Under Construction Property is most profitable for builders as they charge hefty premium on same compared to prevailing Market Rate. In my post Resale Flat or Under Construction Flat – Which is better? i highlighted pros and cons of both Resale & Under Construction Property. Though i am not concluding either in favor or against under construction property but i would like my readers to take informed decision to avoid future shocks. At the end of the day, its your hard earned money. Before you sign below the dotted line, Please go through following 7 critical points related to Under Construction Property. I will try to explain each point with relevant example
Price Bubble of Under Construction Property
Case A: Recently i was helping one of my client to identify under construction property. The representative of builder told me arrogantly that today’s rate is Rs 5500 psf and it will increase to Rs 5700 psf after Gudi Padwa. I asked him whether demand is going to increase drastically after Gudi Padwa that you will be increasing rates. As per my knowledge, the price of a product is determined by the market forces i.e. Demand and Supply scenario.
Case B: One of my friend booked under construction property in May 2013 @ Rs 3500 psf. He proudly told me that his property has appreciated to Rs 5000 psf in just 1 year…Wow !!! 43% return in 1 year. If i am a builder and my property is in so much demand than why i sold it at Rs 3500 psf one year back. Its better that after completion of project, i will sell all apartments in one shot @ Rs 10,000 psf. Thus my profit will be tripled. From customer perspective, i should sell my all assets and invest in this property.
Now the biggest catch in both Case A and Case B is that Builder has to keep all existing customers Happy by showing them that they have made their Best decision of life by investing in his property. Under compulsion builder has to keep increasing rates at regular intervals to show artificial and inflated appreciation even if “No Sale” is happening. We will checkout in following points how this bubble burst
Resale of Under Construction Property
Before purchasing property from builder its better to check the rate of property in secondary market / Resale. Please don’t go only by Builder’s Rate Chart. I suggested same to my client (Case A) & finally he bought flat at Rs 4500 psf from one of existing owner of the project (including transfer frees of Rs 100 psf) therefore he saved Rs 1000 psf on 1800 Sq ft property. Smart move helped him save 18 Lacs. Shocked !!! But its true and he personally came to thank me after closing the deal. Now you must be wondering how come so much difference between Builder’s Rate Chart and Secondary Market Rate? I will answer this mystery in next Point.
Difference between Pre-Launch Rate & Current Rate
As i mentioned that Market forces decide the price of a property. This point reg difference between Pre-Launch Rate & Current Rate is most critical among all points. Again coming back to Case A, Builder is quoting Rs 5500 psf and my client bought property @ Rs 4500 psf. Does this mean that the seller has incurred losses by selling @ Rs 4500 psf to my client. Answer is NO, lets go one step backwards. In this case the seller of Property bought property @ Rs 2900 (Pre-Launch Price). By selling @ Rs 4500 psf to my client he still made cool 50% returns on investment in 3 years. Moreover he knew that Rs 5500 psf quoted by builder is artificially inflated and he will not get this rate.
To summarize, it is critical to find out the entry points of existing customers. If the difference between Pre-Launch Price and Current Price is very high than in all probability market forces will stabilize the price to level lower than Builder’s Rate. Secondly such a steep increase in rates from Rs 2900 psf to Rs 5500 psf in just 3 years is not justifiable in current scenario until unless there are strong external triggers to boost demand.
Like equity market, the property rates are also driven by sentiments but as i keep highlighting that return from your property investment depends on your Entry Point. If you enter the market @ artificially inflated price point than it will eat into your future appreciation.
Real Cost of Under Construction Property
Here the builder play with the psychology of the customer. The customer is deceived by the fact that he/she is getting best deal. One of my client is buying a 1000 sq ft flat in Gachibowli, Hyderabad. The rate of Rs 4500 psf for under construction property is deceiving him that he is getting best deal of the town. This is not one of the case but till date this trick worked on each & every customer. The rate in secondary market for 4 year old complex is Rs 4000 psf in same area. Comparatively the rate of Rs 4500 psf for new complex sounds great. Fact of the matter is that my client was not including 8 Lac for Amenities, VAT, ST, Club house membership etc in the cost of property. Besides these Misc charges, he will be spending min 6-7 lac for basic furnishing. Thus total rather real cost of under construction property is 45 Lac + 8 Lac + 7 Lac = Rs 60 Lac (Excluding registration). In resale flat all these costs are included in quoted rate. A psf rate of Rs 6000 in this complex compared to Rs 4000 psf rate in same area in secondary market. Is it worth spending Rs 20 lac more for under construction property. Going by logic of previous point i.e. if majority people buy near Pre-Launch price than rates will definitely collapse. When i checked the Pre-Launch price of this complex it was Rs 2300 psf therefore people who bought near Pre-Launch price will not mind selling @ Rs 3500 (Approx 50% return) thus crashing the rates.
Home Loan for Under Construction Property
Another trap from builder. Pre-EMI interest is paid when property is under construction. Pre-EMI is nothing but Simple Interest on Home Loan amount disbursed till date. It is much lower than actual EMI as you are not contributing to principal component and secondly it is only the interest on disbursed amount. The ugly side of Pre-EMI interest is that it increase the cost of your property exponentially. In simple words any Pre-EMI interest is just cost to acquire property. If you are buying a property for self-occupation than you will be paying Rent and Pre-EMI simultaneously till possession. Lastly, if there is any delay in project than Pre-EMI during period is additional burden. Again customer’s psychology is that he/she is paying less EMI for under construction property and is happy with this fact.
Title Certificate of Under Construction Property
Recently Allahabad High court ordered demolition of two 40-storey apartment towers of very reputed builder in Noida. The probability of legal/administrative dispute on Under Construction Property is very high. Some of the common reasons are Deviations from approved plan, Dispute between Land Owners and Builder, Approvals from Govt Authorities, Dispute on Land Title etc. It is advisable to take Title Certificate from local competent property lawyer before investing in under construction property.
Everything is on Papers
Last but not the least, Please remember that you are buying something based on Trust factor as everything is on paper till you get the possession. In this situation, the reputation of a builder is biggest trust & reliability factor. Besides title of property, delay in project is very common issue. It is in the interest of builder to maintain “Under Construction” status till entire inventory is SOLD. It is always advisable to buy from known and reputed builders.
I am not advocating that you should not invest in Under Construction Property but any such decision should be well informed & well thought through. Builder will try to pressurize you to close the deal immediately by saying that “Last few units are available”. Trust me these are marketing tactics and you should not fell into this trap.
Copyright © Nitin Bhatia. All Rights Reserved.
Hi Nitin,
I am also facing the problem of delay in possession.
Is there any way out by which we can force builder to expedite the construction.
You may approach Consumer forum and revoke the clause related to delay in project in your agreement. You may seek compensation from builder as it is deficiency in service.
Hi
i have recently bought flat in resale in jaypee wishtown noida expressway at 3950 BSP . Please advice is it right entry point .
second as mentioned that builder is liable to pay late delivery penalty, but there is no calrity wether it is payble to second buyer.
You have not mentioned the tower. The price range is huge & varies upto 700 BSP between various towers.
Tower 3
You got very good deal..All the best :)
Please answer my 2 nd question on late payment by jaypee. Is it going to be first or second buyer also.
I checked with jaypee they do not have any confirm answer as there is no ploicy barring second buyer. But what i want to know can jaypee technicaly can change this clause any time by itself by time of possesion .
Will i have any say in it or can challenge same , since at time of buying property it is not mentioned anywere.
please suggest
Also tower name is keningston park.
I got it..This tower is premium tower & you got good deal.
As it is transfer case therefore you must have signed tri-party agreement between builder, seller and you. To be very honest and as i mentioned in my other comments also that builder put so many ifs and buts that technically no one receive any compensation from builder for delay.
Still you may check the relevant clauses in your agreement regarding same. Legally any compensation for delay will be passed to you. If this clause is not mentioned in your agreement than you cannot claim any compensation for delay.
Any dispute between builder and buyer is strictly governed by the legal agreement. No one can change any terms and conditions unilaterally.
Well said. Under construction property and home loans on them are a major source of conflict due to long delays. Interestingly, the prices in these projects don’t seem to be significantly lower than those in ready projects. So, should the customer actually consider these?
Hi Nitin,
I am finding great useful info on home buying frm ur articles!
Can you please elaborate on the statement in above post “The ugle side of Pre EMI is that it increases the cost of your property exponentially “? A numerical example to support d answer would be great for understanding. Thanks in advance.
Pre-EMI is simple interest on amount disbursed till date for under construction property. For e.g. if you bought a under construction flat of 80 Lacs and property will take 4 years to complete. Home Loan amount is 50 Lacs in this case. The payment to builder is CLP (Construction Linked Plan). For simplicity purpose lets assume average disbursement from Home Loan for 4 years is 50% of 80% of Home Loan (80% payment is made to the builder when super-structure is ready). In this case average disbursement from Home Loan is 20 Lacs for 4 years. You will pay Simple Interest on this amount for 4 years @ 10% therefore simple interest = 8 Lac. Now before possession you are not repaying any Principal amount thus 8 Lac is additional cost which is paid as Simple Interest during Under Construction as Pre-EMI interest thus cost of property is now 88 Lacs. All these calculations are very conservation, in actual scenarios simple interest will be around 12 Lacs as builders start delaying projects when super structure is ready and he received 80% payment from Home Loan. The buyer keep paying simple interest on this amount.
If there is delay in project than Pre-EMI interest will keep increasing exponentially or you bought under construction property during Pre-Launch on Home Loan which will take approx 4 years to complete than your Pre-EMI interest will be more.
HI Nitin, Thanks for useful Post. I am buying under construction property which is in advance construction stage and will be ready in 1 month. It is resale where seller bought it in 70 lac and selling me on 110 Lac. As per Circle rate property registry would be on 72 Lac if seller goes for registry. I made a MOU with Seller stating I am buying this property in 110 Lac where 70 lac is flat cost and 40 lac is seller profit. In this Case in TPA what builder will mention 70 Lac or 110Lac and my registry will be on Circle rate or on 110 Lac . Thanks
Nitin
You should enter into Tri-party transfer agreement between builder and the seller. The total transaction value has 4 components which should be part of this agreement
1. Amount paid by Seller to Builder (Till Date): You will mention specifically that you are paying this amount to seller to buy his rights in the property
2. Amount to be paid by Seller to Builder (After date of agreement at possession etc) i.e. amount due to builder: You will mention that you will be paying this amount directly to builder after property is transferred in your name by builder
3. Transfer amount + ST + Administrative Charges (If any): To be paid to builder. It is normally Rs 200 psf
4. Sellers Profit: Any amount over and above i.e. Total – 1st Three, you will be paying to the seller directly.
Now in few cases only 1st 3 components are part of Tri-Party agreement whereas as Sellers profit is not mentioned & paid directly…I will suggest to include all 4 components in tri-party for transparency and to avoid any dispute.
As circle rate is now 72 Lacs therefore property cannot be registered below 72 Lacs thus your Tri-Party Agreement should not be below this amount.
Your registration amount will be according to builder calculation (Normally @ Agreement to Sell value) and i don’t think so builder will agree on full amount. In all probability it will be @ circle rate i.e. 72 Lacs.
Hi Nitin,
Is it compulsory to get builder-buyer agreement registered and pay 2 % stamp duty in advance?
I booked a under construction property(for investment only) and submitted builder buyer agreement to bank without paying 2% stamp duty , than bank apprroved the loan. Kindly advice Anything to worry in this case (not registering the agreement ) ?
Ideally you should register the agreement with builder to safeguard your interests. Even if you have not registered and builder is reputed than i don’t foresee any issue. If the builder is small time builder than you should register the agreement.
My Builder is member of CREDAI, CRISIL rated “BB stable”.10 year old with 3-4 Delivered projected , 4-5 major projects are under construction, looks promising but kindly advice what’s risk exposure in case I don’t register ??
It is not feasible to anticipate risk exposure but builder may demand extra amount in future as the property rate increase or may deviate from agreed terms & conditions like penalty clause for delay in possession.
What’s time limit and late fee clause for registering the agreement .can I register now after 18 months? wether bank will allow ? My super structure is ready, what’s your view should I register now?
I don’t think so your register now after 18 months. If super structure is ready than builder should not take more than 1 year to complete the construction. You may directly go for property registration.
Thanks Nitin. your views are really helpful for me.
dear mr rohit i am also looking for investing in wishtown van u share the contact of dealer if i cud get a similar deal?
regards aakash
Hi Nitin,
First of all thanks for posting so many very useful articles. I bealive it truly helps many people.
I am planningh to book a flat in whitefield area in Bangalore. It is in pre launch state now. After spoking to the builder they are saing they have all the documents clear with all necessery approvals. The only concern is that, the approching road to the site is now 38 feet. The builder is saying they will not get the OC if the road is less then 40 feet. But as per the builder already proposale has been made for a 60 feet road. And once the road become 60 feet he will be eligible for the OC and will get it (project completion date is Dec 2015).
Please advice if I can go ahead with the booking with this scenario?
If you are not sure that you will get the OC then i will not suggest to go ahead. You may wait for road widening approval from BBMP.
Hi Nitin,
Thanks for the suggestion. Yes probably it will be batter if I wait for some time and see that the road is going to be widened.
Mean time just for my understanding can you please let me know how important the OC is while buying a flat? What are the problems that will arise if the OC is missing?
Last one month I have checked few small and midium size projects (30 to 150 flats projects) in bangalore and almost all are saying they do not have OC or they are not going to get it.
Thanks,
Kishore.
Pls check following post which highlight the importance of occupancy certificate
http://www.firstbiz.com/economy/campa-cola-mess-why-occupation-certificate-is-so-crucial-47904.html
Hi Nitin,
Thanks for all your replies.
I have finalised an appartment and already paid the booking amount. They are saying all their documents are clear and also giving OC (they are writing in the agrement).
Regarding verification of the legel document, do I need to get it cheked by a lawyer?
The project is aproved by SBI and some other banks. I am going to apply the loan in SBI. So can I assume, if SBI is approving the loan that means all the legel document are clear. And I no need to get it verified with a lawyer?
Please advise.
Hi Nitin,
I got a soft copy of the draft version of the agreement fron the builder. If you are ok to take a look into the draft copy and let me know if the points mentioned there are fine, I will send the copy to your email id. Please let me know if I can send the copy to you.
Thanks,
Kishore.
Currently i am providing personalized consultation on chargeable basis. If you wish to avail the same, you can mail me at info@nitinbhatia.in i will share the details through email. Tks
Not necessary that if SBI has approved then everything is fine..It is always advisable to take independent opinion.
What is loss in interest/principal rebate if possession of home gets delay more than 3 years?
And is that loss applicable for entire period of loan tenure?
For self occupied property if the possession is not received within 3 years from end of FY in which the Home Loan is availed then Max limit of interest deduction will reduce from 2 lakh to 30k during FY. The deduction of 30k will be applicable for entire loan tenure.
Hi Nitin, I am planning to buy a flat in G. Noida Sec-omega 1. The builder is Today Home and Infrastructure pvt ltd and project is King’s Park. They have already delivered few projects in Gurgaon (residential + commercial). I would like to seek your advice about the reputation of the builder alongwith their competence and resources. Please let me know if these would be a good buy ?
Personalized consultation is available on chargeable basis. You may contact me if you wish to avail the same.
Hi Nitin, I am planning to buy a flat in G. Noida Sec-omega 1. The builder is Today Home and Infrastructure pvt ltd and project is King’s Park. They have already delivered few projects in Gurgaon (residential + commercial). I would like to seek your advice about the reputation of the builder alongwith their competence and resources. Please let me know if these would be a good buy ?
Hi Nitin, Thanks for the post. Which is good the Pre-EMI or Full-EMI ? Today the AXIS bank person said there is difference between both except tax-benefit in case of Full-EMI and their policy is in case of Full-EMI is to start the principal amount only after full release of loan amount
In my opinion Pre-EMI till you get possession.
Hi Nitin, Thanks for the opinion. The ICICI bank is offering repayment option for under construction property in two forms:
1. Pre-EMI and
2. EMI under consruction. ( with option to pay part disbursed or on sanctioned amount)
In this case which is better. All that I want is repayment of loan faster. Outflow of money is not a problem for me. I do not understand why other banks do not offer same repayment options eg.AXIS bank.
Awaiting your answer.
Thanks
If you wish to prepay fast then you may opt for EMI under construction.
Almost all banks offer similar option except PSU banks.
Hi Nitin,
I have applied for home loan in PNBHFL and I got a loan details. In this its mentioned as “In Partly disbursed cases, pre-emi interest would be payable on total disbursement amount till the time loan in fully disbured”. I asked the bank to go for full EMI, but they say since your flat is in under construction all banks will only calculate your emi in pre emi stage untill the possession (which as per builder its Jun’15). So please let me know if this is right? and which is good pre emi or full emi?
Regards
Manoj
I concur with PNBHFL. In my opinion, Pre-EMI is better option.
Thanks Nitin for the info… Can you please help me understand the calculation done for Pre EMI… since bank has charged me 27077/- for the partial loan disbursement amount of 2475000/-.
Regards
Manoj
It seems principal is also included in this amount. Normal Bank charge simple interest on disbursed amount.
Hi I got the property in Bhartiya city phase 2 @ 4580 in Tower D at 7th Floor. Property is in pre-launch phase. What is your suggestion and how good is the investment?
As you have entered at near bottom rate therefore it is good decision in long run. As it is big project therefore builder will find it difficult to offload the inventory which will depress the rates in short / medium term. Secondly, North Bangalore is fastest growing area due to proximity to airport but currently the market is down. You can expect good appreciation in 7-8 years.
Hi Nitin, Thanks for your post, these are really helpful for people like us who are first time investors
I have 2 questions:
1. I have recently booked a 2BHK flat with Guradian developers project named Easter Meadows at Kaharadi Annexe, Pune at 4950/sqft which they quoted for pre launch offer. kindly suggest if it is right entry point.
2. I need to get home loan of around 45L which is approved from SBI. I am aiming not sure if full emi is better or pre-emi. As per my understanding, pre emi will keep on paying interest money with very little subtraction from principal amount, however emi will be very less. For full emi option, a large portion of principal amount will be getting dedeucted along with interest till i get possession of property which is in 3 years. Kindly suggest which option would be better full emi (higher em i from first day itself) or pre emi?
1. I will not suggest investment under pre-launch stage as the risk is highest at this point. Approvals are not in place under pre-launch stage.. Moreover, the average rate in this area for resale is around Rs 6100 psf therefore i don’t think so that you are getting a good deal. Approx Rs 700 psf will be additional charges like VAT, ST, Club House etc therefore your final cost will be around Rs 5700 psf.
2. Pre-EMI
Hi Nitin
We booked an under construction flat which is in my name. All the installments have been paid but there is some time in getting the final possession certificate. The money has been arranged collectively by my father, mother, wife and me towards payment of the installments for the flat. Now, I wish to transfer the flat ownership in my mother’s name before getting final possession certificate so that the flat will get registered in her name. Builder has no objection to it and has asked some documents for it which we will provide.
Just need to know, will there be any gift deed or any other mandatory document that we need to execute and will there be any duty payable.
You need to sign tri-party assignment or transfer deed. Builder may charge transfer charges for the same.
Thanks Nitin
I have following queries:
1. The format shared by the builder for transfer of property has the space to be filled up by the amount paid by the new nominee for getting the property (considering it a sale of property) . As already mentioned, I am just changing the name of the property owner and want my mother’s name. The amount to purchase the property has been collectively arranged by all the family members. What should be done in this scenario?
2. Do I need to execute a gift deed or something? (property is still under construction and possession has not been offered)
You can mention the same amount as mentioned in your main agreement. I have not checked payment details therefore cannot comment on values.
Alternatively, you can wait till registration. After registration, you mother can gift her share to you.
Dear Nitin,
I am looking to buy a ready flat awaiting OC, from an investor. Seller is an Indian citizen working in merchant navy, 1 month on in international waters & 1 month off.
Seller earlier claimed to be Non Resident for FY15. Therafter on hearing of
Sec195 & applying to AO for lower deduction of tax, he changed stance &
said he is resident for tax purposes.
To support his ‘Resident’ status he shared his passport copy witnessing 177 days outside India, hence resident in India.
So for my comfort that I am not in default as Buyer deducting tax @1%
instead of 20%, what precautions I should exercise ??
Questions:
If seller files tax return for Fy15 as Non resident, after completion of
sale transaction. &
if I have to complete purchase by July 31st & the seller is not willing to
file IT return before last day ie. 31st Aug 15 declaring his tax status as
resident.
How do I determine seller’s Tax Residency status for the purpose of TDS deduction, will it be based on his residency status of Fy15 (past year where I know his number of days in India) or Fy16 (year of sale, but sellers likely no. Of days outside India for employment is not known)
Would appreciate your views.
I need to go through more details to answer this query but to safeguard your interest you can mention a clause in your sale deed that seller has declared that he is resident indian and he will be responsible for any wrong declaration or future tax liability.
What further details can I provide you for a complete view, you may mention the same & I will try to get them.
Any personalized consultation is available on paid basis. You may check services section on this site.
Dear Nitin,
Thanks for running this informative blog. Pls help me with my basic queries…
I am buying an under construction property (16 months due for possession) from an NRI. Approx 70% is paid to the builder by the seller(NRI) and 30% demand is remaining. Total project cost ~ 60 lacs but the consideration value with the seller (his payment till date to the builder + premium) is ~ 45lacs (<50 lac)
1) what is the TDS amount i need to deduct from the seller? and when ? Transaction cost is <50 lacs !
2) what is the TDS amount i need to deduct from the builder? when?
3) since this is a case of NRI….do i need to mandatory have TAN for deducting TDS?
4) seller says he will issue me a Nil TDS certificate. Shall i still go for applying a TAN?
5) last, considering cash flow is not the problem shall i go for 'EMI under construction' than 'PeMI' even if i wish to sell this property after getting the possession?
thanks a lot in advance. regards,ankit
1. 20%
2. 1%
3. Yes
4. It depends but normally No
5. I will suggest Pre EMI
Thanks a lot Nitin. Regards,
Dear Nitin,
I have booked flat in pre-launch offer by lodha in thane. I have applied for Loan but i confused about which option should i choose for this property Pre-EMI or FULL EMI or Tranch where i can pay only interest + principal for disbursed amount. Can you please suggest?
Thanks in advance!
In my opinion, Pre-EMI.
hi sir,
this is one of the most informative blogs i have read in long time
I am planning to buy a property in Dwarka Expressway, Consient Heritage Max , However I am getting 7200 PSF in builders rates and 5200 in resale …which option is better … and how can i negotiate with the resale properties owner as broker is also involved from resale side.
Regards Manish Shrivastava
Gurgaon
Resale is always better option in terms of price. You may offer higher commission to broker if he gets better deal for you then the current one.
I am purchasing under construction flat in Hyderabad at 52L. The builder is asking to pay 6.5% as registration charge, 3.5% service tax and 1.25% vat. This looks as if i am at loss if i am registering during construction as i should also pay ST + VAT. But i expected that my Stamp duty should have been smaller. What do you say nitin…. can you help me what exactly all taxes i should pay.
Charges seems to be correct. You may check your agreement with the builder whether these charges are included in agreement or not.
Hi Nitin,
I am purchasing under construction flat at Chichloli Ambernath west, I have negotiated the cost of flat with builder for all inclusive Rs.21 lac. My contribution is Rs.7 lacs and loan will be Rs.14 lac which is pre-approved. now i am planning to book the flat, but the builder is asking me to pay the entire contribution of mine at the time of booking for which he is giving 2 reasons:
1) Entire slab work of the 7 storey building is complete
2) Bank will not release him the money unless and until my own contribution is paid.
so here I am confused how to go about this? please advise.
You may ask for schedule as per construction linked plan and check the amount due depending on current construction status.
Hi Nitin,
Thanks for this informative blog. I wish, I would have read this blog before buying my flat but let it be.
My questions are,
1. I have builder buyer agreement but it does not have any possession date mentioned in it. Now builder is delaying in the project so what is best I can do. If I want to take any legal action?
2. Builder is saying that possession will be given in parts. i.e. total flats are 450 and builder will give possession for around 250 first than he will start construction of other flats. Is it valid as per law? Licence of project is only one.
3. When I asked about possession, builder offering me to switch my flat unit to units that he is offering possession first. But I have approved home loan on my flat. But as per builder he can help me in transferring loan to new unit. But I don’t trust on builder. Is this type of transfer is legal?
It will be great if you can help me in answering these questions. Thanks in advance
1. Legally there is NO commitment from builder’s end on date of completion therefore legally your case is very weak.
2. It is perfectly legal and at the discretion of builder.
3. You can transfer but with proper documentation and consent of home loan provider.
Hello Nitin,
Thanks for your salubrious knowledge..
I require one suggestion.I had booked an underconstruction property on 2013.
During Agreement of sale without possession I had paid 6% Stamp duty of the property market value.Now for final agreement still again we are being charged extra stamp duty of 23630 and advocate adding extra 1% of current market value .
Is there any rule for levying that charge… What is the calculation method for entire stamp duty calculation from underconstruction property to possession.
Ex. Market value during Agreement for sale without posession: 2961800.
Stamp duty paid:177730.
Market value during handover: 41,41,800.
Stamp duty charged: 23630+41418.
Please guide is it correct way of calculation or not.
Eagerly waiting for your response.
It seems the builder is registering the property at current market value. It is not clear from your query whether stamp duty charged include stamp duty paid or over & above the same and also the fig of 23630 seems to be incorrect.
Hi Nitin,
I have gone thru yours many blog and learnt a lot of things related to builder, apartment, home loan, land owner and may things.
Thanks a lot for such insightful information.
My question:
I have booked 2 bhk apartment in Varthur(Bangalore) which cost me 45 lakh(excluding registration). Now construction has been started and expected possession will be in 2 years(mentioned in agreement). After that builder agrees to pay rent of 12 k (but obviously they have their terms & condition).
Now builder is giving me option to pay full amount( 12% less of total cost) in one shot which cost me around 39 lakh. I am also interested for this.
1. Is it ok to have such deal?
2. Do I need to mention anything extra in agreement for this deal ?
3. what else do you think that i should take care before going thru deal?
It would be great if you help me on this.
Thanks in advance!!!
Regards
Priya
I am assuming you are not availing Home Loan. I will not suggest to accept upfront payment offer from builder. Only if you are buying from very reputed builders like Sobha, Prestige or Mantri then you consider the offer. You should prefer CLP (Construction Linked Plan).
Thanks for you valuable information!
The builder have different agreement formats depending on payment plan. You may ask for copy of upfront payment agreement to check the relevant clauses. I can only comment after going through the agreement.
Secondly, you need to do financial calculations to check whether this arrangement is financially beneficial for you or not. Please don’t go by absolute benefit. As per my calculation, if you pay 39 lac upfront today instead of 45 lacs and assuming construction is completed within 2 years as promised then CAGR on upfront payment is 7.42%. Assuming it is delayed by 1 year, the CAGR will reduce to 4.89%. It is beneficial for builder as commercial borrowing rate is almost 2-3 times of these rates. In other words he is borrowing at 7.42% interest rate instead of 18%. From a buyer perspective, you need to decide whether returns of 7.42% are ok or not.
Thank you very much Sir!!!
This will surely help me to decide future course of action.
Thanks again for your valuable time.
Hi Nitin,
I have booked an under construction flat in Hyderabad costing 45L including amenities. The building is almost complete and builder says they will deliver it by July which looks fine to me. Based on the CLP, I wll be giving almost 40 L to builder (20% mine and 80% home loan) for now. While booking, builder mentioned that since it’s an under construction building, I can go for registration for 52% of the flat price – this will save me more than 1.3L. He also confirmed that agreement will have full amount. I am not sure and not comfortable with it, I guess one registration should be on entire amount of the flat else I might face problems while re-selling, if needed.
1. Please tell me if I should go with 52% of total amount or for full amount. 2. If I went for 52% of amount, how does the builder benefited.
Thanks in advance,
regards,
Praveen
It seems builder will register at UDS (Undivided Share in the property). You may clarify from builder. A registration at UDS value is perfectly fine, you may go ahead.
Sure, thanks a lot !
Hi Nitin,
Thanks for lot of informative posts.
I have purchased 2BHk flat from Jain Housing & Constructions Ltd Gachibowli. Hyderabad
1053 sft, till now I have paid 41Lac (26Lac home loan). Expected to procession by March 2016…There is no work carried after my payment from past 3 months.
Request your suggestion on following.
• Can I proceed further for this project? In case drop out this project-how to deal with loan?
• Can I go ahead with semi-finished Registration?
• In case semi-finished registration, do I need to pay full ST/VT for total cost to builder?
Thanks,
Satya
Hi Nitin,
I have booked a 2Bhk +s flat in Greater Noida West in Jan 2013, till now I have paid almost 32 lacs. Cost of the unit including, service tax,covered parking is 36.9 lacs.
Now builder is selling some units left in the same project with free parking and cost of unit comes to around 35 lacs till 31 Jan 2016 with subvention scheme. I have not paid the last demad because construction is not up to the level (on external Plaster) as asked. So I didn’t receive any call from last 3-4 months nor any letter. Yesterday I visited their project site and asked for clarification on project currently sold and what I had to pay including the Pre Emi/ Month. The next day I got a call that we will cancel your unit as it is 90 days passed and you have not payed your dues or else u pay your all current dues. Kindly suggest what should I do now?
If you have any concerns you should submit your concerns in writing to builder. Secondly, i suggest you to make the payment as per agreement until unless there is some valid reason to stop as per agreement. Moreover, if he has reduced the price then existing buyers cannot do much in this regard.
Hi Nitin, can you clarify my doubt? I have taken a 3BHK flat in Bangalore Agreement was done in 2011. As per agreement He should hand over flat in 2013 December. But till now it is not completed When I ask the builder every tine he informed it will take 6 months time.Pl.clarify how many years the agreement in force.
Its depends on terms and conditions of the agreement. It can be without any expiry i.e. valid forever.
Hi Nitin, the pre-launch offer example (or is it really real?) in your article is probably too idealistic, but my case does fit into this profile. I bought a flat in pre-launch offer about 3.5 years back (though not at the lowest sft price) and the project is near the completion now (and incidentally, it is in the same location that you mentioned). I am in the process of figuring out how much my real gain would be if I were to sell my flat now. To the cost of my purchase (Unit cost + ST + amenities + customizations + corpus + deposits etc.) I added my personal cost (registration + pre-emi interest + interest lost on down payment) and now figuring out how much margin I really have compared to the current builder’s price and the difference is about 12L. Had I not registered, I would have saved about 1.9L for registration, but would have ended up paying 3L to builder (probably negotiable) for the transfer of booking. I still have to account for the fact that buyer has to pay more (by may be about 2L) for registration of a resale flat and that I have to pay 50k to the society for selling the flat, so when I place the flat below the cost of the builder, I am already losing 2.5L and have to essentially cut further into the 9.5L profit to entire the buyer. To make a decent return on my down payment, I really only have about 3.5L of play here (nothing compared to 20L in your example). Granted, it will look like 5.5L discount to a buyer who hasn’t done his homework, but since the buyer will pay more for registration on resale, it is really only 3.5L that he would save compared to buying from builder.
All the examples shared by me are real examples with permission from my clients. You cannot compare with builder rate as i always highlight. Builder rate card is artificially inflated because of obvious reasons. The calculations may vary from case to case basis.
Hi Nitin,
Your article was a good read indeed. I am intending to buy a 2 BHK flat in Mumbai (andheri east). the building is under construction and the builder is quoting a rate of 102500 psf (excluding govt taxes, parking and possession charge, total should be in range of 1.25 cr) and promises to give possession by end of 2017. I visited the site and found that structure up to 3 floor (of 13) is complete. the deal on the face looks very interesting because I understand that it is nearly impossible to get a flat in andheri at this rate. The only hitch is that the project belongs to a medium level builder and he told me that there was a litigation with the land owner which dragged for two years but now stands settled (post some payments and pledge of ownership of 10 flats made to owner).
I am really stuck on how to take a decision on this as the deal on the face at least looks very enticing but I also fear about uncertainty on the land title as well as the potential of the builder (basically, a partnership company of 6 members) to finish the project given his limited financial capabilities. Please advice.
I concur with your concerns. Depending on current status, timeline of 2017 seems impossible. Personally, i will not buy into this project.
Hi Nitin,
Thanks for lot of informative posts.
I have purchased 2BHk flat from Jain Housing & Constructions Ltd Gachibowli. Hyderabad
1053 sft, till now I have paid 41Lac (26Lac home loan). Expected to procession by March 2016…There is no work carried after my payment from past 3 months.
Request your suggestion on following.
• Can I proceed further for this project? In case drop out this project-how to deal with loan?
• Can I go ahead with semi-finished Registration?
• In case semi-finished registration, do I need to pay full ST/VT for total cost to builder?
Thanks,
Satya
1. It’s your call and depends on the terms and conditions of your agreement. Also check by when the builder has committed to deliver the project and applicable penalty clauses in case of delay.
2. I will not suggest.
3. VAT and ST will be applicable.
Hi Nitin, I purchased a 3 BHK flat in Greater Noida last year with upfront payment at 50% discount and with assured returns. But these returns stopped after 6 months. What can I do inthis case. There is one person in my knowledge who filed a case also 6 months back but nothing is happening and only next date is coming from court as the builder is not representing itself in court. Kindly suggest.
You may approach consumer forum for faster redressal. Besides legal route you don’t have any other option.
I am planning to buy a 2 BHK flat in vadodara. Builder is saying he would give possession by March-April 2017, however he said he would not give it in writing. I checked other projects too and no builder is giving it in writing at least in this city.
I am taking a home loan from SBI and in their tripartite agreement they have a column for the date of completion. My questions is – would this date mentioned would be enough if at all a need arises to sue the builder if there is unexpected delayed in the possession for flat?
A mere mention in triparty agreement will not suffice. You should include a proper legal penalty clause in case of delay in possession.
At macro level, if he is not willing to give it in writing then it implies that he is also not sure that he will be able to complete the project as per deadline :)
Thank you for your response. I feel that builder just play safe by not committing any possession date. I have seen projects where there is little to moderate delay in possession but they get delivered, in other words I am afraid of anything devastating :)
Should buyers wait for the RERA bill which has been recently passed to come in effect? And then go for property purchase. I know the project for which possession has not been give would be covered in it. But does it mean projects for which builder has not committed any possession date even for them they can be hold answerable for the delay?
Many thanks for your time and suggestions.
There is no clarity whether under construction projects will be covered under the bill or not. In my opinion, it is operational nightmare to include existing under construction projects. If it is true then probability of delay will increase.
Hi Nitin,
I am planning to buy a under-construction project by Gowra-Hallmark (Project name: Green Living). Possession is promised by December 2017. But i have following concerns
1. Registration will be done only after the 100% payment, only a tripartite agreement will be present.
2. The builder has a tie up with HDFC, what do you suggest should i go with SBI?
3. Its a gated community with over 250 flats with 7 floors. Till now only 2-3 floors are completed.
4. What are the risks i should think of before buying this property?
Please help me to understand the do’s and dont’s while buying this property.
1. It is right process
2. You should prefer SBI
3. You may check the CLP shared with seller for any delay. It seems project is beyond schedule
4. Without going through details, i cannot comment. You may check my posts on real estate.
But as per my knowledge if the property is not registered SBI doesnot approves the Loan. is it true?
It is not correct.
Hi Nitin,
Very informative article, more so since I am currently planning to sell my flat in Bangalore without taking possession. Had some queries in this regard. Would be great to get your guidance on these:
1. Will I have to settle my loan completely with the bank before I can proceed with the transaction.
2. The builder had a delay clause in the agreement but he is saying that since I am not registering the property, I am not eligible for the payment due to delay in construction of the flat. Your comments on this pls.
1. No
2. Please check your agreement. It depends on terms mentioned in your agreement.
hi
HI Nitin, For underconstruction property registeration will be after possession right .I am new to this fiedl.
You need to compare the total cost. In under construction property the rate quoted is of base price. Therefore you should find final cost and then compare.
Hi Nitin, My home loan was sanctioned and first installment disbursed in Jan2106. Second installment disbursed in May 2016. I payed interest only for first installment till May and have changed to full emi repayment from 01-06-16. I will get possession by Jan 2017
1) Jan to Mar and Apr-May interest- how to claim income tax rebate in FY 16-17?
2) Since full loan has not yet been disbursed will EMI repayment on part disbursement increase my principal component repayment and further reduce my entire
tenure?
1. The interest paid till possession i.e. till Jan’17 can be claimed in 5 equal installments starting from FY in which you will receive possession. It is called Pre-EMI interest.
2. You will not get any tax deduction principal paid before possession.
Hi Mr. Nitin,
Nice article to help all the individuals, i had planned to take a flat in a reputed constructions and now current pre launch price is 3900 psf and possession will be in 2019 it seems, but they are going to increase 4250psf after May 2016, and i checked secondary market for 4 year old in same society is costing 65 to 70 lakhs for same area flat. I would like to buy this property taking loan from bank (atleast 40 lakhs).
Now i have a following queries:
1. Shell i go for 3900 psf or second ?
2. Will it increase the price by 2019 ?
3. My EMI will start after possession or on first installment disbursement ?
4. What will be the registration charges for same ?
Please suggest on it.
You have not mentioned your total cost at 3900 psf. Secondly what is psf rate on secondary market.
The total cost of new construction is 60 lkhs and secondary market did not mentioned psf rate but total cost they are offering 65 to 7lks but 4 yrs old.
Please answer for my above queries. At this point of time am plan this for investment, if everything works out will keep for myself.
1. I will prefer secondary market purchase
2. The property prices will come down after real estate regulatory bill becomes an ACT from May 01, 2016.
3. Pre-EMI interest will start immediately after disbursement.
4. The registration will be after 3-4 years therefore cannot be predicted.
Hi Nitin Sir,
Very informative and useful article. I am also planning to purchase 2 bhk flat. I have a doubt. Recently I visited one of the reputed builder’s project for under construction property which has currently 3800 psf rate and total costing goes around 42,70000 for 950 sqf area and possession will be at the end of 2017. later I searched resale property on the same place, I got one which is ready to sale 2hk flat around 1000 sqf with complete package of 41,50000. Please suggest me which option is more profitable and I should opt.
As i shared in my posts, instead of buying from builder you should buy from secondary market. You will get better deal and save money.
Hello Mr. Nitin,
I was looking for such information and google helped me to reach you. Thanks.
I would like to share few words with you before proceeding to purchase a home in Thane.
I am interested in a flat from very much reputed builder of Mumbai/Thane. Builder has an offer now, which goes as follows:
a. I have to pay 5% of total flat cost (1 July 2016)
b. I must do registration and stamp duty charges
c. I have to pay 5% after 6 month (1 Dec 2016)
d. In April-2017, I have to pay rest 10% amount
e. After registration, builder’s tie-up financial party (i.e. ICICI bank), will pay 80% to builder on my behalf as the building construction progresses. TIll April-2017, I do not have to pay pre-EMI to bank as builder will pay that pre-EMI amount to bank. So, AFAIK, there will be no pre-emi at least till mid-2017. Possession will be around Jul-Aug 2017. So may be I have to pay pre-EMI on disbursed 80% amount for 3-4 month.
Once I get the possession then full EMI will start.
1. What’s your opinion about this scenario ?
2. Also, once I get possession, will it be perfectly fine and legal to switch the home loan to any other bank ?
3. For pre-EMI, is there any way to pay both i.e. Principle and interest ?
4. Builder has mentioned there will be lock-in period till possession. Do I have to ask him to give the written commitment for project completion ?
Regards,
Satish
1. I will not prefer because of combination of subvention scheme and registration of under construction property. Please check my following posts
https://www.nitinbhatia.in/real-estate/7-risks-associated-with-subvention-scheme/
https://www.nitinbhatia.in/real-estate/register-under-construction-property/
2. You can balance transfer anytime
3. You can by opting for FULL EMI
4. As i mentioned in my above mentioned links that lock-in till possession is a trap. In current scenario, the probability of on time completion of project is almost negligible. The penalty for delay in construction is very difficult to enforce as builders know how to delay the project without being penalized.
Hello Nitin,
I am interested to sell my under construction property in bangalore. But not sure how to get buyers for the same. Can you please suggest me how can i proceed?
It depends on multiple factors. You need to access the demand and supply in your area then only you should proceed.
I want to sell my flat before takig possession/registration. Please let me know is there any transfer charge applicable by builder.
Normally YES. You may check your agreement for the same.
hello Mr. Bhatia I am interested in buying a resale flat whose possession is offered to the seller. i came to know that transfer is stopped by the builder. but as per the seller he has the permission to sale the flat and to transfer flat by the builder.are there any provisions where builder may give authority to transfer a particular flat?? on the other hand SBI is asking for 3 documents majorly
triparty agreement, permission to mortgage, and permission to transfer of allotment from the builder. if i manage to get all these documents are there any chances of getting duped??
It is better to directly discuss with builder and clarify. You can also go through the agreement between the builder and the seller for any such restrictions. Prima facie if the builder is willing to issue/sign documents demanded by the bank then i don’t foresee any issue.
My rental budget is 20k excluding mantainance and similar kind of apartment cost is 45 lacs. By looking at interest cost for a buying house and rental expenses which option is better. Perspective of appreciation is not so impressive however rental option is very good due to huge a grade office in this areas.
It is better to buy as 45L is good price considering the rental yield.
Dear Nitin ji, I have question if you have booked a under construction property 2500per sq.ft 5 years back. Now 80℅ payment is also done phase wise as per progress of work at Site. Now on each call of instalment we paid as per the request. Today if builder ask to register the property with escalation clause or revised price which is as per today market value or more. As a buyer what to do.??? Register as per his escalation clause terms or can hold registeration till possession awaited by Dec 2017 ??
Pls guide
Your query is not clear. At macro level, you should register property only at the time of possession.
Dear,
I have invested in project name Hex City new name CLAN City by developer. Supreme Construction & Builder Pvt. Ltd.
2BhK is Booked at 2650000/- with payment on instalment as per slab wise now 28th Slab payment is done and payment is all clear till date. Builder has send us a letter for reminder on registration in 30 days even though it is first mail he has address us as a reminder term with deaf years . Project is running late in execution almost 2 years. Now as per last communication the possession is for Dec 2017. Few other members who already have registered in innocence are receiving the mail on escalation clause with approximate 8 lac demand. Initially they also had asked for 5.5 lac in name of development charges so cost as of now is 26.5 + 5.5 + 8+ stamp duty registration + 5 for parking in cash. Builder behaviour Is try to mint money in name of new head.
Now who are not registered like me have still not rec’d any letter on escalation clause. But once you register as per the agreement it is possibility you are also send a claim to pay as per agreed escalation clause. Final Agreement Draft copy is of 93 page is rec’d on request to Builder available with me.
Pls find attached draft aggreement copy.
Now what to do
1. Agree on his unfair advantage condition as register or
2. Can we Hold the decision of registration till possession or
3. To send a legal challenge
?????
RAHUL MEHTA
It seems builder is facing serious fund crunch and insisting on registration to demand more money. As i have not seen the terms and conditions of the agreement therefore cannot comment with 100% conviction. I suggest you to go the initial agreement with the builder and check whether you are obliged to register under construction property or not. If not then you can ignore builder’s demand.
Hello Sir, I purchased a property underconstruction at basic cost of 4100psf. If I calculate the total cost ex reg. then it comes around 4900 psf. But I feel that I have made abad deal and now I want to sell it before I get possesion. How can I do that? Please advice.
The property market is currently going through a rough patch. If you find a buyer then you can dispose the property.
Hi Nitin,
I am planning to buy under construction property . It is from provident purvankara builder.Thsi will complete in 2019 .Same project 2 phase is already completed . 3 phase is under construction. Time is not constraint for me and I am planning to purchase from investment point of view.whats your view for LOAN and TAX exemption point of view.
I will prefer ready to move in property or property nearing completion because of uncertain real estate market.
Hi Nitin, I booked a 3BHK apt in Noida in 2011 and I still have not got its possession. Its still under construction. I want to sell this apt. I want to know if there will be any tax implications(short-term/Long-term) for the same? If there are , then how can i get an exemption?
If you sell under construction property then long term capital gain tax will be applicable.
Hello Mr. Bhatia,
I have booked an under construction flat at Thane in joint names of my daughter & myself & paid 20 lakhs upfront (45% of c/o flat) from my retirement funds. The remaining amt. was to be funded by my daughter’s H/L. The registration is done & stamp duty/VAT paid. Now she does not want to go ahead with the transaction. Can I sell this flat?
You cannot sell individually. You and your daughter can jointly sell.
Thank you. What I meant was can we sell jointly but before construction is completed & before making full payment. If yes, then do we need to make a tripartite agreement with the builder as a 3rd party?
Yes you can sell under construction property. You can sign tri-party agreement between buyer, you & your daughter and the builder. It is also called assignment deed.