Buying a flat? Five reasons ready-to-move-in scores over under-construction

Interested in knowing the benefits of purchasing a ready-to-move-in apartment? We give a few reasons to buy one

Buying a home is exciting and yet tedious, as a mesh of issues surrounding purchasing property tends to confuse buyers. A critical decision to make is whether to buy an apartment under construction or a ready-to-move-in (RTM).

Here is an analysis of both options.

An RTM apartment is more expensive than an under-construction flat in the same locality. You should have deep pockets for an RTM flat, as you would have to pay the full cost of the property before the builder gives you the keys. Your home loan should be sanctioned, and EMIs on the full loan amount will start immediately. An under-construction apartment, on the other hand, is easier on cash flows, as you would have to make staggered payments spread over years.

This is, perhaps, the only positive for an apartment under construction, however. “The price gap between RTM and under-construction apartments has narrowed considerably because of the supply overhang”, said ANAROCK Property Consultants.

So what is it that makes RTM houses more attractive?

Instant gratification

Several projects in the under-construction segment in the Delhi-National Capital Region (NCR) are far from completion. The real estate market in Delhi-NCR has been affected by defaults and delays in deliveries of projects. Homebuyers in Noida, Greater Noida, and Gurugram are stuck with delayed projects by Jaypee Group, Amrapali, Unitech, The 3C Company, and others.

News headlines about such projects have prompted many developers to sell ready-to-move-in properties and speed up work on completing projects.

Only five per cent of current property seekers consider under-construction projects. Forty-nine per cent prefer to buy RTM properties, and 46 per cent look for projects that will be completed within a year, says ANAROCK Property Consultants’ Real Estate Consumer Outlook survey. As many as 2,621 participants responded to the survey via an online multi-channel survey in June 2018.

A good reason for this appetite for RTM properties is that there is a generous supply of completely de-risked options by reputable developers: the instant gratification factor which had been missing for so long from the real estate market. Secondly, ready-to-move properties don't fall under the purview of GST.

No risk of delay

Buyers have to wait a few years to get possession of under-construction homes. Their money can get stuck if the builder defaults on payments, suffers a financial crunch or is unable to complete the project on time.

For an RTM property, all you need to do is to make the payment, sign a few documents, and get your luggage transported to the new place.

“The implementation of Real Estate (Regulation and Development) Act or RERA was a ground-breaking policy reform that cleaned up the sector”, said Anuj Puri, chairman, ANAROCK Property Consultants. Maharashtra has penalised reputed developers for advertising unregistered projects and not having the project address updated on RERA website. In Karnataka, the RERA cell has sent notiices to at least 100 projects in Bengaluru for not registering under RERA in 2017. 

If a project is delayed, homebuyers must form an association and register a case against the builder with the state RERA complaint tribunal and seek penalties. The regulator can adjudicate on disputes with the power to impose fines.

For a case involving a sum of up to Rs 2 million, one can go to the district court; for up to Rs 10 million, the state-level court; and for amounts above Rs 10 million, the national level court. There are instances in NCR where the apex court has directed some builders to pay hefty penalties to homebuyers for delayed projects.

What you see is what you get

When you buy a completed project, doubts about the aesthetics, size of rooms, space, construction quality, fixtures and other issues are eliminated. A RTM flat allows you to closely inspect the structure and quality of finish. And when you buy an under-construction flat, you are only shown sample flats and the one you will eventually move into may not have the same qualities. 

The major advantage of purchasing a completed project is that homebuyers are aware of what they are acquiring while scrutinising. Moreover, there is no risk of discrepancies with the guaranteed features, layout, and facilities among other important things. As your housing unit is ready and there are people living there already, you can get feedback about the area, maintenance, locality, shopping and utility centres.

No GST

Taxes play a crucial role in property-buying decisions. Currently, a buyer does not pay any GST while purchasing an RTM property. An under-construction flat, on the other hand, attracts 12 per cent GST. So, if you buy an under-construction flat worth Rs 6 million, you will have to pay Rs 720,000 as GST.

Also, the price margin between ready and under-construction properties has narrowed down significantly because of the humungous unsold stock in most cities. Nevertheless, even if an RTM property costs slightly more, its value is assured. To draw a parallel, it is the difference between money in the bank and an investment in the stock market. The first option is ‘as safe as houses’ – the other is subject to market risks, said Puri.

Rental income

If the flat you've just bought us an investment and not for personal use -- or if you plan to move in at a later day -- you can lease it out and make some rental income, which you can use to pay your EMIs, or enhance your returns. One should examine the pricing structure and rental yield developments in the location.

So, what's it going to be: ready-to-move or under-construction? Your call.

Price Difference: Ready-to-move-in vs Under Construction

	Avg prices of under-construction (INR/sq.ft)	Avg prices of ready-to-move-in (INR/sq.ft)
NCR	4,550	5,050
Bengaluru	4,900	5,200
Pune	5,465	5,950
Hyderabad	4,130	4,400
Chennai	4,935	5,250
Kolkata	4,405	5,820

Source: ANAROCK Research