The real estate sector has witnessed a slump in the last 4-5 years and after a slight recovery, some issues resurfaced in 2019 due to the liquidity crunch. This happened due to the IL&FS collapse. Due to this liquidity issue, several NBFCs have reduced funding for buyers and real estate developers alike. Many complaints have also been registered where these institutions have withdrawn loans given earlier to housing finance companies and housing developers after the market crisis.
The government has already announced a bailout package of INR 25,000 crore to revive stalled projects through the AIF but experts are not sure about this being enough to revive the sector. Some are optimistic and it is expected that if the bailout package works and supply levels increase in the market, then unit prices may come down eventually. However, there are some other aspects worth considering here. The AIF will only be funding projects which are close to completion and with positive net worth.
Even if the package works, the majority of housing supply will be derived from unsold inventory and most projects nearing completion have already been sold off. Though real estate prices have somewhat corrected in the NCR and some other areas, sales figures have not gone up as expected, which is why builders are now providing hefty discounts to buyers. Amidst all this, buyers feel that ready to move in projects are the best options and since they’re mostly end users now, this is a dominant market trend. Speculative activity has decreased which bodes well for the market in the long term and investors have exited the housing market since average returns have been around 3-4% annually in the sector. Yet, if you are considering a property under construction, you will naturally be enticed by the lower GST rate, tax benefits and other sops under PMAY (Pradhan Mantri Awas Yojana) among several other incentives.
What to keep in mind while checking out under-construction property
Keeping all these factors in mind, if one is still considering under construction projects, then certain areas need to be checked before making an investment:
- The buyer should check if the project is RERA registered. That is the first stamp of approval for the project and this approval comes if the electric, water and municipal permissions have come in.
- Next, one should check that if all the details regarding the project are available on the RERA website. The implementation of RERA will vary from state to state and many builders do not even provide the full details on their websites. However, if this is the case, it is better to avoid such a project.
- Do your own background checks and see if the builder is financially strong. It is wrong to assume that just because the property is RERA registered, that everything will go smoothly. You should also check how many projects the builder has completed because completed projects give an idea about what kind of track record the builder has. Try to avoid builders who have been involved in NCLT cases or have consumer complaints against them.
- While most builders will highlight the facilities inside their projects like gym, swimming pool and others, most do not mention about the surrounding areas and buyers must go and see for themselves what kind of facilities the locality offers. The infrastructure of the locality should match your own needs. Try to find out what kinds of facilities are available nearby like schools, hospitals, banks and markets.
- When you talk about the approved completion date, do not settle for what the builder has told you and rather ask for the timeline of the project. RERA has imposed strict penalties for the projects that are not delivered on time and so to be on the safe side, the builders give a long deadline and state that the project would be completed ahead of deadline. Follow your own research and estimate how much work has been completed in the given time-frame. If you think that the timeline is not feasible, do not book any unit at the project. Try to check the progress plan and the construction plan ahead of delivery.
- Check for yourself if the price that is asked for at the project is reasonable or not. Since only a few metrics are available, the only way to determine this is the EMI to rent ratio. If the rental yield is somewhere around 3.5% then the price is considered reasonable.
- You should also bargain with the builder and ask for discounts, considering that you are taking a bigger risk by investing in an under construction property. Try to appoint independent property advisors to help you make the right decisions and check if the future developments of the region will match with your own growing needs in the future.
If your under construction property ticks all the above mentioned boxes, then there is no reason why you should not consider the same for investment.