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Under Construction Vs. Ready-To-Move-In Property: Which One Is Better For You?

When it comes to buying a home, the decision between choosing a property under construction and a ready to move in property can be a pivotal one. This choice affects not just your immediate living situation but also your financial landscape in the years to come. Whether you’re a first-time homebuyer or looking to invest in another property, understanding the nuances of both options is key to aligning your purchase with your long-term objectives.

This blog guide aims to equip buyers with the necessary information about under construction or ready to move property to make an informed decision that aligns with their long-term goals and financial strategies, highlighting the importance of a well-chosen home in one’s personal and financial well-being.

Table of Contents

Under-Construction Properties
Advantages Of Under-Construction Properties
Disadvantages Of Under-Construction Properties
Ready-To-Move Property
Advantages Of Ready To Move Property
Disadvantages Of Ready To Move Property

Buying Under-Construction Properties

Purchasing a house under construction or an under-construction flat involves committing to a property that is being built. This option is typically chosen by buyers who are planning for the future, looking for a lower initial price, or interested in customizing their home before moving in.
Opting for an under-construction property offers financial advantages, such as lower initial costs and the potential for significant savings compared to ready-to-move properties. It appeals particularly to first-time buyers and those on a budget, providing an affordable entry into homeownership. Let’s understand both the advantages and disadvantages of buying under-construction property.

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Advantages Of Under-Construction Properties

Lower Initial Cost: The affordability of under-construction properties is one of their most appealing aspects. These properties are often priced significantly lower than comparable ready-to-move-in homes. This lower price point is not just about the immediate cost savings; it also opens up the possibility for buyers to invest in a larger or more ideally located property than they could afford in the ready-to-move segment. The rationale behind the lower pricing often relates to the time value of money and the risk premium assumed by the buyer. Since the property will not be available for immediate use, developers offer these properties at a discount to attract buyers willing to wait for their home to be completed.
Flexible Payment Options: One of the compelling advantages of investing in an under-construction flat is the financial flexibility it offers compared to purchasing a ready-to-move property. For a property that is still under construction, buyers are not required to pay the entire amount upfront or within a very short timeframe. Instead, they can secure their future home by making a relatively small initial deposit. Following the initial deposit, the remaining balance can be paid off in installments spread out over the construction period. This payment plan is often linked to specific construction milestones, making it easier for buyers to manage their finances without the pressure of a single, substantial financial outlay.
Customization: The opportunity to customize a home is a highly valued advantage that allows buyers to personalize their living space to a degree that is rarely possible with ready-to-move properties. From choosing wall colors and flooring materials to selecting bathroom fixtures and kitchen countertops, buyers can make decisions that reflect their style and preferences. In some cases, developers may even offer options for altering the floor plan, such as adding or removing walls, changing the layout of the kitchen, or incorporating smart home features. This level of customization ensures that the final home will meet the specific needs and desires of the buyer, making it truly unique and personal.

Disadvantages Of Under-Construction Properties

Risk of Delays: Construction delays are perhaps the most commonly cited concern among buyers of under-construction properties. Various factors can cause delays, such as inclement weather, labor shortages, or disruptions in supply chains. Additionally, financial difficulties faced by the developer can significantly extend timelines or, in worst-case scenarios, halt construction entirely. Such delays not only postpone the move-in date but can also affect the buyer’s financial planning and personal life.
Initial Payments with No Immediate Returns: When investing in an under construction property, buyers typically need to make a series of payments according to the construction milestones, even though the property is not yet habitable. This can place a financial strain on buyers, especially those who may also be paying rent or servicing a mortgage on another property during the construction period.

Buying Ready-To-Move Property

Opting for a ready to move in property means you’re purchasing a home that is complete and ready for immediate occupancy. This choice is ideal for buyers who need a quick move or prefer to see and experience the exact space they’re investing in. The ready-to-move property also eliminates the need for renovations, which can be time-consuming and expensive. Additionally, it eliminates the need for a builders’ warranty, which can be risky.

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Advantages Of Ready To Move Property

Immediate Possession: The most straightforward benefit of opting for a ready-to-move property is the immediate availability for possession. Buyers can move into their new home shortly after closing the deal, eliminating the waiting period associated with under-construction properties. This immediate possession is particularly beneficial for those in urgent need of accommodation or wishing to avoid the interim period of renting another place while waiting for their property to be built.
No GST: A significant financial advantage of ready-to-move properties is the absence of Goods and Services Tax (GST), which applies only to properties that are under construction. The GST can add a considerable amount to the overall cost of purchasing a new home. Therefore, buying a ready-to-move property not only simplifies the transaction but also can offer savings that might otherwise be added to the property’s purchase price in the form of tax.
What You See Is What You Get: With ready-to-move properties, buyers have the benefit of seeing, inspecting, and experiencing the exact property they will be purchasing. This transparency eliminates the uncertainty and risk of discrepancies between promised features and the final product that can occur with properties under construction. Buyers can assess the quality of construction, finishes, and the overall condition of the property firsthand, ensuring that their investment matches their expectations in terms of space, layout, and aesthetics.

Disadvantages Of Ready To Move Property

Higher Cost: One of the primary considerations for buyers looking at ready-to-move properties is the higher purchase price. These properties are often more expensive than their under-construction counterparts, reflecting the premium for immediate availability and the elimination of construction-related risks. The added cost can be a significant factor for buyers on a tight budget or those seeking to maximize their investment value.
Older Construction: Depending on the market and the specific property, some ready-to-move homes may be older constructions. While they offer the advantage of immediate occupancy, these properties might also come with maintenance issues or the need for updates to meet current standards of energy efficiency and comfort. The costs associated with updating older systems, repairing wear and tear, and making the home more energy-efficient can add up, impacting the overall value of the investment.

Conclusion

In conclusion, the decision between purchasing an under construction property and opting for a ready to move property involves a careful evaluation of several key factors, including financial implications, timing, and personal preferences. Each choice offers distinct advantages and challenges that cater to different buyer needs and situations.
For those leaning towards an under construction property, the potential for a lower purchase price, customization options, and the under construction property tax benefit are compelling advantages. These benefits can make it an attractive option for buyers willing to navigate the uncertainties and delays that can accompany the construction process. On the other hand, buyers looking for immediate occupancy, certainty in what they are purchasing, and a straightforward transaction may find a ready-to-move property more appealing. While these properties might come at a higher cost, the absence of the GST rate on ready to move property and the ability to immediately see and experience the home as it will be lived in are significant advantages.

FAQs About Under Construction Vs. Ready-To-Move-In Property

What is the total tax on under construction property?

The total tax on an under construction property primarily includes the Goods and Services Tax (GST). The applicable GST rate can vary depending on the property’s value and sometimes the type of property (affordable housing vs. luxury projects). As of my last update, the standard GST rate for under-construction properties was set at 5% for non-affordable housing without the benefit of input tax credit (ITC), and 1% for affordable housing. However, these rates are subject to change based on government policies, so it’s advisable to consult the latest tax guidelines or a tax professional for the most current rates

What is the price difference between under construction and ready to move?

The price difference between under construction and ready to move properties can vary widely based on the location, developer, and specifications of the property. Typically, under-construction properties are priced lower than ready-to-move properties due to the wait time for completion and the risks associated with the construction process. The difference can range from 10% to 30% or more, depending on market conditions and the stage of construction at the time of purchase. Buyers are encouraged to research specific markets and developments to understand the price dynamics better.

Can we sell a house which is under construction?

Yes, you can sell a house that is under construction. However, the process may involve certain complexities, such as transferring the ownership rights to the new buyer and ensuring that all dues are cleared with the developer. Additionally, the original buyer’s agreement with the developer will dictate the terms under which the property can be transferred, and in some cases, the developer may charge a transfer fee. It’s important to communicate with the developer and possibly seek legal advice to ensure a smooth transfer process.

Can we save tax on under-construction property?

Yes, buyers can save tax on an under-construction property. Under the Income Tax Act, buyers are allowed to claim tax deductions on the interest paid on the loan taken to purchase an under-construction property. These deductions can be claimed in five equal installments starting from the year in which the construction is completed. However, there are limits to the amount that can be claimed, and the property must be completed within five years from the end of the financial year in which the loan was taken. Consulting a tax advisor for detailed guidance and to maximize tax benefits is recommended.

Can I transfer under-construction property?

Transferring an under-construction property is possible, but the process and the possibility depend on the terms set by the developer and the agreement made at the time of purchase. Most developers allow the transfer of property rights to another buyer, although they may charge a transfer fee for the process. It is crucial to check the specific terms of your purchase agreement and communicate with the developer to understand the procedure and any associated costs.

Is there GST on ready-to-move flats?

No, there is no GST on ready-to-move flats that have received their Completion Certificate (CC) before the sale. The GST applies only to properties that are under construction. Since ready-to-move-in properties are considered completed projects, they are exempt from GST, making them financially appealing to buyers who wish to avoid the additional tax burden associated with new constructions. Buyers should ensure that the property they are interested in has the necessary completion and occupancy certifications to avoid any GST liabilities.

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