With the implementation of RERA, the residential real estate industry is witnessing significant changes on the ground. The Act strictly prohibits builders from advertising their under-construction projects while allowing the freedom to attract buyers for projects that have Occupation Certificates (OC ready). With the new rules, buyers are naturally showing increasing interest in such properties, which are essentially ready to move in.
It is no secret that ready-possession projects are costlier than under-construction projects. Nevertheless, buyers are now more than ready to purchase properties on an immediate basis rather than wait for construction to be completed. There are very good reasons for buyers to look for properties that are ready-to-move-in or OC ready in today's market environment:
The real estate sector has gone through one of the worst downward phases in the last couple of years, resulting in lower new launches, price reductions and higher unsold inventories. These dynamics induced developers to offer very attractive deals, discounts and lot of freebies to attract buyers. Even though the market is slowly recovering, these dynamics are still at play.
Therefore, it makes a lot of sense for buyers to invest in a ready-possession projects rather than wait for new projects to come up over protracted periods of time. While prices are beginning to rise again on the back of a gradual market recovery, this dynamic is still in its initial stages. This makes the current time optimal for buyers and investors to focus on ready-to-move-in options.
Cost of Rentals
Most of these projects will be patronized by buyers who use bank loans, implying a significant financial burden. Not only do buyers have to pay EMIs, but also the rent on their current homes while awaiting completion of the project. Paying a little extra to acquire a house right away is cheaper than paying rentals over long periods.
Date of Delivery
Under-construction projects in India are infamous for delays in completion, and that leads to buyers paying double the cost. EMIs as well as higher rentals while awaiting possession of their property. Even though delayed delivery of projects is due to several factors plaguing the real estate sector, many buyers’ financial situations do not permit them to wait beyond a point in time. EMIs plus the additional rental expenses take a toll on buyers who have invested in delayed under-construction projects, so the decision to invest in ready-to-move-in or OC-ready projects makes a lot of sense to them.
A lot of investors buy homes with the objective of earning rental income, with an eye on eventual resale to cash in on capital appreciation. Purchasing a property in a completed project helps them to immediately start earning out of it through rentals rather than waiting a few years and locking their money away in a non-income generating projects.
Diminished Incidence of Dubious Developers
The Indian real estate sector is still very fragmented, and there have historically been a lot of fly-by-night operators who duped buyers of their hard-earned money by collecting the initial sums and then vanishing into thin air. With RERA, such dubious developers will diminish in number; over the long term, the strict guidelines will ensure that only serious and genuine players operate in the market. For the time being though, buyers still feel justifiably vulnerable and want the assurance that finished projects offer them.
A lot of new projects are coming up on the peripheries of major cities where the supporting infrastructure like roads, electricity, water connections, etc. are not developed. They are promised only when the projects are completed, but under-construction projects have to wait much longer for deployment of basic infrastructure. This naturally puts off buyers, who want to move into their new homes and also start living life with decent facilities instead of waiting indefinitely for them to be provided.
Impact of GST
GST implementation has resulted in reduced tax burden on buyers purchasing ready-to-move-in apartments. The tax on the entire cost of the project, including the land, will be levied at 12% - this should be enough for the builder to claim input credit, thus making OC-ready projects more economical for buyers.
As is evident, these are valid concerns for buyers when it comes to investing their money in real estate. Also, selling ready properties obviously works well for developers since it helps them offload their unsold inventory and get much-required liquidity to further invest in projects which are in demand.
As per RERA, all residential projects in Maharashtra have to be registered under the Maharashtra Real Estate Regulation Act before they can be advertised and sold. Since the rules are strict and builders need to be extra cautious and careful to follow the norms, the pace of registrations under MahaRERA is still painstakingly slow. The Mumbai Metropolitan Region (MMR) itself has around 5000 under-construction projects that need to be RERA compliant, and most will try to meet the 31st July deadline for registration.
The author is CEO - Anarock Property Consultants. Views are personal.