Buying an under-construction property? Keep this in mind... - Outside View by PersonalFN

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Buying an under-construction property? Keep this in mind...
Aug 26, 2015

Home seekers like to select a property that is not very far from grocery stores or markets, hospitals, schools, railway stations and bus stops. Property buyers check many more things as buying a home is one of the biggest decisions they make in their lifetime.

While they pay a lot of attention to the locality of the property and amenities provided by the builder, it is very common among buyers to ignore some important aspects of property deals.

While buying a home, you have two options. You may either buy a finished property where you can move in the same day you buy it; or opt for a property under-construction which is expected to be fit for dwelling within a few months or maybe over a couple of years at max.

There is a difference between a ready-to-move in property and the one that is still under-construction. The former exposes you to lower risk while the latter carries higher risk. Let’s first understand what can possibly go wrong with an unfinished property.

The developer may miss timelines for a number of reasons such as land disputes, lack of funds, lack of regulatory clearances, labour problems and lack of demand among others. Therefore a property that looks relatively cheap when under-construction may become a costly affair for you if the developer fails to hand it over to you as scheduled.

To avoid being trapped in an undesirable situation, you must take care while you make a decision to buy an unfinished property.

Things to remember...

  • Check for all certificates and sanctions: Before you book any property, ascertain whether the builder has obtained all the necessary certificates and sanctions required from the concerned authorities. Ensure that the title of the property on which the construction is taking place is free from encumbrances and litigations. Stay away from buildings which have not received the statutory permissions even if they are available at attractive prices as this can translate into a problem later.

  • Analyse the builder’s track record: It would be extremely beneficial to check the track record of the builder. You must check the number of construction works he has done before and whether has he completed his past assignments as per schedule. It would be sensible to speak to his prior customers to understand their experience. Visiting other sites developed by the same builder will help you know whether he has fulfilled all promises made and offered amenities as stated.

  • Understand the prospects of the under-construction building: Find out whether there is any possibility of occurrence of problems such as weak demand, monetary concerns, and low price appreciation and so on. You shouldn’t take anything for granted.

  • Check all the associated costs: It may happen that there might be certain hidden costs which will be disclosed by the builder at a later stage. You must find out about all the costs associated and check if it fits into your budget.

  • Check if the builder is recognised by housing finance companies: If you are thinking of taking a home loan for buying the property, then you must check whether the builder is recognised by banks or housing finance companies.

  • Visit the site and inspect the quality of construction: To check for any malpractices or fraudulent practices and the development of the construction work, make timely visits to the construction location. You may take along an expert or a friend who can guide you correctly.

  • Talk to other customers / potential customers: Get in touch with other customers / potential customers to understand their view about the building. This might help you to find out about other pros and cons which you might have missed while undertaking your research.

  • Read the fine print well: It is important that you read all the clauses, terms and conditions in your agreement well before signing and before making the payment so that you are not in for a shock later.
When you are on a property hunt, you can take the help of a lawyer or an expert who has experience and knowledge about the realty sector. They may help you avoid going wrong.

PersonalFN is of the view that while buying an under-construction property is alright, complete research must be undertaken due to the risks involved. Irrespective whether you are buying a property for dwelling or investment, keep the above mentioned points in mind to protect your hard earned money from getting locked in a wrong deal. Real estate as an asset class is relatively illiquid.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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