• Sagar Rathi

Should you prefer only Ready- to-move property post-COVID-19?

credits: suneet saxena

What is the Impact of COVID-19 on under-construction projects?

Choosing between ready-to-move and the under-construction property is a common dilemma most of the buyers undergo while deciding the property purchase. Although both options have their own pros and cons, under-construction and new launch projects are considered as more-risky as they may suffer from risks, such as variances from the promised layout, plans, quality, delays and price escalations etc.

As per Magicbricks Property Buyer Sentiment Survey May 2020, about 83% of the buyers are considering to buy only ready-to-move properties post COVID-19 considering this crisis to further add delays in under-construction projects. In this context, the article explains if you should prefer only ready-to-move property post-COVID-19 crisis to avoid delay in possession? Or is under-construction still better as it might be available at a much-discounted price during this time of crisis?

Listed are the factors which you need to consider before taking a decision on buying a ready-to-move property or an under-construction property in India, especially after COVID-19 crisis:

  • Check your financial outlook and income stability

While ready-to-move properties can help you avoid uncertainty in terms of the timeline of delivery and quality of construction, it comes at a high premium and hefty upfront initial payment. As COVID-19 crisis and the subsequent lock-down is expected to cost many jobs and bring salary cuts, the first question you need to ask yourself is that how vulnerable and prepared are you for such a condition?

As an initial step, you should weigh-in your options based on your net take-home, spending and savings, and look at the difference in terms of the value of the property (of ready-to-move-vs under-construction). You must adjust your investment ticket size realistically taking into consideration that the overall economy is going down.

  • Understand that ready-to-move property do not attract GST

From April 1, 2019, the government has imposed 5% Goods and Services Tax (GST) on under-construction properties (which would be charged over and above the value of the property) as the purchase of under-construction property do not attract immediate registration charges and stamp duty. While, the government collects both these charges from the sale of ready-to-move property immediately on the sale, for under-construction property these charges are incurred at the time of hand over of the property.

  • Under-construction properties are prone to delay

As the cash-starved developers were already struggling to finish their construction to comply with their timelines, this lock-down period has resulted in the halting of construction activities nationwide. This development is expected to lead to further delayof the under-construction projects across the country and can also result in an increased number of litigations and further delays of outputs.

  • Deferment of RERA penalty clause to affect under-construction properties

COVID-19 crisis has led to many RERA organizations, including Maharashtra and Karnataka, already announced the extension of 3 months in completion deadline for realty projects. The union government has also advised states/UTs to extend the registration and completion date by six months (for all registered projects expiring on or after March 25) and an additional 3-month extension, if required.  This move will let developers avoid any kind of penalty pay-out if their under-construction project is delayed by 6-9 months.

  • Check the financial status of developer

COVID-19 crisis is expected to lead to many causalities in terms of cash-starved developers as many were already facing a severe economic crunch before crisis. With various initiatives from the government and courts making developers more accountable and liable to the end-consumer in the past few years there is a silver lining.

  • New project launches are likely to be less

With the markets witnessing a significant drop in the number of new launches as a result of expected fall of overall residential demand across top six cities, a lot more of the buyers are expected to make investments in ready-to-move inventories as they have less options of new launches.

Our advice:

  • If you are an end-consumer with a steady source of income, savings and low-risk appetite, we recommend ready-to-move or property which is near its final stages of completion. Do your homework before buying any property, including proper due-diligence, and look for discounts

  • If you are an end-consumer looking for self-use in 3-4 years check your source of income and see if your future cash flow allows you bear regular payments; Newly launched and Partially-developed offers construction linked plans which can give some breathing time for payments

  • For investors, you can look at under-construction properties which might offer you great discounts, as a few developers might conduct distress sale to raise funds at this time of crisis. However, while investing, check the track record, RERA registration and financial status of the developer