The implementation of reforms such as RERA (Real Estate Regulation and Development), GST (Goods & Service Tax) have changed the dynamics of the real estate sector. It may lead to near-term pain till the industry adjusts to the new rules, but will certainly augur well for the sector in the future.
RERA has paved the way for a more systematic approach in the real estate business and safeguarded the interest of the buyers by bringing in transparency, ensuring accountability and timely completion of projects. Also from an industry perspective, it has increased credibility which will lead to higher domestic and foreign investments. GST has also resulted in reduced tax burden on buyers purchasing ready-to-move-in apartments.
As per syndicated reports, ready properties currently account for 25 percent of the total housing sales in the country. In the last 12 months ending July 30, 2017, around 75,000 ready-to-move-in apartments were sold across 51 cities in India. The affordable segment continues to see traction in under construction homes while in the mid & luxury segment, the demand is more for ready-to-move-in properties.
Ready homes are patronised by buyers who use bank loans, implying a significant financial burden. Monthly installments and rent need to be paid on their current homes, while awaiting the completion of the project. Paying a little extra, to acquire a house right away, is cheaper than paying rentals over long periods. A lot of new projects are coming up on the peripheries of major cities, where the supporting infrastructure like roads, electricity, water connection, etc. are not fully developed. So, many buyers are preferring projects where the supporting infrastructure is in place.
One of the significant reasons why buyers are looking at completed projects or those nearing completion is the limited availability of RERA registered under construction homes. For instance, today in the market if a customer inquires about at an under construction home, the developer might not be in a position to sell it since he is awaiting the registration number from RERA. So, in that scenario he will market ready to move projects to prospective customers.
Owing to this higher traction is witnessed in ready to move properties post RERA.
Also, 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 for a few years and lock their money away in a non-income generating project.
Those looking to invest in under construction projects must invest only reputed builders who have sound track record. Only established players are positioned well to comply with the stringent rules of RERA. This will give buyers the cushion that they can get capital appreciation on their home as well as timely delivery. Also, with reputed developments it is easier to get good rentals.
Eventually, the choice majorly depends on the availability of funds, affordability of a property and the possession time line. If you do not have the funds immediately at your disposal and are willing to wait for some time, an under-construction property is a better option. Apart from the inherently higher cost, the selection of properties in the ready houses is limited compared to the ongoing projects since the latter gives you more alternatives with regards to picking the floor designs, view and a lot more.
Though the implementation of RERA has seen a deceleration in new launches, the demand for well-thought out products continue to be robust in the market. It is certain that RERA will clean up the market and only the strong, reputed developers will be able to do business in the future.
Therefore, the right strategy for the buyers must be to invest as per their need, go with reputed builder' and choose good locations which will give them price appreciation once the cycle turns in future.- The author is the chairman and managing director House of Hiranandani