To Invest or Not to Invest – Why Millennials are shying away from the Real Estate market

Feb 26,2020 / By Commonfloor / No Comment

One of the biggest beneficiaries of years of economic growth has been the real estate sector. The largest investment an average household or individual usually makes is buying a real estate property. Be it for buying a house to live in, or simply buying a property for its investment value, countless loans are taken annually for buying real estate. However, recent surveys have indicated that young individuals in the age group of 18 to 30 years are less likely to invest in real estate. This demographic group, which today constitutes a majority of India’s population and is highly aspirational, is by and large reluctant to take on the burden of home loans too early in their lives. The nature of this trend and its various causes are what this blog article intends to discuss.

Recent Trends:

According to Commonfloor Consumer Sentiment Survey 2020, 27% of home buyers belong to the 18 to 30 years age group, while the age groups 30-40 years and 40 and above years have relatively higher shares at 36% and 37% respectively. Although 20% is still a significant share of buyers, it mostly includes older individuals within that age bracket. Young professionals are by and large reluctant to buy real estate properties.

This 20% share is still higher than in earlier decades, according to this survey. The overall demographic trends in property buying since the 1990s can be summarized as follows:

The largest share of home buyers belonged to the 45-55 years age group in the 1990s.
This came down to the 35-45 years age group in the 2000s due to easier home loan rules and procedures, plus other benefits.
The share of the younger age group of 25-35 years also kept increasing, until about 2015-16.

After a period of a surge, young working individuals of the 25 to 35 years age bracket have gone slow on availing home loans in recent years.

Why is this happening?

So why is the most aspirational demographic group reluctant about real estate investment? Studies have revealed various reasons, which can be explained as follows.

1. Preference for rented housing than a purchased house:

More and more working millennials in large cities prefer to stay in rented apartments than buying their own houses. The reasons behind this are not hard to comprehend if we consider the following points.

The average monthly house rent in cities like Mumbai, Pune, Chennai, Hyderabad, and Bangalore is much lower than the average EMI one has to pay on availing a home loan (less than 50%, according to research).
The nature of jobs is such that young individuals rarely stay put in one city for more than a few years. Thus, buying a house hardly makes sense.
Co-living spaces, or sharing a living space with other individuals of a similar age group, is popular, as sharing of amenities like electricity, Wi-Fi, water, etc. leads to reduced cost of living.

2. Different investment priorities:

Millennials love to invest in their life goals, but they are cautious about investing in something like real estate too early in their career. Instead, they would prefer to spend on things more fulfilling in the short term, such as trips or exploring their passions. Other forms of investment, such as mutual funds, are also becoming more prevalent.

This trend is due to millennials shifting away from traditional life goals like marrying or having children before a certain age. Owning a house at an early phase in one’s career is thus not a priority.

3. Complex home loan procedure:

Not only the EMI burden, but even the loan process itself can be a significant deterrence for millennials. Young individuals accustomed to accessing services through apps and a few clicks are understandably left confused by the paperwork and complicated procedure of availing a home loan.

What are some possible solutions?

The interest of this young aspirational group in real estate investments can be kindled, provided the circumstances are conducive. In case the following developments can be ensured, the share of the younger age group among home buyers can certainly see a rise.

There must be greater parity between the average rates of house rent and home loan EMI. If there is not much difference between the two, millennials may prefer to buy their own houses.
Greater monetary incentives can be offered for availing home loans by young individuals, such as reduced interest rates, or tax benefits for first-time purchasers.
Easing the procedure of giving loans or of buying and selling property. Much of the paperwork can be minimized if smart technology is applied.

So can the confidence of our working millennials in real estate investment be boosted? The short answer is this – yes, provided the circumstances are made favorable through incentives and simplifying of the procedures. Given how crucial the real estate sector is to economic growth, it only makes sense that the age group which constitutes our demographic dividend participates further in it.

For any help regarding properties search, listing, or management, you can consult India’s leading real estate online platform, CommonFloor. They are the most reliable real estate portal offering guidance regarding multiple aspects such as home reviews, verified listings, accurate photos, and consumer analytics. Download the CommonFloor app to get the best solutions for your residential questions.

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Real Estate expectations from Union Budget 2020

Jan 29,2020 / By Hozefa Sanwari / No Comment

Union Budget 2020 Expectations

The Union Budget 2020 will be presented on 1st February by the Finance Minister, Nirmala Sitharaman. Given the policy reforms undertaken by the government over the past couple of years, the real estate industry is hopeful that the upcoming budget will provide the much-needed impetus. The year 2019 saw the government take numerous steps to help improve market sentiment and revive real estate demand. Reforms such as capital gain benefit, tax exemption on notional rent, incentivizing Affordable Housing, the revised rental income limit for TDS, and thrust on infrastructure growth were highlights of the Union Budget 2019.

This time around, the sector expects the Budget 2020 to lower the GST rates on under-construction projects, increase the NBFC credit liquidity, implement single-window clearances for project approvals, redefine the Affordable Housing price bracket, allocate additional funds for PMAY scheme, and fuel investment in infrastructure.

In this backdrop, Commonfloor conducted a real estate survey on builders across India to capture their expectations from the Budget 2020. More than 300 builders participated in this survey to express their views and expectations.

The majority of the builders (31%) expect the Budget to lower the GST on under-construction projects. GST reduction clubbed with the revival of Input Tax Credit can provide relief to the builders and housing can be made available at lower prices. After the reduction in GST rates in 2019, the government had withdrawn Input Tax Credit. The next key expectation of real estate is to address the challenge of NBFC (Non-banking Financial Company) liquidity. Liquidity will ensure positive momentum with a steady supply of ready-to-move homes. Also, single-window clearances can aid in procuring quick approvals so that project delays can be avoided. In the past few years, Affordable Housing has been the major growth driver. Still, it needs some reforms as currently only those houses are awarded affordable status and subsequently reduced GST rate of 1% which has a carpet area less than 60 sq.m. and falls under the price cap of Rs 45 lakh (GST rate for under-construction house is 5%)

Around 50% of the builders surveyed feel that the increase in Home Loan tax exemption is the primary factor boosting real estate demand. A further extension to the existing 2-lakh tax rebate on home loan interest rates will push the fence-sitters to buy homes. It could result in a higher demand for housing, especially in the affordable and mid-segment categories. Interestingly, “Redefinition of Affordable Housing” and “Income Tax Removal on Notional Rent” got equal responses from the builder community. The abolition of income tax on notional rent from the second self-occupied house benefits those with two houses and encourages home buying.

One-third of the builders surveyed feel that the GST rates are the most vital component hurting homebuyers’ sentiment. Apart from GST, project delays and high property prices are the other factors that affect consumer sentiments. Builders feel that the initial aid of Rs 25000 cr last-mile funding for stalled projects is insufficient for the realty sector and that it needs to be executed on a larger level on a priority basis. Moreover, home loan interest rates and high government taxes such as stamp duty and registration could be reduced to propel demand in the market.

Foreign Direct Investment is a key driver of economic growth and a medium of non-debt finance for any country’s economic development. One-fourth of the builders surveyed responded that single-window clearance will streamline the approval process and can bring about a major boom in FDIs for the realty sector. The next two major factors that can drive FDI are ‘clarity on entry-exit norms’ and ‘stamp duty exemption on FDI transfer’. More FDI in real estate will provide the necessary thrust to the current slump in the market.

Builder Bytes

Ajith Alex George, Director of 42 Estates says, “The real estate category in India requires bold fiscal measures from the union budget. The sector is going through a liquidity crisis with stalled projects across India, an economic booster required for the industry as a whole. Ease of Funding both on the supply and demand side along with quicker processing can again make this one of the key growth sectors. Approvals of projects have gotten better however there could be better clarity on some of the norms and changes in regulations, especially around taxation. Single-window clearance and query handling can make the process easier for the sector.

From the home buyers’ perspective, interest rates on home loans have to be reduced, we have been hearing further reduction on personal tax rates and stamp duties, this can strengthen the buying power of the home buyers which will have a compounding impact on the industry as both residential and commercial projects would get a better demand-side environment. The government is already doing its bit with the PMAY showing good traction, a further increase in subsidy rates for affordable housing can further help percolate this initiative. These steps might give the much-needed boost to the confidence of the developers and buyers alike.”

Mr. Amarjit Bakshi, CMD at Central Park says “Initiatives have already been taken to aid the real estate sector, such as tax concessions and availability of low-cost loans for developers and buyers. Reforms were put into place to promote rental housing as well as boost affordable housing, empowering the middle class and first-time home buyers.

We expect policy changes to boost consumption in the economy and improved liquidity for the industry by easing fund availability for the real estate sector, enabling the sector to come back on track, since it generates more than 6.5% of the GDP. It is expected that to boost investor interest, the limit of home loan interest will be increased. Announcing an industry status to the sector will bring manifold benefits.

Conclusion:

The implementation of the above-mentioned measures will help revive real estate growth to a great extent and give a thrust to home buying sentiments, which in turn will revive the economy. To generate cash flows for struggling builders, it is quite evident that the stress fund will be a big boost, but it would address only a small portion of the stalled projects. The rest could only be addressed by NBFCs and banks.

The real estate sector has long needed an industry status that can help to procure finances at a lower cost, especially now, when credit availability is a major headwind. The momentum of infrastructure development should continue from last year so that growth is decentralized and migration to urban centers remain under check. The real estate sector is optimistic that the upcoming budget will usher fresh stimulus in terms of bold fiscal measures to outperform its growth from last year.

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Section 80EE – Income Tax Deduction on Home Loan Interest

Jan 15,2020 / By Prahalad Singh / No Comment

Home loan tax benefit under section 80EE

What is Section 80EE and its advantage?

Section 80EE permits Income Tax benefits on the interest portion of the home loan taken from any public/private financial institution. The deduction permitted under this section is for the interest paid on a home loan for up to a maximum of Rs 50,000/fiscal. You can continue to claim the deduction until you have fully repaid the loan amount.

What are the features of the Section 80EE deduction?

Following are the feature of Section 80EE Deduction under Income Tax:

The deduction under section 80EE is available only for individuals. This means, if you are a Hindu Undivided Family (HUF), an association of persons (AOP), a company or any other kind of taxpayer, you can not claim any benefit under this section.
This deduction i.e. up to Rs. 50,000 is over and above the Rs 2 lakh limit under section 24 of the Income Tax Act.
To claim this deduction, you should not own any other house property on the date of the loan sanction from a financial institution.

What is the maximum amount of tax-deductible for a home loan?

The maximum tax-deductible under specified sections for a home loan is listed below:

Income Tax Act Sanctions	Nature of home loan deduction	Maximum amount deductible
Section 80EE	Additional home loan interest tax benefit for first-time homebuyers	Rs 50,000
Section 80C	Tax deduction on the principal repayment	Rs 1.5 lakh
Section 24	Tax deductions on the interest amount payable	Rs 2 lakh

How to Calculate Home Loan Interest?

Your home loan interest rate directly affects how affordable the loan is and how conveniently you can repay it. Considering your repayment is in the form of EMIs that include both interest and principal parts, a lower home loan interest keeps down your EMIs. Therefore, it is best to choose a lender who offers low home loan interest rates. It is always advisable to calculate your home loan interest rate before you submit your application.

How Home Loan Interest is Calculated in India?

In India, there are two types of home loan interest rates i.e. fixed and floating. When you choose a fixed interest home loan, the interest stays constant throughout the loan period. On the other hand, when you choose a floating interest rate, it changes from time to time. There are several factors that are taken into consideration to arrive at a value for either type of interest rate.

Can I claim tax benefits on home loan for an under-construction property?

The following rules apply for such deduction for an under-construction property:

If the construction is completed within 5 years, a deduction of Rs.2 lakh is applicable.
If the construction is not completed within 5 years, only up to Rs.30,000 is deductible.

What are the eligibility criteria for claiming Section 80EE Deductions?

The Eligibility criteria for claiming 80EE deductions under home loan requires a taxpayer has to make sure of the following points:

Only individual taxpayers can claim deduction under Section 80EE on properties purchased either individually or jointly. If an individual has bought a property jointly with his or her spouse name and they are both paying the installments of the loan, then both can individually claim this deduction.
E-tax benefits are not applicable to the Association of Persons (AOP), companies, Hindu Unified Families (HUF), trusts, etc.
Tax benefits under Section 80EE can only be claimed by first-time home buyers. For claiming this deduction, the individual must have taken the loan from a financial institution for buying his/her first home or residential property.
Section 80EE is applicable on a per-person basis instead of a per property basis.
To claim this benefit, it is not mandatory for the taxpayer to live or stay in the property for which he or she is claiming this deduction. Borrowers residing in rented houses can also claim this deduction.

What are the conditions for claiming deductions under Section 80EE?

The following are the conditions for claiming deduction u/s 80EE:

The loan must be approved between 01.04.2016 to 31.03.2017
The loan amount taken for the house must be Rs 35 lakhs or less
Value of the house should be Rs 50 lakhs or less
The loan must be approved by a Financial Institution (FI) or a Housing Finance Company (HFC)
As on the date of the approval of the loan, no other house property must be owned by you.
The deduction can only be claimed by individuals for the house purchases jointly or singly.

What are Tax Benefits on Principal Re-paid?

U/S 80C of the Income Tax Act, the maximum deduction allowed for the repayment of the principal amount of home loan is Rs. 1.5 lakh. Deduction u/s 80C also covers investments done in the PPF Account, Tax Saving Fixed Deposits, National Savings Certificate, Equity Oriented Mutual funds, etc. subject to the maximum of Rs. 1.5 lakhs.

Apart from this, there are stamp duty and registration charges that one can claim under the above-mentioned section. However, the claim can only occur in the year in which the payment has been made.

There is a provision under which this repayment of the principal amount of housing loan is allowed. The deduction is only possible after the house gets fully completed and there is a completion certificate issued by the local body for the same. Any under-construction house is not going to be a part of this section.

Is home loan top-up eligible for tax deduction?

A home loan top-up is eligible for tax deduction u/s 24(b) and 80C only if it is used for -

Acquisition/construction of a residential property.
Renovation or repair of such property.
Such claims should also be availed with valid receipts and documents.

Who can Claim Section 80EE Deduction?

Section 80EE deduction can be claimed by an individual for the amount paid as interest on the home loan. The maximum deduction u/s 80EE is Rs.50,000. Section 80EE deduction can be claimed over and above the deduction of section 24 and section 80C which are Rs. 2,00,000 and Rs. 1,50,000 respectively.

What is Covered U/S 80EE?

Section 80EE, Income Tax Deduction on Home Loan Interest. Section 80EE allows income tax benefits on the interest portion of the house property loan taken from any financial institution. As per this section, you can claim a deduction of up to Rs. 50,000 per fiscal.

What is the difference between Section 80EE and Section 24?

The deduction for interest on a home loan can be claimed u/s 24 of the Income Tax Act, 1961. The limit u/s 24 is Rs. 2,00,000. This deduction can only be claimed if the owner or his or her family members live in the house property. The whole interest shall be put off as a deduction in case the house is on rent.

If one is able to satisfy both conditions of the sections i.e. Section 24 and Section 80EE, the individual can avail benefits under both sections. In order to do that, the individual will first need to consume the limit u/s 24 and then claim the additional benefit u/s 80EE. Hence, the deduction u/s 80EE is in addition to the limit of Rs. 2,00,000, as u/s24.

Is There Home Loan Tax Benefit on a Second Home?

If you are taking a second home loan to buy another property, tax gains are applicable to the due interests. Here, you can claim the whole interest amount paid as no cap is applied here.

At present, individuals can claim only one property as self-occupied and make tax payments on the other based on notional rent. In the February 2019’s Interim Budget, a proposal has been put forward saying that an individual can claim a second home as self-occupied property. This tries to help borrowers save more money in the form of taxes.

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Key Information About Home Insurance

Sep 4,2019 / By Prahalad Singh / No Comment

What is Home Insurance or Home Loan Insurance

Home Insurance, also known as Home Loan Protection Plan (HLPP) is a plan given by almost every financial institution in which the lender will square off the outstanding or balance home loan amount of the borrower with the lender or bank, if there is a condition of sudden incidents that may include death of the borrower. In simple terms, it is known as an insurance plan under which the insurance company squares off the balance amount of home loan with banks, NDFCs or Housing Finance Companies, in the case of the death of loan borrowers. The Home Loan Insurance term is normally the same as the Home Loan term. By taking the Home Loan Insurance the borrower is reassured that even after his/her death, his/her family members will not be forced to repay the home loan or vacate the premises because of the non-payment of the home loan amount.

What are the benefits of Home Loan Insurance?

Home loan insurance gives lump sum amount compensation which can be further utilized to repay the outstanding home loan.
Under Section 80C & 80D, the borrower receives the tax benefit from the home loan.
By paying an extra premium, medical conditions like disability and critical diseases can also be covered in the home loan insurance plan.
Under a joint home loan insurance, single home loan insurance can cover all the borrowers.
The borrower has the flexibility to reimburse the premium which is single/whole payment premium or insurance amount can be settled in the total loan amount and can be paid on a yearly basis.
Borrowers have the choice of switching insurance premium into the amount that can be added to the home loan EMIs.

Is Home Insurance Mandatory For Home Loans?

Home loan borrowers are often misled by their bankers or moneylender and are communicated into buying home loan insurance policy. Some of the finance companies name these products or policies as mandatory and often push their buyers or customers to pay extra for the premium. However, It is not mandatory to buy home loan protection plans. Neither the law nor the regulatory authorities such as the Reserve Bank Of India (RBI) or Insurance Regulatory and Development Authority of India (IRDAI) have made it compulsory under the home loan protection plan with a loan. Buying an insurance policy is the one and only responsibility of the buyer and borrowers cannot be forced to buy such plans. It only gives extra safety to your property but it is not compulsory.

How Does Home Loan Insurance Work?

Home loan insurance is a plan or policy that covers a borrower’s outstanding loan liability to protect the risk of loss in case he/she dies during the loan repayment term. These policies give a covering that reduces every year, as the loan amount reduces. In the case of the death of the borrower during the loan regime, the insurance company will clear up the outstanding loan with the lender bank. A home loan insurance policy could end up on the full repayment of the loan, or after the death of the borrower.

What One Should Need To Know About Home Insurance?

You must know that what is protected under the home loan insurance policy.
Like any other insurance policy, a premium will have to be paid on the insurance you have taken.
Home Loan Insurance Policy does not include suicide or death under natural death.
The insurance premium broadly depends on four conditions:
Age: The age is basically considered as the older you are, the higher your premium for the loan.
Amount: If you are availing Rs.50 lakh as a home loan, the premium will be higher.
Tenure: If you are taking the home loan for a period of 20 years, you have to pay the higher premium.
Borrower’s health record: The borrower, who is availing the home loan insurance should be medically fit. The better your health, the lower your premium.

What Is The Home Insurance Policy Eligibility?

Home loan insurance eligibility differs according to service providers. The minimum age is 18 years while the maximum age of the borrower while getting the home loan insurance is normally 50-60 years.

What Is The Process To Claim Your Home Insurance?

The insurance plan is held in the name of the borrower of the home loan. In the case of the death of the borrower, the family members of the beneficiary required to file and receive the claim amount. Once the claim is approved, the amount is directly paid to the lender or to a family member of the beneficiary. In the case of all term insurance policies, if the borrower is existing beyond the term of the policy, he does not recover the premium paid.

What Is Covered In A Basic Home Insurance Policy?

Only personal property is covered under a basic home loan insurance policy.

What Are Good Homeowners Insurance Policy?

Before availing home loan insurance policy, you must contact at least three banks or housing loan finance companies to compare coverage.

Your mortgage lender can, and perhaps will need you to have homeowners insurance. You are not appropriate to buy from a particular insurance company or bank. Rather than, compare coverage, price and customer reviews. Be sure that you are getting the right type of insurance plan and the right amount of coverage.

How Does Home Insurance Help Homeowners?

A basic homeowner’s insurance policies cover the cost of repair or reconstruction due to damage affected by disasters like fire, windstorms, hail, lightning, theft, or vandalism.

What Will Be The Premium For Home Insurance?

Premiums of Home Loan Insurance depend on three main categories that include the age of the borrower, loan tenure, loan amount and health record of the borrower.

Does home insurance get tax benefits?

Yes, if in case the premium is paid by the borrower himself/herself, then he/she is eligible for tax deduction under Sec 80C and Sec 10(10D). Under Sec 80C of the Income Tax Act, the maximum amount that can be claimed is up to Rs. 1.5 lakhs.

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Should I Buy An Under-Construction Flat or Ready-T0-Move-In Bangalore?

Jul 31,2019 / By Prahalad Singh / No Comment

Why one should buy an under-construction flat over ready-to-move-in Bangalore?

Buying property is an important decision for all. It’s an emotional decision which can be taken very cautiously. You are not going to switch your home in the next few years after buying, rather you will not sell it off except you get a better deal or need a bigger home.

The resale housing market, especially the new, ready-to-move-in section, gives home-buyers a chance to avoid the risks of buying under-construction properties that are likely to extreme delays.

Ready-to-move-in properties reduce the chances of getting cheated, apart from offering other benefits.
Ready-To-Move-In flats are more expensive than an under-construction flat in the same locality. You should have a strong financial position for a ready-to-move-in flat, as you would have to pay the full cost of the property before the builder handovers you the keys. Your home loan should be sanctioned, and EMIs on the full loan amount will start instantly. On the other hand, an under-construction flat has an easier payment method, as you would have to make staggered payments spread over the years.

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

If you are planning to buy a property, you would get lots of options. But there is an advantage in choosing a ready-to-move-in property. Below we are listing a few of its advantages and disadvantages:

Advantages of Ready to Move in Property:

Immediate Authority on Your Flat Purchase: In case of ready-to-move-in property, you can instantly move into your new house. You will immediately get the possession of your home, what you have paid for whereas for an under-construction property you have to wait for 3-5 years for the flat to be delivered.
Low-Risk Involvement: In a ready-to-move-in property there are no risks of delay possession. While in the case of under-construction property, project delays are much more common and there are many cases where a builder has duped buyers. So, you need to be cautious while choosing a builder for an under-construction property.
Instant Relief from Paying Rent: Once you relocate into your new home, you won’t have to pay any rent. All you have to pay is EMI for your home loan. While in an under-construction property, you will have to carry both EMI and Rent for a number of years.
You will get what you will see: An under-construction property is sold on papers. Sometimes, there can be some discrepancies in the final outcome and what you were promised. On the other hand, in the case of ready-to-move-in property, you will first see and inspect the product and then only you will decide to buy it or not.
Immediate Tax Benefits: In a ready-to-move-in property you can challenge tax exemption on your home loan on both principal and interest repayment instantly while tax benefits on home loan for an under-construction property can be claimed only after you get the flat possession.
Only EMI With No Down Payment: The most helpful thing about ready-to-move-in property is that you will have to pay EMIs on the home loan, and would include no other payments. In case of an under-construction property, EMI normally begins after completion of construction work. Despite this, if there is any delay in the construction, then the EMI will start once the home loan gets dispensed.
Check The Infrastructure And Other Facilities: When you are buying a ready-to-move-in property, you can check the infrastructure and other facilities around the flat before buying the property.
No increased cost: This is another advantage of buying a ready-to-move-in property as you are not supposed to pay the increased cost of the property after paying the booking amount. But in the case of under-construction properties, you have to bear the increased cost of the property.
Buy within Your Budget: In a ready-to-move-in property, you can select a property within your budget. If you have a lower budget, you can buy a home that fits into your budget. Whereas, when you buy an under-construction property if the project got delayed for three or more years the builder asked for increasing the cost of construction which you have to bear and it increases your overall budget.
No GST: Taxes play a crucial role in buying a property. Currently, a buyer does not pay any GST while buying a ready-to-move-in property. An under-construction flat, on the other hand, attract 12% GST. So, if you buy an under-construction flat worth Rs 60 lakh, you will have to pay Rs 720,000 as GST.
Rental income: If the flat you’ve bought as an investment and not for personal use or, if you are planning to move in later, you can rent it out and make some rental income. You can use the rental income to pay your EMIs or keep it as a rental income.
Ease of selling: It is difficult to sell an under-construction property, especially if its possession is delayed or it’s involved in litigation. In many cases, developers do not allow the transfer of apartments until the project is complete.

Disadvantages of buying a ready-to-move-in property:

High Property Cost: One of the major drawbacks of buying a ready-to-move-in property is the higher cost as compared to an under-construction property. The cost difference could be anywhere between 20-30%.
Construction Quality: It is very easy for an under-construction property to analyze the work progress and thus being aware of the quality of construction in terms of the material used, the strength of the foundations etc. But you can not conduct any such inspection in a completed flat.
Age of The Property: Buying a ready-to-move-in property might not always ensure you a brand new home like an under-construction property. The flat which you have bought might be up for sale for a long time. Therefore, if it has not been maintained properly, it might look old.
Exclusion from RERA: An old ready-to-move-in flats with Occupancy Certificate as on 1st May’ 2016 have not been included under RERA. Thus, its promoters are not accountable to make its information available on a public platform.
The under-construction projects are no less in terms of quality and cost if you do all your due diligence on the project such as price, location, developer, and other related aspects. The under-construction projects offer a higher return than a ready-to-move-in-property.

Advantages of buying an under-construction property:

Cost-effective: The cost of a property for the buyer is one of the most important things. An under-construction property is likely to cost less than ready-to-move-in properties. Buyer will get many options of under-construction properties. It is also true that possession gets delay but cost worth. With RERA in place, developers must deliver on time and if they don’t they are responsible for compensation to buyers. Post RERA, there is an added advantage of booking a unit in an under-construction for the buyers.
Good Appreciation on Investment: Since you are buying your property at a lower cost, the appreciation is expected to be higher. As the construction work in progress, the cost of your property also increases. For good returns on their investment, one should check the location, upcoming infrastructure and employment hubs situated nearby.
Payment Flexibility: While buying a ready-to-move-in property, a buyer has to pay the entire amount one chance. There are stamp duty, registration charges and other miscellaneous expenses as well. But at the initial stage for an under-construction property, you are paying 10-15% as a booking amount for under-construction properties. You pay EMIs to the bank in case the property is financed or else you pay as per the construction plan.
Discount and offers: It is very difficult to get a discount on a ready-to-move-in property. It is a complete house and you need to pay the cost as per the market and even more depending on the amenities. However, if you are buying in an under-construction project, there are several discounts and freebies offer such as gold coin, modular kitchen, air conditioner, gold coin, free car parking among others. You can also negotiate on the final price.

Disadvantages of buying under-construction property:

Under-construction properties are usually in the under-developed parts of the city and therefore, the capability for price appreciation due to future development is always good. However, this is not true in each and every case. Earlier, buyers have stuck in lots of litigation cases after buying under-construction properties. Before buying an under-construction property, one must have to look at the location and coming plans around that area. Apart from that, in an under-construction project, a buyer also has flexibility in payments, with options like construction-linked plans, subvention schemes, flexible payment plans, etc. Below is the list of disadvantages for an under-construction property:
Delay Possession: This is one of the most common issues related to under-construction projects. In most cases, the project got delayed due to various reasons and in this situation, the buyers face the consequences. Generally, the builders projected a maximum of 3 years timeline to complete the project. But in maximum cases, the project got delayed for more than 3-5 years.
The increase in property costs: This is another common problem faced by the people who book an under-construction property. If the project got delayed for even 2-3 years, the builder asks for the increased cost for the property. It is a kind of burden on you as you were expecting a certain amount to be paid once you got the possession of the property, but because of the delay in the construction, you have to bear the increased cost of the property.
Compromise with quality: When the builder shows you the sample flat, it is usually built with all possible facilities and with the best quality products. With time, you make an expectation of getting the same quality of work done within your home, but when you get the real home you find that it is much different from the promised one as the builders don’t use good material in construction. This type of situation arises very rarely and with unprofessional developers. After the implementation of RERA, a builder cannot change the building approval plan once sanctioned and display the same on their website.
False projection & promises: This is one of the most common and biggest issues with under-construction properties. The builders make numbers of promised to the customers related to infrastructure and amenities within the society, but in most cases, you don’t receive what you have been promised. But after implementation of RERA, the builder has to offer what he has promised during the agreement. A builder cannot change the building approval plan once sanctioned and display the same on their website.

What does CommonFloor data say?

As per CommonFloor research and analysis, we have selected four top real estate destination of India and found that Under-construction property rates are cheaper than ready-to-move-in. Why? Our builder is busy constructing the apartment and the locality around this apartment also develops with time. A few years later your apartment is ready and you take possession of it in a posh locality. Under-construction flats give you bargaining power. You can negotiate with the builder for a cheap flat. Here is the list of top 4 localities and its rate as per BSP:

Locality	City	Avg Sale Price (RTM)	Avg Sale Price (UC)
Sarjapur	Bangalore	4,615	4,494
Whitefield	Bangalore	6,556	6,345
Hi-Tech City	Hyderabad	6,015	5,873
Rajarhat	Kolkata	4,923	4,476
Sector 104	Gurgaon	5,671	4,397

Price analysis between Ready-to-move-in Vs Under-construction:

From the above data, we found that the rate of an under-construction property is much cheaper than a ready-to-move-in property.

While buying a ready-to-move-in property, a buyer has to pay the entire amount one chance. There are stamp duty, registration charges and other miscellaneous expenses as well. But at the initial stage for an under-construction property, you are paying 10-15% as a booking amount for under-construction properties. You pay EMIs to the bank in case the property is financed or else you pay as per the construction plan. There is flexibility in terms of payment and you do not need to arrange a huge amount to buy an under-construction property.

The interest burden on loan:

In an under-construction property, a bank dispenses the loan amount partly to the builder. However, you may be required to pay the EMI on the approved loan amount and not the disbursed loan amount.

EMI for under-construction property permits you to make payments through EMIs, in a partially dispensed loan for an under-construction project. The loan amount is partially dispensed and EMI is fixed as per the approved amount. The period of the loan continues moving up with an extra amount being dispensed. The EMI will continue constantly during the tenure of the loan. Save on interest and secure faster payment of the loan. As your EMI starts instantly after the 1st disbursement, your principal repayment also starts together, by that reducing your interest burden and tenure.

Month	Stage	Amount Disbursed	Pre-EMI
1st Jan	On agreement	Rs 10 L (20%)	Rs 8,750
1st July	On completion of foundation and ground floor	Rs 10 L (20%)	Rs 17,500
1st October	On completion of 1st and 2nd floor	Rs 10 L (20%)	Rs 26250
31st December	On completion of 3rd floor and possession	Rs 10 L (20%)	Rs.39935

As explained above, you would pay (8750 x 6) + (17500 x 3) + (26250 x 3) = Rs 2,36,250 as pre-EMI (interest) towards the dispensed loan amount. Your EMI of Rs 39,935 for the leftover 20 years starts from 01-Feb (i.e., a month after final disbursal).

Here are the tax benefits that you can avail when you take a home loan for an under-construction property:

1) As under-construction properties are relatively cheaper, the capitals required for them would be relatively low. Therefore, the EMI payable on the loan amount would also be lesser.

2) As the EMI on the loan is pretty fair, you can increase your monthly instalments to decrease the loan period. This will encourage you to save more on your total interest payment.

3) The person who is taking the home loan can refuse the deduction of the interest amount paid during the pre-construction phase.

4) One can get tax benefits for the stamp duty and registration fee on the property.

5) The interest amount paid earlier to the year of completion is collected and 1/5th of this amount is released as a deduction each year for 5 years from the year of completion. Simply, the interest paid on the home loan during the pre-construction phase can be taken for deduction in these 5 equal instalments.

Recommendation & Suggestion:

You must buy under-construction flats only from builders who have approved from state RERA with a good reputation and established projects. After the implementation of RERA, a builder is responsible to deliver the project on the mentioned time and if they don’t, they are liable to pay compensation to the buyers.

Since you are buying an under-construction property at a lower rate, the appreciation is expected to be higher. As construction progresses, the price of your property also increases.

If you’re planning for under-construction property, estimate your financial position, documents required to purchase and about the developers. It is essential to know your neighbourhood and the available infrastructure around the area such as nearby markets, common public areas and parks, connectivity issues, among others.

If the developer is appreciated, then banks will definitely request you to get yourself a loan. Buying a home can be a risky business, but buying after a good research and thinking about the long term return will be profitable.

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