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Why it's prudent to buy property in resale market

By Sanjay Kumar Singh
October 03, 2016 16:10 IST
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Read the investor-developer agreement carefully before signing the cheque

With delays becoming rampant in most major markets, many buyers today prefer to buy properties that are ready to move in. In many under-construction properties, investors are heading for the exit as prices refuse to move up. Both these factors are creating opportunities for smart buyers in the secondary markets.

Buy what you see: In recent times, development risk - the risk that the developer’s project may get delayed, or he may not deliver the quality and specifications he had promised - has emerged as a major issue. “The biggest advantage of buying in a ready-to-move-in project is that you get what you see,” says Ankur Gupta, joint managing director, Ashiana Housing.

Since the developer would have sold out all his units by then, buyers have to approach investors or other buyers in the secondary market.

Remember that the discount you get in the secondary market in a ready-to-move-in property is lower than what you get in an under-construction project.

Buying a ready-to-move-in property from the secondary market also offers other benefits. “Your rental earnings begin from day one, especially if connectivity is good. You also start getting tax benefits on your home loan,” says Pradeep Mishra, a Gurgaon-based real estate consultant.

Buyers scouting for steep discounts should try their luck in under-construction projects. When both the builder and early-stage investors are trying to sell their units, the latter must offer a discount to attract buyers.

“The level of discount depends on the number of investors wanting to exit. Higher the number, as is the case in a market with over-supply and stagnant prices, higher the level of discount,” says Ankur Dhawan, chief business officer, secondary sales, PropTiger.

Time consuming:  When you buy from a builder in an under-construction project, you get many options at one place. In the secondary market, you have to deal with several individual sellers.

It takes more time to evaluate what each one has to sell. Prices may also vary from one seller to another. Hence, concluding a transaction in the secondary market tends to be more time consuming.

Sometimes, sellers demand payment in cash, which the salaried class finds difficult to arrange. In the secondary market, the buyer also has to shell out the broker’s fee, which could range from one-two per cent of the cost of the property.

Dealing directly with a developer has its benefits, which the buyer should factor in. In today’s slow market, the developer could match an investor’s price, especially if he is facing a cash crunch or has a large number of units to sell. He could even throw in freebies. Moreover, a developer can offer attractive repayment options.

Do the legal due-diligence: If you are buying in an older property, conduct a thorough title check. If the property has changed hands multiple times, the paper trail becomes complicated, hence engage a lawyer. The title check will ensure that the person selling the property is indeed its owner.

When developers get investors in their projects, they sign an agreement with them that contains a lock-in period during which the investor can’t sell at a lower price than the developer’s. Study the agreement.

“If the investor is selling the flat before the end of the lock-in, the developer can refuse to transfer the flat in the current buyer’s name,” says Sumit Jain, national director-residential services, Colliers International India.

Also, check at the developer’s office that the seller has paid all his dues to him. Buyers should also take into account the transfer fee that many developers charge investors when they sell their units, and whose brunt the buyer may have to bear. “Such costs can render discounts meaningless,” says Jain.

Finally, the seller may have taken a home loan from one bank. If you, the buyer, are going to borrow from another, transferring the loan from one bank to another can be cumbersome.

Photograph: Krishnendu Halder/Reuters

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