Most home loan applicants think between opting for an under-construction or ready-to-move-in house. Before deciding on the house, it is important to analyse the primary purposes of buying a house and to further understand the pros and cons of buying an under -construction and ready-to-move-in house.

However, before this, ensure that you have already check the home loan interest rates and home loan eligibility criteria with the potential lenders.

  • Under-Construction House: the positives & negatives

At the time of purchase, an under-construction house proves to be much more economical than a ready-to-move-in house (having same area, builder and property type). In case of a home loan against such houses, the EMIs are low and are paid as the work progresses. Moreover, an under-construction house yields a higher ROI due to prolonged window timeline period between purchase and delivery (referring to better appreciation).

Buyers of under-construction houses with Occupation Certificate (O.C) can avail speedy information and grievance under their State’s RERA (Real Estate Regulatory Authority) compliance. With unlimited options of prices, locations and amenities, an under-construction house seems to be a worthwhile option for a home loan applicant.

However, since buying an under-construction house is also associated with certain disadvantages, it is advisable for the home loan applicant to thoroughly research about them. Many a times, the builder faces challenges such as increased cost of construction materials, increased lending rates and financial crisis. Henceforth, he is unable to deliver the housing project on time due to delayed approvals. This pertains to higher risk involved with investment in under-construction houses.

Moreover, many other discrepancies may arise such as getting lesser usable area than proposed, deficient amenities and changed layout. There is not much clarity on maintenance charges during under-construction stages. It is quite possible that the market outlook may also change over time as the construction progresses, which is a potential drawback for the buyer. Under all these circumstances, it becomes obvious for the buyer to pay home loan EMIs for a longer period than estimated.

The home loan applicant needs to be aware of the heavy tax expenditure while buying an under-construction house. He will have to separately bear the GST, stamp duty and registration charges. The tax benefits associated under section 24, 80EE and 80C of the Income Tax Act might not be availed by home loan applicants for under-construction houses due to frequent project delays and uncertainties in real estate sector.

  • Positives & negatives of Ready-to-Move-In House

In case of a ready-to-move-in house, the primary advantage is immediate availability soon after the documentation and payment procedures are completed. Furthermore, the buyer gets exactly what he has paid for, thereby saving him from discrepancies discussed before (in the case of under-construction houses). Also, there is more clarity on maintenance charges as compared to under-construction houses.

The housing unit is ready for inspection before the buyer opts for a housing finance option to proceed with the needful payments. Such houses are free from implication of GST and VAT, which is a potential advantage for the buyer. In case of buying such houses for investment purposes, the buyer can immediately generate good returns.

However, buying a ready-to-move-in house involves few disadvantages as well. This includes higher cost and detailed documentation procedures as compared to an under-construction house. While ready-to-move-in house might bring in peace of mind due to tax benefits, it might prove to be expensive during the initial purchase.

In the case of ready-to-move-in house, the quality of construction cannot be checked upon which is otherwise possible in under-construction houses (such as checking strength of foundations, materials used, etc). At times, it is possible that the available ready-to-move-in house is not a brand new home and depicts poor maintenance. It is not mandatory to include such old houses with O.C. under RERA. Therefore, important information pertaining to old houses might not be available openly to the public.

With the available time and resources, home loan applicants need to consider the underlying advantages as well as disadvantages pertaining to both the type of houses.

Therefore, the right choice of the buyer would depend upon his financial condition, timing, location, risk taking ability and other associated factors. In other words, the priorities, expectations, purpose and budget of buyers ought to be different and accordingly, they should come to the most appropriate decision. The applicant should spend time in choosing from host of housing options as per allocated budget, lifestyle as well as investment goals.