Purchasing an under-construction home can be an enticing prospect, as it could be significantly cheaper than a ready house, it could have customisable features, and the potential marvel of being the first individual to occupy that space.
Nevertheless, the costs attached can be perplexing, with numerous variables impacting the final price. A detailed understanding of the expenses can help you make intelligent, informed decisions.
The primary cost when buying an under-construction home is the purchase or base price, usually quoted per square foot. This price incorporates the land cost, construction cost, and the developer’s profit. However, this price is negotiable, depending on many factors, including location, stage of construction, and market conditions.
Above the base price, there are several additional costs, such as government levies and taxes, including goods and service tax (GST) and stamp duty and registration charges. GST is applied to under-construction properties and is generally set at 5 per cent for residential units. Stamp duty and registration charges, conversely, are state-dependent. These are one-time payments made while registering the property under your name.
Source: BankBazaar.com
Another substantial cost is the home loan interest, to be factored in if you opt for financing the property. These rates would vary based on the amount borrowed and the loan tenure. The longer the tenure, the higher will be the total interest outgo.
Buyers should also plan for ‘hidden costs’ that commonly surface in such ventures. For instance, builders often charge for preferred location, car parking, clubhouse membership, and maintenance deposit. Moreover, there could be cost escalations due to increases in raw material prices, construction delays, or changes in building regulations.
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Adhil Shetty, CEO of BankBazaar.com, said, “Buying an under construction is a big financial decision. It has pros and cons, so you must assess several factors to avoid financial pitfalls and ensure your investment is sound. Post implementation of the Real Estate (Regulation and Development) Act (RERA) in 2016, it is mandatory for every builder to register their property. When you commence shopping for a prospective home, ensure that the property is registered under RERA by checking its registration number and verifying its details on the RERA website.”
When researching a property, start with the builder’s track record. This includes the builder’s history of meeting deadlines and reviews, testimonials, or references from previous buyers. Check if the builder has the necessary permits and approvals for the project.
“If you have zeroed in on a property, get clarity from the builder on the payment schedule and ensure that it aligns with your financial capabilities. Make payments only as per the construction milestones mentioned in the agreement. A good way to assess a builder’s credibility is by checking for banks offering pre-approved loans for the builder’s projects. All major banks verify housing projects before offering pre-approved loans for them, added Shetty.
At times, an under-construction property could be a high-value but low-cost purchase. Yet, the nuances and complexity of the variables can apply significant pressure to your pocketbook. Buyers should hence exercise thorough research and careful financial planning. Be sure to engage a diligent legal counsel to peruse property contracts and facilitate negotiations. Ensuring you’re well-acquainted with these costs can help make your under-construction home purchase a truly rewarding exercise.