If you are planning to invest in a home, it is better to stay away from under-construction property for some time. Here’s why.
Under-construction property has become riskier an investment in the present times. No matter how lucrative a deal sounds or how affordable the property seems to be or even how reputable the developer is, under-construction property in India, especially in Delhi NCR and Mumbai MMR, is no less than a rabbit hole.
One may argue that government and judiciary have been taking proactive approach lately to address the issue of stalled projects. Due to RERA and various jurisdiction passed in recent times like in the case of Amrapali and Unitech, the picture seems to be reassuring and trustworthy, but facts continue to differ.
Real estate market in India is facing severe liquidity crisis. Fund flow to residential projects and to its developers are all-time low. In fact, according to a report on private equity (PE) investment in real estate by Cushman and Wakefield India, a real estate consultancy firm, “investments in residential segment during H-1 (first half) 2019 were the second lowest in the last five years (since 2015), at just ₹5,610 crore.”
While individual investors have left the residential real estate market long back, banks have also stopped directly funding developers. Non-banking financial companies (NBFC) which were funding the developers until now are also left with siphoned off funds and are reportedly dealing with their own set of credit problems.
In this scenario where developers are not left with much sources of funding, it is not a surprise that thousands of projects are lying in limbo despite being a huge hit among buyers at the time of the launch.
Home buyers = Financial Creditors
Last week’s Supreme Court orders in the case of Amrapali of putting distressed home buyers at par with financial creditors seems to be a welcome move on the face of it. However, the order comes with a new set of challenges for both buyers as well as stressed developers.
The sheer fact that banks and financial institutions can’t have the sole claim on the money recovered from errant developers, the institutions are expected to be doubly cautious before funding projects. Further liquidity crisis will impact supply along with the execution and delivery of under-construction projects.
Subvention Scheme Ban
Another of government’s recent move that has multiplied the real estate’s burdens is the direction to housing finance companies (HFCs) to “desist” from offering loans under subvention schemes. The scheme was a major attraction and a huge hit among buyers wherein developers pay home loan interest on behalf of the buyers typically until the time project is under construction. Since the scheme used to reduce the double burden of EMI and rent, the buyers found it favorable while investing in an under-construction property.
As a buyer, onus lies on you to double check the financial capacity of the developers before investing in an under-construction property. However, it is always wise to save enough and invest in a ready-to-move-in property rather than putting your money in an uncertain asset in the present times.
Read on to find more real estate trends and tips.