Under-construction property: Check developer credibility before investing

Construction delays forced homebuyers to pay equated monthly instalments and rent simultaneously

Homebuyer demand is increasingly moving from ready-to-move-in (RTMI) properties to newly launched or under-construction (UC) projects. According to property consultancy ANAROCK, new launches accounted for 40 per cent of the homes sold in 2024, up from 26 per cent in 2019.

 

Why RTMI was preferred earlier

 

Before the setting up of the Real Estate Regulatory Authority (Rera), many markets were dominated by fly-by-night developers. “They would announce projects but lacked the ability to complete them. This resulted in a massive burden of stalled or heavily delayed projects in which countless buyers lost money. It led to depressed consumer confidence and a preference for RTMI homes,” says Santhosh Kumar, vice chairman, ANAROCK Group.

 

Construction delays forced homebuyers to pay equated monthly instalments (EMI) and rent simultaneously. “This made ready properties a safer bet,” says Vivek Rathi, national director, research, Knight Frank India.

 

Rising preference for UC properties

 

The growing dominance of large, listed developers has increased buyer confidence in UC properties. “These developers have established reputations, and buyers have confidence in their execution capabilities,” says Kumar.

 

Amit Masaldan, chief revenue officer, Housing.com credits regulatory reforms like setting up of Rera with reinforcing buyer trust by ensuring project completion and reducing risk.

 

Limited RTMI inventory is another factor. “By the second quarter of 2023, the RTMI inventory in the NCR was nearly exhausted,” says Pradeep Mishra, founder, Homents, an NCR-based property consultancy.

 

Projects that began construction between 2022 and 2024 will be handed over between 2026 and 2030. “With limited RTMI inventory, prospective homebuyers can only consider UC projects,” says Rathi.

 

Rising RTMI prices have also played a role. “After 2022, prices of RTMI properties appreciated so much that they were beyond the budget of many buyers,” says Mishra.

 

UC properties offer a cost-effective alternative. “Buyers can secure the property at lower rates and enjoy price appreciation,” says Masaldan, chief revenue officer, Housing.com.

 

Post-pandemic, buyer preferences have evolved. “New projects offer the advantages of modern design, and contemporary amenities and specifications,” says Rathi. Buyers also have more flexibility in choosing layout and floors, unlike in RTMI projects where options are limited.

 

Mishra adds that many newly launched projects offer smart home features.

 

Developers offer staggered payment plans, which investors find attractive. “They book an apartment for 10 per cent and pay between 20 and 35 per cent of the cost before exiting. In a rising market, they benefit from appreciation on the entire apartment,” says Mishra. End-users also prefer these plans as they get time to accumulate funds.

 

Risks of UC properties

 

UC properties can be risky if the developer is small or lacks financial stability. “Buyers could face project delays and changes in plans. The developer could run short of capital,” says Kumar.

 

There could be deviations between what was promised and what is delivered.

 

Buyers must pay goods and services tax (GST) on UC properties. “This does not apply to RTMI properties or those that have received the occupancy certificate,” says Rathi.

 

Choosing between the two

 

While RTMI properties provide immediate possession, price certainty, and no construction delays, they come at a premium. Inventory is limited and the potential for appreciation is lower. “Under-construction properties are more affordable, offer flexible payment options, and promise higher growth. But they carry risks like delays, price fluctuations, and quality concerns,” says Masaldan.

 

Checks to run when investing in UC project

 

• Check land title and legal approvals
• Ensure the project is Rera registered
• Review the developer’s financial stability and past track record
• Confirm if the developer has outstanding loans or mortgages
• Visit previous projects to evaluate construction quality
• Meet residents of past projects to understand post-possession services
• Check how the developer handled project handover to RWA
• Assess if the project is progressing as per the schedule
• Understand payment schedules and eligibility for home loans
• Check additional costs like GST and maintenance fees