Incredible! But true. Despite hostile conditions, be it political, socio-economic or extreme weather calamities, hitting the Kashmir valley at regular intervals during the past three decades, an unusual boom has been witnessed in real estate deals. This boom is apart from the brisk sale and purchase of immovable property within the valley. What I am talking about is the growing appetite of investment among the local (J&K) investors in real estate (especially in residential flats) outside the state particularly in northern part of the country. There has been a mad rush for buying a residential property outside the J&K region.
Interestingly, the growing appetite of people here to have housing property outside J&K attracted local property dealers and they too started expanding their real estate ventures outside the state, mostly in Delhi, Uttar Pradesh and Haryana. This combination of local property dealers and the local investors has become a convenient means of flight of capital from the state to other parts of the country. Initially, this looked prosperous for both. But over a period of time, the investment has lost sheen and many investors found their money locked in the troubled waters of the real estate sector in the country. Those who have invested in under-construction properties are the worst sufferers.
Even as all bad economic scenario is now attributed to the outbreak of coronavirus pandemic, the fact is that real estate sector was already in worst-ever financial crisis in pre-pandemic times. The homebuyers, particularly those who had parked their hard earned money with the builders for acquiring a residential flat, got a shock of their life when builders failed to give possession of the property to them in the given time frame. And even today most of these homebuyers are struggling to get possession of their flats. The builder has either failed to complete the construction or has got entangled into some legal dispute over the property under-construction. In both cases, it’s the homebuyers who is suffering as his money is at stake.
Now, the coronavirus crisis has further complicated the issue as the builders find it hard to lay hand on finances to complete their projects. This has put the homebuyers in dilemma. Precisely, in the given scenario when pandemic refuses to end despite roll out of vaccines, getting possession of the property would be a major worry and investors will be left with no alternative but to be at the mercy of the builders.
I have been receiving various nature of queries particularly from those who had paid property dealers in Delhi, Noida, Haryana or in Punjab for purchasing flats, particularly residential flats, under construction. They are yet to get possession of the flats as the builders have been delaying completion of the flats for want of funds in pre-pandemic times as well as during the pandemic-induced crisis.
Notably most of the local buyers have paid almost 70 to 90% of the cost of the property under construction and the builders have left the construction midway for years now not only for lack of funds to complete the construction, but also because of legal dispute over the property.
In the backdrop of above scenario, it makes a sense to aware the general public especially in J&K region about the risks associated with investment in under-construction properties. There are certain issues which a gullible investor needs to understand before parking his hard earned money with a builder for purchase of property.
What should you do in the current scenario?
Those who have already made a portion of investment in the under-construction property may continue to face stressful time. Getting possession of the home would be a major worry and they will be left at the mercy of the builders. They have no option but to accept the delay. Precisely, the warning sign is that the time is not good for investment in under-construction properties. You, as a buyer, need to be alert to avoid risk of getting locked in a delayed project.
What basic question one should ask the builder if one intends to buy an under-construction property?
If you have spotted an avenue for investment in under-construction property, you should first ensure that the project is registered with the real estate regulator. Real Estate Regulatory Authority (RERA) Act requires developers to register themselves and their projects with their respective state’s regulatory authority. Since the registration involves full disclosure of details such as project layout, land title, approvals, construction and delivery timelines, along with developers’ details such as pending litigation and financial status, a buyer can trust projects and developers that have been registered with the regulator. Notably, it is mandatory for the builders and developers to adhere to RERA regulations before they start the project, starting with registering the project under the RERA Act.
Don’t invest in under-construction properties which have not been registered with the regulator. You can cross check the facts about the project from the State’s RERA website.
What are the benefits to homebuyers under the RERA act?
Let me list a few benefits.
Firstly, a buyer will come to know about the reputation of the builder in terms of his work profile and the buyer will also have access to the full details of the project.
Secondly, there are fewer chances of falling into the trap of fraudulent builders. If a builder is found to be committing any unfair and fraudulent practices, his registration would be revoked instantly.
Thirdly, as envisaged in the RERA Act , the builders cannot take advance from the homebuyers before entering into a sale agreement. After executing a sale agreement the homebuyers cannot be asked to pay more than 10% of the cost of property.
Meanwhile, there is also right to compensation in the Act. If the builder fails to complete the project within the given time, the buyer is entitled to lodge claim for compensation. Notably, if the builder is not able to complete the project on time, and the buyer want to withdraw the project then the builder is subject to compensation along with the interest as prescribed by the Act. But if the buyer does not want to withdraw from the project, the builder is liable to pay interest for every month of delay, till the possession is transferred to buyers.
Even the buyer can claim for a defect after possession. The Act says that if any structural or general defect appears to the buyer in the property within 5 years from the date of possession, such defects are to be repaired by the builder within 30 days of the defects detected, free of cost.
In succinct, the RERA Act has turned the real estate market into buyers’ market. Now the builders’/promoters writ doesn’t hold ground anymore.
What’s the best choice between a ready-to-move-in and under construction house to buy in the coronavirus-induced pandemic crisis?
It’s, of course, a dilemma for buyers to choose a ready-to-move-in house or an under-construction one. Basically, the choice depends on what the buyer is looking for, his needs/requirements and most importantly, whether one is buying for investment or for living purpose.
Generally, a ready-to-move house makes more sense, if the buyer is looking for accommodation. From an investment perspective, it’s the under-construction property which an investor should look at. In both cases, the investor should evaluate the profits the property would bring if sold in the long run.
In a ready-to-move-in flat, the buyer is well positioned to assess the sense of security and the infrastructure in the vicinity, before buying the flat. The buyer pays for what he sees and can ascertain the construction quality, social and physical infrastructure before purchasing the flat. Besides, there is no question of delays and cost escalation. Possession is immediate.
However, the disadvantage is that it usually has a higher price tag and is not considered an ideal choice from investment.
Let me share a report by PropTiger.com which reveals that the share of ready-to-move-in homes in the total housing sales in the primary market rose to 21 per cent in the pandemic-hit 2020 from 18 per cent in the previous year as home buyers preferred completed apartments to avoid the risks attached with under-construction properties,
Meanwhile, one should go for an under-construction property in case the builder is offering a substantial discount and if they prefer the payments to be staggered over a longer period. The discount being offered should be material enough considering the interest cost, cost of alternative accommodation, deferred tax benefits and the uncertainty pertaining to timely delivery of home.
(Inputs from real estate experts are acknowledged)