Resale Under Construction Property is most beneficial but least preferred option for a buyer. This is true for buyers who only want to buy Under Construction Property. Recently, one of my clients bought a property from leading builder of Mumbai. Price quoted by the builder was Rs 5999/- psf. Whereas Resale Under Construction Property in the same complex of same unit size was available for Rs 5350/- psf. Despite the direct monetary benefit of approx 9 lakh, my client decided against it. Honestly, i failed to understand the logic.
As i keep highlighting that Rate card of a builder is always 10%-25% higher compared to the Market Rates. Builder also knows that rates are artificially inflated, but it is a compulsion for him. He has to create a perception among existing buyers that they have made the best decision of their life by investing in his project. Buyer in the project is getting 15%-20% annual appreciation which is far from reality. The second reason is that he has to adjust the increasing project cost in selling price. Project cost inflation is 10%-15% but since the operating margin is up to 30% therefore i personally don’t buy 2nd reason fully.
Now, you must be wondering why Resale Under Construction Property is cheaper compared to rates offered by the builder. The simple reason is that the seller bought it at much lower cost, may be during initial stages of launch. In the above-mentioned case, Seller bought the property at Rs 4300/- psf couple of years back therefore Rs 5350/- psf is a win-win situation for the seller. Normally best rates are offered by the investors or if the seller is under financial distress.
In my post, Resale Flat or Under Construction Flat – Which is better? i highlighted the pros and cons of both types of property transaction. Resale Under Construction Property makes more sense when the project is nearing completion. It should be preferred by the buyers who are planning to buy only in under construction projects. Let’s check out most important points while buying Resale Under Construction Property.
Resale Under Construction Property – 7 Imp Points
1. Assignment Deed/Transfer Deed: At the time of purchase of Resale Under Construction Property, Many buyers directly enter into an agreement with the seller. It is not advisable at all. It can land you in legal / financial trouble. While buying Resale Under Construction Property, you should always enter into a tri-party agreement which is also known as Transfer Deed or Assignment Deed. This deed is signed by the buyer, the seller and the builder. The very simple reason is that till the time builder execute the sale deed in favor of a buyer, Builder is a stakeholder in the property.
2. Break Up of Sale Price: In Resale Under Construction Property, Sale Consideration is divided into 2 parts. Normally seller charge premium on his/her purchase price and at the same time X amount is still due from the seller to the builder. This break up will depend on the agreement between the builder and the seller. Assignment Deed should clearly mention the payment already made, payment due and break up of a sale price.
3. Transfer Fees: Many buyers miss this crucial point at the time of purchase of Resale Under Construction Property. Transfer fees is payable to the Builder for the transfer of property before registration. Transfer fees is normally Rs 200/- psf and may go up to Rs 500/- psf. The cost/price advantage to the buyer will be wiped off if this point is not discussed with the seller before the agreement is signed. It should be clearly mentioned, who will bear the cost of transfer fees. Buyer should calculate final purchase price after including transfer fees.
4. TDS u/s 194IA: Recently, one of my clients received Income Tax Notice for short payment of TDS u/s 194IA. He bought Resale Under Construction Property for 75 lakh. Out of 75 lakh, he paid 30 lakh to the builder and 45 lakh to the seller. Seller already paid 35 lakh to the builder on which the TDS was deducted and deposited. My client paid TDS on 40 Lakh. The justification shared by him was that since the seller has already paid TDS on the amount paid to the builder i.e. 35 lakh and accordingly he paid TDS on balance amount i.e. 40 lakh. It is not correct. For Resale Under Construction Property, TDS u/s 194IA is applicable on total consideration even though it is divided between the seller and the buyer.
5. Home Loan of a Seller: Resale Under Construction Property Transaction is slightly complex if the seller has running Home Loan and buyer is also availing Home Loan. It is critical to include the details of both the Home Loans in Transfer deed/Assignment Deed. In this case, there can be multiple transactions between the buyer and buyer’s Home Loan Provider & the builder, the seller & seller’s Home Loan provider.
6. Title Search: Its a biggest misconception that Title Search is not required for Resale Under Construction Property. Due diligence is equally important for Resale Under Construction Property. It is advisable to carry out independent due diligence. Besides Title Search, you should take care of other imp points while buying under construction property. I highlighted the same in my post Under Construction Property – 7 Important Points
7. Why the Seller is exiting the Project?: Last but not the least, it is imp to check whey the seller is selling his property. In many cases, reasons are a dispute between the builder and the seller, Legal Dispute, Delay in Project or Price appreciation is not as per expectation. If the reason is related to the project then you have to be extra cautious. It is advisable to carry out independent research before you buy Resale Under Construction Property.
To summarize, In most of the cases the cost advantage is the only criterion to buy Resale Under Construction Property. Though you might be getting a good deal but you should not be carried away by the low price. Before deciding you should check with the builder and also check other Resale Under Construction Property available in the same project. It will give a fair idea on the dynamics of the project. Before signing the Deed of Assignment, you should check with the builder whether the builder has any reservations on this transaction. You can clarify your doubts related to property transaction with the builder. Some of the imp points are related to project completion, completion certificate, occupancy certificate etc.
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