RERA and GST Impacts: Buyers Prefer Certificate of Occupancy-Finished Projects

With the RERA and the GST now in force, many buyers are likely to prefer properties with certificate of occupancy although they can cost more than an under-construction one. We examine the reasons

With the implementation of the Real Estate Regulation and Development Act (RERA), the residential real estate sector is experiencing considerable changes. The law strictly forbids the builders to advertise their under-construction projects, while allowing the freedom to attract buyers for projects that are ready with certificate of occupancy. With the new rules, buyers are naturally showing increasing interest in such properties, which are essentially ready-to-move-in.

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It is no secret that finished projects are costlier than under-construction. Nevertheless, buyers are now more than willing to purchase real estate directly instead of waiting for the construction to be finished. There are very good grounds for buyers to look for real estate that are ready-to-move-in or Certificate of Occupancy ready projects, in the market today:

Cost Differences Between Under-Construction and Certificate of Occupancy Properties

The real estate sector has experienced one of the worst downtrends in recent years, resulting in lower new launches, price cuts and higher unsold inventories. This dynamic forced the developers to offer attractive offers, discounts and freebies to attract buyers. Even if the market is recovering slowly, these dynamics are still in play.

Therefore, it makes sense for buyers to invest in finished projects instead of waiting for new projects to come over long periods of time. While the prices are starting again on the back of a gradual market recovery, this trend is still in the initial phase. This makes the current time optimal for customers and investors to focus on ready-to-move-in alternatives.

Cost of Rent

Most of these projects are preferred by buyers using bank loans, which means a significant financial burden. Not only the buyers have to pay EMIs but also the rent on their current homes while they wait for the completion of that project. Paying a little to acquire a house immediately is cheaper than renting over long periods.

Delivery Date

Under construction projects in India are notorious for delays in project completion, which leads to increased prices, in the form of EMIs, as well as higher rents while waiting for property ownership. Although the delays are due to several factors affecting the real estate sector, many buyer’s financial situations do not allow them to wait beyond a point in time. Thus the decision to invest in certificate of occupancy ready projects is more appropriate.

Rental Income

Many investors buy houses with the aim of earning rental income, with an eye on possible resale to cash-in on capital estimation. Buying a property in a completed project, helps them to earn instantly from it through rents, rather than wait a few years and locking their money away in a non-income generating project.

Reduced Incidence of Dubious Developers

The Indian real estate division is still very fragmented, and historically there were several fly-by-night operators who duped buyers of their hard-earned money. With RERA such dubious developers are reduced in numbers. In the long term, the strict guidelines will ensure that only serious and genuine players are active in the market. For the time, however, buyers are still vulnerable and therefore, prefer the insurance that provides finished projects to them.

Infrastructure Support

Many new projects are taking place on the peripheries of large cities, where the supporting infrastructure such as roads, electricity, water supply, etc. are not developed. They are only promised when the projects are completed and under-construction have to wait a long time for the deployment of the basic infrastructure. This, of course, makes buyers who want to move into their new homes and have decent facilities instead of waiting endlessly for them to be provided.

Influence of GST

The implementation of the Goods and Services Tax (GST) has led to a reduced tax burden on buyers buying finished apartments. The tax on the total cost of the project, including the land, is levied at 12 percent. This should be enough for the real estate builder to claim input credit so that certificate of occupancy ready projects are more cost-effective for buyers.

Also, the sale of finished features for developers works well as it helps them to relieve their unsold inventory and get plenty of liquidity to continue investing in projects that are in demand. According to RERA, all housing projects in Maharashtra must be registered under the Maharashtra Real Estate Regulation Act before they can be promoted and sold. Since the rules are strict and builders must be extra cautious and careful to follow the norms, the pace of the registrations under RERA is still laboriously slow. The MMR itself has around 5,000 under-construction projects, which must be RERA-compliant.


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