Buying a House

Should you buy a house in resale market?

7:00 AM

Should you buy a house in resale market? 

This market functions in various ways. So, irrespective of where you are buying, consider these points...

Sameer Joshi/Mint
Sameer Joshi/Mint

Abhishek Sikaria, 34, a chartered accountant, has been working in Dubai for the past four years. But he plans to return to India and work in Gurgaon, and wants to buy a house. When he was in India last month, some friends suggested that he look at an area called Dwarka Expressway, which falls roughly between Gurgaon and Dwarka (on the periphery of New Delhi). Not knowing much about the area, Sikaria decided to visit a few sites. While looking at projects in the area that suited his requirements and a budget of Rs.70 lakh, he went to the onsite offices of some developers.


Sikaria took a note of the details, but realised that projects where units were available in his budget were under-construction. He decided to look up prices online as well, and was surprised to find that many units that were on sale on property portals in his shortlisted projects were quoted at lower prices points. Also, many units were available in completed towers or phases, which were not available through the developer. Sikaria got confused between buying a house directly from a developer or in the secondary or resale market, and he was not able to take a decision before leaving for Dubai.
Many home buyers have been in situations similar to Sikaria’s—should one buy a house in the resale market? Here are a few points to consider while taking such a decision.
The price difference
Since the past couple of years, developers’ sales have been poor and many homebuyers have been waiting for home prices to come down. But that has not happened to a large extent; only in pockets, because developers have been reluctant to cut prices. However, there are many individual home sellers who offer better prices and are also ready to negotiate. “In large projects, where the developer builds in multiple phases, project pricing differs on the basis of the phase that the homebuyer is looking at,” said Om Ahuja, chief executive officer, residential, Brigade Group, a Bengaluru-based real estate developer. Many developers say the difference in prices is due to increase in input and construction costs over the period so different phases have separate pricing.
Demand dynamics, too, play an important role in the price difference within the same or nearby projects. “A homebuyer will always find a completed project selling at a price that is similar to a newer project or a little lower, considering the demand supply dynamics of the area,” said Ahuja. But one needs to understand that, “if the developer is selling the newer phase at lesser than the earlier phase, it is an indication of stress. If you find that the resale market has apartments selling at lesser than the developer’s quoted price, it indicates that supply is more than the demand,” explained Ahuja. If the house suits your requirements, then such situations play in your favour.
However, some say that this does not happen across the country but only in some areas. “Price difference between an under-construction property from a developer and in the resale market is more prevalent in, say, the National Capital Region (NCR) but not in the Mumbai Metropolitan Region (MMR),” said Mudassir Zaidi, national director–residential, Knight Frank India. This is because, “the NCR market is investor driven and there is no lock-in period, whereas in MMR, developers have lock-in clauses that restrict homebuyers from selling while it is under-construction; this encourages end-users to buy.”
Pros and cons of resale market
The secondary market, where a person buys from a house owner and not a developer, functions in various ways; there isn’t a homogeneous behaviour that spans the country. Therefore, irrespective of where you are looking to buy a property, consider the following points.
The pros: Real estate prices have been stagnant for some time now and there is little scope for price increase in the near future. In such a situation there are many house owners who would have bought a property a few years back and now want to cut their losses and exit from their investment. With such low demand, their only option to exit is to offer the property at a lower price point. “Under-construction properties in good locations are available at 5-10% lower (prices), and in other locations, the difference can be as high as 10-20%,” said Zaidi.
Another cost advantage is that you don’t have to bear the interest cost paid on a home loan during construction. Also, risk of delay in project construction is eliminated.
If you are able to find a resale property that is nearing completion, then an added advantage is that you will be able to get an exact idea of the property—space, direction, ventilation, daylight, outside view, floor, and more. You can’t do this with sample flats and project layouts.
The cons: You need to pay a lump sum amount when buying. “Typically, in the resale market, one has to make a lump sum payment and it may involve a big cash component. So, for many individuals (especially salaried), buying directly from the developer would be the only feasible option,” said Zaidi. Moreover, the lending institution will not consider cash payment, which brings down the loan eligibility against the property.
Usually, the seller asks to pay in cash to avoid capital gains tax. Paying in cash brings down your cost of acquisition but if you plan to sell the house later on, your capital gains tax will be higher, even if gains are not higher in reality.
While buying from the resale market, there is additional paperwork with not just the seller but also with the developer. If there was a home loan against the property you are buying, make sure you ask the seller to clear it and give you the loan clearance certificate.
Some sellers may even ask you to pay a portion of the property price in advance so that she can pay off the outstanding loan—this can be risky. Advance payments must be made through cheque or demand draft and a receipt should be obtained.
Things to consider
If you decide to buy from the resale market, you need to be mindful of a few things. “Be careful about title and ownership as there may be more claimants from the seller’s family on the ownership or rights to the property,” said Ahuja. Before you give the token money, make sure the seller is genuine; cross-check with the developer about the owner of the unit. Also check if there are any dues pending or extra charges have been levied by the developer on the unit.
Get a clear idea about the remaining payment that the seller has to make to the developer. Consider transfer charges, and settle who will bear it. The developer asks for transfer charges (usually, Rs.100-150 per sq. ft) if a home owner transfers her rights over the unit to another buyer before the project is handed over and registered.
Ask the seller to hand over all papers and documents related to the project available with her. These could include advertisement material like brochures, receipts of booking amount and subsequent payments, all correspondence with the developer, builder-buyer agreement, and project layout. All documents are relevant till the time developer gives possession.
Mint Money take
At present, the main concern for homebuyers is timely completion of projects. A project at an advanced stage of construction brings down the risk and interest cost to an extent.
Typically, units in completed or near-completion projects will come at a premium compared to what’s under construction. But given the current market condition, it makes sense to buy a resale unit as it will be available for you to live in, either right away or soon.
Buying a completed property may not be a good option for an investor as the price appreciation is more if a property is bought at the time of launch. But for an end-user who is not looking for price appreciation, it is preferable to buy a completed or near-completion property.

- by Ashwini Kumar Sharma
Source :- LiveMint

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