Ready-To-Move vs Under-Construction house: What homebuyers are preferring these days and why

Policy decisions like the implementation of Goods and Services Tax (GST) and Real Estate Regulation ACT (RERA) have brought in multiple changes in the housing sector. New homebuyers are reportedly opting ready-to-move houses, not the under-construction ones these days as they are supposed to pay an pay additional 12 per cent GST charges plus 6 per cent stamp duty on new projects. Fear of these charges are apparently driving buyers towards ready-to-move houses. Renu Sud Karnad, managing director, HDFC Ltd, recently told DNA Money that this trend is "happening" and it is "visible." 

"Yes, it is happening and is visible. It is happening due to the fear among buyers who have a doubt about the completion of the project. In fact, they don't have confidence in these projects," Karnad said. 

Buyers are more interested in ready-to-move houses for more than one reasons.

At present, GST, stamp duty, and registration costs are dampening buyers' mood. On an average, buyers have to pay six per cent or more on stamp duty. In some places, buyers end up paying more as collector rates of property are higher than the market rates. Several home-buyers also suffer from the dual burden of rent and EMI. When builders take more time to hand over the houses to buyers, the latter are forced to survive the twin burden.

Ready-to-move homes thus come with dual benefits for buyers. First, they don't have to suffer development risk and second, they also end up saving 12 per cent GST. 

Vinod Behl of Realty Plus recently wrote for IANS, "Home buyers also need freedom from the double burden of rent and EMI, particularly as hundreds of thousands of housing projects across the country are facing long delays. Earlier, the home buyers would get possession of their homes in 3-4 years but now, in many cases, it has almost doubled, causing great hardships to home buyers in terms of dual burden of rent and EMI. Some developers are helping home buyers tide over this problem by offering schemes to pay EMI only after possession. But ready homes is a sound solution to this problem as they do not have any development risk and, moreover,homebuyers save on 12 per cent GST. That's why ready-to-occupy homes are being lapped up by home buyers. Here, the concept of "Build and Sell" can provide a long-term solution."

Behl also said, "Home buyers need to be given freedom from high transaction costs to boost sales and revive residential real estate, facing a slowdown for long. And this can be achieved by either rationalising stamp duty or simply subsuming stamp duty in GST. Similarly, while GST has imporved ease of doing business by doing away with multiple taxation, there is still a need to lower its 12 per cent rate, which is almost double the VAT and Service"

Karnad told DNA money in an interview that the real estate sector is expected to come out of the setbacks of previous quarters soon. "The real estate sector has gone through several ups and downs after demonetisation, including builders abandoning the projects. Secondly, there are regulatory problems related to these projects and you would have noticed it in the Delhi-NCR region. However, new builders have started registering their projects under Rera and this process will help in ending the setback in the next two to three quarters."

According to Karnad, the Housing sector has witnessed a price correction of 5-10% in the past one year in the high income or premium segment. There is only a slight correction in medium-income houses.