Ready & Under-Construction Property: Its Advantages & Disadvantages
Homebuyers typically have a choice between ready-to-move-in and under-construction properties when making a purchase. It is essential to be aware of the benefits and drawbacks of both of these property categories in advance because they serve and fit various purposes & intents with various tax implications. Here is a comprehensive decision-making guide.
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Even while purchasing a house that is still being built has become one of the simplest methods to own a home these days, there are still certain dangers involved, such as delayed possession. Due to the ongoing project delivery delays over the past few years, buyers of homes have begun to favour ready apartments more and more. Is one property type superior to the other, though? In the essay that follows, let’s examine the benefits and drawbacks of a ready or under-construction property.
Advantages of buying an under-construction property
Higher returns
Due to a longer window between the purchasing stage and the delivery schedule, investing in a property that is still under construction typically results in a larger return on investment. If you sell the property soon after acquiring it, there is a good chance that you will recover your capital investment.
Simpler on the wallet
A buyer’s wallet is not as harmed by an under-construction property as it is by a ready-to-move-in house at the time of purchase. A ready-to-move-in home is likely to cost more than one that is still being built, provided that other parameters like location, amenities, property size, and builder are the same. Pricing differences can range from 10 to 30 percent.
RERA Compliance
Any property that had an Occupation Certificate (OC) as of May 1, 2017, had to be compelled to register with the relevant State’s RERA. Therefore, properties that are still under construction must be compliant with fair trade practices and fall under the purview of RERA. On the State’s RERA website, buyers may get information about these properties. And they can even ask the Appellate Tribunal established by RERA to resolve their complaints quickly.
Benefits of a property that is ready to move into
Immediate availability
The ability to take possession right away is one of the main benefits of a ready unit. Homebuyers must make the payment, complete the paperwork, and then move in. This spares them from having to pay rent and the Equated Monthly Instalments (EMI) for a home loan at the same time.
You get what you see
Homebuyers who purchase a ready unit get to view the finished result and receive what they have paid for. There are fewer chances of differences with the claimed layout, features, & amenities, among other crucial things, because the unit is prepared for you to examine before you finish the purchase.
Free from GST Effects
The Goods & Services levy (GST) assesses a levy of up to 5% on the purchase of properties that are still under construction. However, the GST does not cover ready-to-move-in properties.
The disadvantages of a property that is still under construction
Greater risk
Investing in a project that is still in the planning stages carries some risk. In certain occasions, the builder has failed to deliver early or, in more serious circumstances, at all. This can be linked to a number of factors, including a shortage of money, an increase in the price of building supplies, and an increase in interest rates, among others. Therefore, it is advised to research the builder before investing in a project that is still in the planning stages.
Implication of GST
A tax incidence of one to five percent of the total cost of the property is incurred when purchasing a property that is still under development. Affordable residences valued under Rs 45 lakh are subject to a one percent GST fee; whereas, properties priced over Rs 45 lakh are subject to a five percent GST charge. Such assets result in significant tax expenditures due to additional stamp duty & registration fees.
Tax implications
Loans that are associate with specific tax benefits under Sections 24, 80EE. And 80C of the Income Tax Act are typically use by buyers to finance their house purchases. Once the buyer has taken possession and the benefits under these provisions are in effect. Only properties that are ready to move into are eligible. Five equal payments starting with the year of possession are allowed for the tax benefits on the interest paid while a property was being built.
There is a catch, though. If the building is finished and the homeowner moves in within three years of receiving the home loan. There is a tax deduction of up to Rs 2.5 lakh on the interest paid on a home loan for a self-occupied property. Only tax benefits up to Rs 30,000 can be claim if the construction is not finish within five years. Only if the owner resides on the property are these conditions relevant. There are no limitations on the amount of interest deduction in the event that the owner chooses to rent it out or leave it vacant (deemed let out). If the borrower pays the complete amount before taking possession. There is no provision for claiming any reimbursement for the principle amount in terms of the tax exemption.
People who take out mortgage loans for buildings still under construction run the danger of losing out on tax benefits because project delays are now very typical.
Discrepancy in the final product layout/features
The risk of not receiving the promised product at the time of possession is one of the most frequent issues connect to homes that are still under construction. A layout change, a smaller usable area than promised, and a dearth of amenities are examples of frequent inconsistencies.
The disadvantages aspects of a ready-to-move-in property
High cost
The increased cost compare to a property that is still being built is one of the most evident disadvantages of purchasing a ready-to-move flat. Builders charge more for these properties because they deliver a finished home quickly.
Quality of construction
When acquiring a property that is still being built. Homebuyers have the chance to periodically inspect the construction quality by examining the work that is being done. Among other important factors, buyers can examine the materials used, the stability of the foundation, & the structural integrity. However, a ready unit is exempt from all of these inspections.
The property’s age
In contrast to a property that is still being built. Purchasing a ready unit does not always guarantee you a brand-new house. It may have been available for a very long time. Consequently, if it hasn’t been properly maintained, it may have problems like seepage, harmed walls, & rusted iron fixtures, to name a few.
Being exempt from RERA
The inclusion of older ready units with OC as of 1 May 2016 is not required under RERA. The information’s promoters are therefore not required to make it accessible on a public platform. This raises questions about the handling of complaints and the seller’s responsibility in the event of any anomalies.
Tax on capital gains
If you want to purchase an under-construction property by liquidating an existing asset. The construction of that property must be finish three years after the sale of the existing asset. The Long-Term Capital Gains (LTCG) on the sold property are taxed at 20% together with the payment of cess & surcharge if the building takes longer than three years.
According to income tax regulations, capital gains on the sale of a property held for more than two years are exempt from taxation. It only applies if the money obtained is reinvested in real estate within two years. Invested in a home bought a year before the asset was sold. Or used to build a home within three years. If the developer delays giving you possession in such a case. You will be forced to pay a sizable sum in capital gains tax.
Homebuyers must carefully weigh the benefits and drawbacks of both ready and under-construction properties. To make the best financial option, the property’s needs and purpose must be assessed.
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