Making informed real estate choices
Choosing between under construction and ready possession residential projects
In the ever-evolving world of real estate, prospective homebuyers often find themselves at a crossroads when deciding between under construction and ready possession residential projects. These two options come with their distinct advantages and disadvantages, making it essential for buyers to evaluate their preferences and circumstances. In this article, we will explore the pros and cons of both approaches, considering critical factors such as timelines for raising finance, overall pricing (rate per square foot), and the circumstances under which each option is more advisable.
Timelines for raising finance
One of the foremost factors that influence a homebuyer’s choice is the timeline for raising finance. Let’s explore how each type of project fares in this aspect.
Under construction projects Pros: Under construction projects provide buyers with the advantage of an extended timeline for raising finance. Typically, developers offer flexible payment plans, allowing purchasers to stagger their payments throughout the construction phase. This enables buyers to better manage their financial resources, making it an attractive option for those who may not have a substantial upfront budget.
Cons: On the flip side, the extended construction period can be a drawback for some buyers. The uncertainty associated with project completion timelines may lead to delays in possession, potentially causing inconvenience and additional financial implications. Therefore, individuals with an immediate need for housing may find under-construction projects less appealing.
Ready possession projects
Pros: Ready possession or ready to move in (RTMI) projects, as the name suggests, offer immediate occupancy. Buyers do not have to wait for construction to complete, making it an excellent choice for those who need a home urgently. There are no uncertainties regarding project completion, and the buyer can move in almost immediately after purchase.
Cons: The quick possession advantage of ready projects often comes at a premium cost. Prices per square foot tend to be higher compared to under-construction projects. Buyers need to have the financial means to make a lump-sum payment or secure a home loan quickly, which may not suit everyone’s financial situation.
Overall pricing (rate per square foot)
Under construction projects Pros: Under construction projects
generally offer a cost advantage in terms of price per square foot. Developers often launch projects at competitive rates to attract early buyers.
This can translate into a more affordable purchase, making it appealing for budget-conscious individuals. It also allows customers to get price appreciation on their apartments as the project valuation increases by the time the home is ready for possession. Cons: While the initial cost may be lower, under-construction projects may entail hidden costs in the form of escalation clauses, additional charges, or changes in project specifications. Buyers need to carefully scrutinize the terms and conditions to avoid surprises.
Ready possession projects
Pros: Ready possession projects, despite their higher initial cost, come with the advantage of transparency.
Buyers can assess the property physically and understand precisely what they are paying for. There are no uncertainties about the final product, which can be reassuring.
Cons: The higher price per square foot can be a significant drawback for some buyers. It may limit their options or necessitate a larger budget. Buyers must weigh this factor against the immediate possession benefits.
In the MMR for example, average PSF price difference between these two types was at an all-time high in 2017 at 12% which gradually reduced to 3% by 2021 but has bounced back to about 6% by 2023 making under construction homes a lucrative opportunity.
(The writer is a Director at Palladian Partners Advisory LLP. Look for the second part of this article in the next REJ page)