised before by the builders.


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Important points for buyers of under-construction homes:

  • Buyers should also check the past history of the builder. If the builder has done a good job in the past, chances are very high that the builder will do the same again.
  • However, if a builder's image is not good in the market, one should avoid going for a project undertaken by that particular builder.
  • Hence the track record of the builder is of utmost importance.
  • Buyers should clarify loan tenure and how the money will be paid to the builder. Mostly some part of the total cost is paid in the starting and the rest amount is only paid after the completion of the project.

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