Is it Worth Buying Under-Construction Property in India?

Rental costs, Possession delay cost and cost of de-graded quality of apartment are the risks associated with under-construction property purchase in India.

I always try to write the story of my own experiences rather than the ones I heard. This is again one of my own story and I seriously feel that it is one of many others.

I booked an under construction 2 BHK (Bed-room-hall-kitchen) apartment in New Gurgaon. This is an event that I clearly remember as happening in January of 2008.

The other reason to remember this date is also partial attributed to my marriage in March 2008. The plans certainly were grand and we expected to get the possession and move-in within 36 months as was promised by the renowned developer.

Is it worth buying under construction property in India?

I was pretty happy as I had invested a sum of about 3 Lakhs (10% of total cost) as a token money to buy this flat in pre-launch of a project by Uppal’s group, now called Umang realtech. The name and size of the builder was one of the most important consideration that I was told, should be kept in mind while booking an apartment. This would give you a bit of confidence on the promises made.

To cut the long story short, I would cite the expenses that I made and what trade-offs, I encountered.

Effective Cost of Apartment

Nature Amount (in Rs.) Calculation Basis
BSP 30 Lakh 1200 Sq. feet * 2,500
PLC 1.2 Lakh 4% of BSP. You may or may NOT opt for a PLC location.
EEC & FFEC 60k 1200 Sq. ft * Rs. 50 per Sq. ft.
EDC & IDC 1.2 Lakh 1200 Sq. ft. * Rs. 100 per Sq. ft.
Open Car parking space 1.25 Lakh Fixed amount
Covered parking space 2 Lakh Fixed amount
Club membership 45k Fixed amount
Power back-up 30k Fixed amount
Electric Connection charges 3k Fixed amount (Approximate value)
Water, Drainage and Sewerage 3k Fixed amount (Approximate value)
Stamp Duty and Registration fees 1.80 Lakh 6% of BSP. Need to be paid to government
Total (advertised cost) 30 Lakh
Total (Extra and hidden costs) 8.86 Lakh
Grand Total 38.86 Lakh

The construction industry in India is still un-regulated and hence it is difficult to expect the builders/developers to fulfill the promises made to the end buyer. My BBA (Builder Buyer Agreement) and the promotion content from builder had the commitment of paying Rs. 5 per sq.ft. as penalty per month if the apartments are not completed and possession not given within 36 months.

There are no prizes for guessing that holding the keys of the apartment is still a dream for me (as of today), let alone the penalty.

Approximate Rental Cost of Living In rented Apartment for construction duration

Nature Amount (in Rs.) Calculation Basis (Rounded off to nearest hundred)
Rental Cost In 2008 1,20,000 10,000 per month * 12
Rental Cost In 2009 1,32,000 11,000 per month * 12 (10% increase each year)
Rental Cost In 2010 1,45,200 12,100 per month * 12 (10% increase each year)
Rental Cost In 2011 1,59,600 13,300 per month * 12 (10% increase each year)
Rental Cost In 2012 1,75,200 14,600 per month * 12 (10% increase each year)
Rental Cost In 2013 1,93,200 16,100 per month * 12 (10% increase each year)
Rental Cost In 2014 2,12,400 17,700 per month * 12 (10% increase each year)
Total 11,37,600

You might be amused to see the number of years (6.5 to be exact) that I have spent waiting for the aashiayana (home) that I bought for myself.

I have spent all these years in a rented apartment with my family along with making EMI payments (17,800 per month) for the 21 Lacs of loan that I took.

If I ignore the HRA rent allowance tax benefit that I received for these 6.5 years and trade off the benefits of tax exemption on the Home loan interest and principal tax exemption (if I had bought the ready-to-move-in) flat, I reach a conclusion that the deal has not only been expensive but a big pain in the butt.

I am completely inclined to believe that if I had bought ready-to-move-in apartment in January 2008,  I could have been in a much better situation today.

Why Do I believe that Buying ready-to-move-in Apartment is better than Under-construction?

  1. Cost comparison: Normally, the cost of ready-to-move-in flat is about 30% more than the one available in under-construction apartment (Assuming construction has not yet started).So, The cost of an apartment would have been about

    39 lakhs + 8,86,000 (counting only the BSP and keeping all other values same) = 47, 86, 000 in Jan 2008.

    Now, if I compare the two costs, I have already spent

    38,86,600 + 11,37,600 = 50,23,600

    Which is more than what I could have spent to buy an apartment 6.5 years ago.

  2. Not every project gets delayed?
    I also heard the same when I booked the flat and was pretty positive that my builder would not default. But, as you see, all my expectations were only my aspirations which have only resulted in frustrations!

    Almost 90% of the projects that I have spoken about within my friend and relatives circle have taken about 5.5 to 6.5 years for completion with best estimates. It does not matter how big or small the builder is, they all work on the same modus operandi of delaying the existing projects and investing the money collected in launching new projects.

  3. Other Virtual Costs In Buying Under-Construction Apartment
    The sample flat that you are shown at the time of booking the apartment looks like a 5 start hotel, but the real one that you would get would be a 2 star hotel. This has been my real experience with my own apartment. You may or may not agree with my experience here and your builder might have proved this wrong. It is actually pretty good if this is not the case with you.

    Unfortunately in my case, this has been the case and I am an irritated buyer.You can’t do anything as there is no tangible way of comparing the two set of ceramic tiles, the modular kitchen meaning, the flooring quality, electricity fittings, the Gym, The children park, the tennis courts etc and etc.You have to accept what you get unless you have a strong RWA (resident Welfare Association) or a group who can negotiate with builder.

    The other option is to approach the consumer court.

    I have not counted the countless costs involved in fighting the case in court along with losing out on your valuable time. Mind it, time is money in today’s world!

My Advice

It is always better to buy a ready-to-move-in apartment if you want to live in it. You can see, touch and feel what you are buying and then negotiate the price.

It might sound expensive than the newly launched under-construction project, but if you believe my analysis, the benefits are much more in ready apartment deal.
In an under-construction or pre-launch property, the probability of getting fooled are pretty higher than you think.

I am the biggest example of this foolishness when I have spent more than what I should and still waiting for my 2 star hotel apartment!

NOTE: If you want to buy just for an investment, you can buy any.

What are your experiences and views?

Have you also gone through the same set of sad story? Please do share your views and I would certainly like to learn lessons from people who have mitigated this kind of situation.

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