Investing in Under-Construction Properties: Key Questions to Ask
When considering a real estate investment, choosing between an under-construction project and a ready-to-move-in property can be challenging. Under-construction projects often attract investors due to their lower prices and potential for customization. However, potential delays and other risks necessitate careful consideration before investing your hard-earned money.
Price Advantage and Customization Options
Under-construction properties are often more appealing from a financial perspective. They come at comparatively lower prices than ready-to-move-in units. This allows investors and end-users a great opportunity at potentially substantial savings. Buying during the construction phase also often provides buyers with choices regarding unit direction based on Vastu principles, flooring preferences, and sometimes even floor selection. However, it’s important to be aware of potential drawbacks.
Navigating Risks and Ensuring Due Diligence
While some developers like Godrej Properties Limited have a strong track record of timely completion, the real estate landscape, unfortunately, includes numerous instances of delayed projects. Therefore, exercising due diligence is paramount. It’s essential to select a trustworthy developer and project. Government regulations, like the Real Estate (Regulation and Development) Act (RERA) 2016, provide valuable resources for verifying project details and holding developers accountable.
Essential Questions to Ask Before Investing
Before committing to an under-construction project, asking the builder specific questions is essential:
Project Appreciation:
- "To what extent has your project gained recognition since its inception?" Assessing a project's appreciation potential requires understanding its performance relative to its surroundings. Investigate both the project's value growth and the surrounding area's appreciation. For example, Godrej Hillside in Mahalunge, Pune, saw over 50% value appreciation in three years, outperforming the area’s 20% growth. This information is crucial for predicting your potential Return on Investment (ROI).
Sales Performance:
- "How many units in the project have sold out?"
- "How many inquiries do you receive weekly or monthly?" While builders might tend to exaggerate sales figures, these questions are still important to ask. Slow sales can indicate underlying project issues. Inquire about the number of weekly or monthly inquiries the builder receives, which yields valuable insights into the project’s market demand. A reasonable conversion rate should be approximately one to two percent of inquiries.
- "What is the total number of units sold in the project?" Sluggish sales may signify problems with the particular project. A reasonable expectation for the rate of conversion from inquiry to sale is roughly one to two percent. Avoid following the crowd. Thoroughly analyze the project, scrutinize the neighborhood, verify the RERA registration, and gauge the builder's reputation by speaking with previous buyers, since real estate experts suggest against adopting a herd mentality when investing.
Builder's Track Record:
- "Can you tell us more about your prior projects?" Verifying a builder's history is fundamental. A consistent record of on-time project deliveries with sound structural integrity is a positive indicator. Builders like Godrej Properties build strong reputations by meeting these expectations.
Commercial Rights Retention:
- "Which commercial rights in the project will you keep?" Builders sometimes retain commercial interests within a project after it's completed. This can include the clubhouse, creating unexpected costs or restrictions after you’ve begun living there. Clarify this upfront and ensure any retained rights are clearly documented in the agreement.
Additional Considerations for Under-Construction Projects
Investing in under-construction properties can be financially beneficial but also carries an inherent risk. Ensure any project you consider is RERA-accredited. Utilize property portals and research potential neighborhood developments. It is always advisable to conduct your due diligence and verify the project's and builder’s information before proceeding with buying the property.
While purchasing an under construction project allows for potential savings, greater customization options, increased ROI, and perhaps better pricing, remember to factor in the RERA accreditation and engage a reputable property portal to complete the process. Careful research remains essential, and due diligence ensures a smarter investment decision.