Tips To Maximise Gains On Real Estate Investments When Buying An Under-Construction Property

With the country’s economy looking up and the investment sentiment turning positive, a large section of the population is looking to make significant investments. And, with the growing popularity of the real estate sector among investors, investing in under-construction properties is an obvious option. However, a lot of factors come into play if you decide to do so. Here are a few important things to keep in mind:  

Carry out a background check with lenders who have approved the property that you are looking to invest in. Checking with your banker or financial adviser may also be a good idea. This is important to make sure that your investment doesn’t stagnate in case the builder has an unsound payment structure.  

Even if the builder has a preset payment plan, feel free to tweak a few things and request a customized payment plan. At the end of the day, the builder is only keen on selling the property and will like to do it any way he can. It’s important to remember that any sum of money that is paid later and in smaller installments is cost-saving.  

Always remember to check if the builder has received the CC, i.e., the Commencement Certificate for the tower, floor and project in question. There is no way that a banks will lend you a loan without a valid CC.  

The floor-rise and premium facing rates of any property do not cost the developer a great deal of money. So, you can try and negotiate these charges with your builder. You may also want to take into account the fact that the lower the floor is, the cheaper the property will be.  

It’s not advisable to opt for a Pre-EMI plan. This is because if the project gets delayed, your cost of acquisition will be uncertain till the time of possession. If you have acquired a loan of rupees x crores and taking a rupee y lakh tranche' from the bank in April, and opt for Pre-EMI, then you will be paying the simple interest on the rupee y lakh until you take the next tranche. And, whenever you draw rupee y lakh again, your interest’s principle will become y+y=2y lakh. So, if the project is delayed, you will be at a disadvantage. Therefore, an EMI plan should be considered if you can afford it.  

It’s not a good idea to delay your payments to the builder because there are hidden penal charges for every delay. The economy is in a constant state of flux, so it’s not difficult to understand why an amount of money today doesn’t have the same significance two months down the line. So, make a fair judgement and be punctual with you payments.  

It is possible that the real estate market has not fared as well as you would have expected it to do. In an event like this, make a calculated decision whether you want to exit the project or continue with it. The rule of thumb is that if the property appreciates by around 60% in 4 years then it’s not a good investment. So, to save yourself from any regrets, you may want to exit because a forecast on such returns shows that you may end up losing money if you hold the property any longer.  

Here are a few simple formulae to help you understand better the payment structure and your place in the investment market:

Acquisition cost (X) = cost of the apartment + bank interest & processing cost + time cost (as against other investments) + your worry-time.

Benefit (Y1) = tax benefit + future security + rental income.

Benefit (Y2) = ROI (Return on Investment) via sale proceed.

Therefore, if Y1 or Y2 > X, then your investment has been a good one.

When all’s said and done, it is always suggested that no property investment decision should be made in a hurry. There are a range of nuances and intricacies at play here, and the sooner you understand them all, the more profits you will be able to make. We hope this proves useful in helping you make your investment decision in the future.

All the best and happy investing!