12 Oct, 2012 10:48 PM

Risks involved with under-construction property

With the festive season gearing up, various offers are springing up to woo the home buyers. Various offers are on display by the real estate players and financing agencies. the ICICI has reduced the loan rates by upto 1%. Various gimmicks are resorted to attract the prospective buyers.

Most of the prospective buyers would be tempted to go for properties that are under-construction for the reason of thier cheaper price tags.

Most of these under-construction properties quote a price that are at considerably lower than the prevailing rates in a locality. You have to risk of delay (it could even be indefinite in some cases) in construction, you may also get some other financial hiccups if there are long delays. The builders even can make the profit on advance via the initial investment based on the construction that may be upto 40% for minimum construction.

"The last few years have not been kind to real estate developers. Even some reputed builders are forced to divert money from pre-launch projects to the projects nearing completion.

The principal initial requirement would be the reputation, caliber and track record of the builder or developer. It is in your best interest to invest with a known and well-placed builder.

The delayed possession of the house could exert severe financial pressure on the buyer if he has to pay the EMI as well as the rent at the same time. Moreover, if the project gets stuck or even defaults, the homebuyer is still liable to pay the interest and the principal component of the disbursed amount to the bank.

If you are taking a housing loan to buy an under-construction property, here are some points you should always remember.

In an under-construction property, a bank disburses the loan amount in tranches to the builder. However, you may be expected to pay the EMI on the sanctioned loan amount and not the disbursed loan amount.

For instance, if you have taken a loan of Rs 70 lakh and the bank has disbursed only Rs 20 lakh to the builder, you may have to pay an EMI for the entire Rs 70 lakh, which is Rs 67,552 at 10%. "There is a construction risk involved both for the bank as well as the homebuyer. Earlier, banks were promoting pre-EMIs and part-repayment of loans.

Check for the following:

Commencement certificate for the work.
Approved building plans from the Municipal Corporation or Town Planning Authority.
Allotment letter and development agreement.
Clear Titles.
Construction in progress with a minimum two slabs completed.
Work in full swin.
No sign of stagnation.
Property not under litigation or dispute.
Property not a heritage property.
All permissions and permits in written records.
Suitability of the area with respect to roads, safety, security, public transportation, hospital, school, shopping and future scope for development.
Completion and Occupation Certificate.

Also read : Housing set to become more affordable: NHB