Earlier, people used to go for under-construction homes as they were cheaper than the ready-to-move-in properties. Also for a home buyer, who didn’t have lump sum money to make full down payment, buying an under-construction home was easier as he/she would get time to make down payment in installment before applying for home loan.
However, narrowing price gap and the burden of Goods and Services Tax (GST) on under-construction homes put ready-to-move-in homes in an advantageous position.
According to ANAROCK data, that the price gap between ready-to-move-in (RTM) and under-construction (UC) homes in the top 7 cities gradually reduced from 8-12 per cent in 2017 to 5-9 per cent in 2018 and now the gap has further reduced to a mere 3-7 per cent in 2019.
With 5 per cent GST on under-construction homes and no such tax outgo on ready-to-move-in ones, Pune still has some visible price advantage on buying UC homes, which are still 7 per cent cheaper than RTM homes. But in Delhi-NCR, RTM homes actually become cheaper than UC properties with the price gap falling to just 3 per cent, which is even lower than the GST rate of 5 per cent on UC homes.
Apart from the visible advantages of narrow price gap and GST exemptions, RTM homes also have other benefits as well.
First of all, the buyer of a ready-to-move-in house may readily shift to the new home immediately after registration and save the rents, while buyer of an under-construction house continues to pay rents during the construction period.
Secondly, the UC properties come with escalation clause, which allows the builder/promoter to increase the price to cope up with the increasing prices of construction materials, labour cost etc. As a result, the buyer of an under-construction home may end up paying more price than the buyer of a ready-to-move-in home of comparable accommodation.
Another important advantage of buying a ready-to-move property is that the buyer may claim tax benefits on home loan interests and principal repayment from the same financial year, in which he/she buys the home.
However, the buyer of an under-construction home may claim tax benefit up to Rs 2 lakh in a financial year on interest paid on home loan, if the construction completes within 5 years of taking the home loan. Otherwise, tax benefit up to Rs 30,000 will only be allowed in a financial year, if the construction takes longer time.
So, the uncertainty of completion period of UC homes not only prolongs the rental burden and enhances the cost of construction, but puts doubts on eligibility of availing full tax benefits on home loan.
With so many disadvantages, the only solace of buying an under-construction home was its price advantage. But with that advantage also diminishing, acquiring a ready-to-move-in house has definitely become a better buy.