Buyers stay away from under construction housing projects
The housing sector is going through major changes as market dynamics adjust to new legal framework and taxation system for the sector.
In the midst of this adjustment, the under-construction housing segment has suffered the most with more and more homebuyers preferring completed projects rather newly launched or ongoing under-construction projects.
Realty experts say it is skewing the housing market dynamics discouraging supply expansion.
PAST EXPERIENCE
The homebuyer always got better deals for under-construction properties as the builder needed to raise funds for launching a new project and completing it.
But, for many homebuyers investing in an under-construction property has resulted in a long wait for getting possession.
Sometimes the builder even left the project midway after taking homebuyer money.
“The homebuyer is still wary of under-construction projects after her dreadful experience with such projects in the past. A lot of people bought in underconstruction projects — many of these by taking home loans while living on rented accommodation. So, they were paying both the home loan equated monthly installment and house rent at the same time. In such circumstances, the most fearful for such buyers is possession delays. But that’s exactly what happened with many builders not caring to stick to possession deadlines,” says Col RS Perhar (retd), a Chandigarh-based real estate analyst.
GST FACTOR
The goods and services tax (GST) is levied on under-construction properties. Effectively at 12% for segments other than affordable housing, homebuyers seek to avoid paying it. This is especially the case with builders not passing on the input tax credit benefits to the homebuyer.
One way to avoid paying this additional housing ownership cost is not buy an under-construction house and buyers only opting for ready-to-move in properties.
Niranjan Hiranandani, president of National Real Estate Development Council (NAREDCO) “The GST applicable on ready possession, occupation certificate (OC) received homes is zero, while on home under construction, it is levied at 12%. In effect, it creates a situation where a home seeker feels it is advantageous to wait for the project receiving the OC before making the purchase, as there is a saving of 12% GST. The impact is being acutely felt on underconstruction stage sales, in fact it has become a new trend – homebuyers are opting for such homes where they can save the GST. This has created a scenario in real estate where home seekers are giving up the advantage of arbitrage while buying under construction homes. For another segment of homebuyers, booking a home at the start of the project offered time options in which to spread the payment instalments, present scenario they have to put up the entire amount at one go.”
THE RERA IMPACT
The Real Estate (Regulation and Development) Act 2016 was expected to build-up confidence among homebuyers for the newly launched under-construction housing projects.
A slew of stringent provisions, under the Act, imposed on builder regarding the requisite government approvals, sale agreements, funds collected from buyers for construction, possession deadlines etc are aimed at making the builder accountable for promises and bring in greater transparency in the way builder goes about delivering her project to the buyer.
“These are early days for the state real estate regulatory authorities. Some are still at inception stage and others are yet to make fully operational the Rera websites. Also, for the homebuyer, it is another way to solve legal disputes with the builder. But, why to get into legal disputes with the builder when one can avoid buying an under-construction property,” says Himanshu Pant, business head and senior vice president (Punjab and Haryana) at Ansal Properties & Infrastructure Ltd.
While the Rera act imposes strict restrictions and regulations regarding getting of government approvals and completion certificates, the ongoing under-construction projects suffer because of long pendency in getting requisite approvals and completion certificates.
“The Rera exercises control over the builder and tries to streamline all processes at the builder end. But, the new Act has no say over the delays caused by the government agencies in giving different requisite approvals. These government induced delays also negatively impact the possession delivery in under-construction project, thus making them less attractive to the homebuyer,” says Pant.