{"id":245,"date":"2020-06-07T16:58:02","date_gmt":"2020-06-07T16:58:02","guid":{"rendered":"https:\/\/www.loanfasttrack.com\/blog\/?p=245"},"modified":"2020-06-07T17:02:10","modified_gmt":"2020-06-07T17:02:10","slug":"purchasing-a-resale-property-or-investing-in-a-builder-property","status":"publish","type":"post","link":"https:\/\/www.loanfasttrack.com\/blog\/blog\/finance\/purchasing-a-resale-property-or-investing-in-a-builder-property\/","title":{"rendered":"What Is Advantageous? Purchasing A Resale Property Or Investing In A Builder Property"},"content":{"rendered":"\n
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Mrs.\nNayana- our family friend intends to buy a residential property. Baffled by\nflooded builders offers and calls from the estate agencies, she phones to seek guidance\nto her bewilderment towards builder and resale property. Soon after her request\nwe directed her with the advantages of purchasing the either, leaving her with\nher decision to decide which one to invest. Hope our genuine opinions and\nthoughts expressed guide her to make a right decision. Opinion and thoughts\nexpressed are genuine out of our sheer personal experiences. <\/p>\n\n\n\n

1) Identifying the purpose for purchase.<\/strong><\/p>\n\n\n\n

If\nyou are purchasing a property with an intention of immediately moving into the\nproperty, going for a ready-to-move residential property will always be a\nsuitable option. Here ready-to-move signifies resale purchase or newly\nconstructed builder property ready for possession. What needs to be evaluated\nhere is the property location, accessibility, road connectivity, its amenities,\nneighbourhood – markets, supermarket, hospitals, malls, restaurants, schools\n& colleges, power station, future developments, etc. However a lesser known\nfact is that a resale property will be cheaper than a newly constructed builder\nproperty. The cost of the builder property is usually high because of the\nvarious amenities provided by the builder such as swimming pool, gym, gardens,\nclub house, etc. The more the amenities the higher will be the cost of the\nproperty. Therefore choose wisely between resale and builder property depending\non your personal needs and requirements.  <\/p>\n\n\n\n

2) Know the applicable taxes and charges. <\/strong><\/p>\n\n\n\n

As\nper the property norms you are required to pay charges to the government for\npurchasing a property in India. These charges are in the form of stamp duty,\nregistration, intimation to mortgage charge (applicable only in Maharashtra),\nGST, etc. You are required to pay GST of 5% for purchasing an\nunder-construction builder property or ready possession builder property (where\nOC is not issued) valued at Rs. 45lakhs and above & GST of 1% for\naffordable housing for properties valued below 45lakhs. No GST is applicable on completed or ready to sale properties\nof the builder where the Completion Certificate i.e. CC and the OC are issued.\nAlong with GST, you also need to pay stamp duty of 5% (in Maharashtra) and\nregistration charges (Rs.30, 000 for properties valued above 30lakhs & 1%\nof the property value for properties valued below 30lakhs. Stamp duty and\nregistration charges vary from state to state. Which means for buying an\nunder-construction property you pay GST (5% or 1%) +stamp duty (6%) +\nregistration charges (Rs.30, 000 or 1%). On the other hand, the advantage of\nbuying a resale property is that you save on the GST cost. There is no GST\napplicable on the resale properties. You are liable to pay only the applicable\nstamp duty and the registration charges. <\/p>\n\n\n\n

3) Know the loan funding for purchase.<\/strong><\/p>\n\n\n\n

Buying\na property with your own funds is a rare ratio. You mostly approach a lender\nbank\/NBFC to fund your property. Banks\/NBFCs provide loans on the basis of your\nincome eligibility subject to the LTV (loan to value) criteria. The LTV is the\npercentage of the maximum funding available on the market value of your property.\nThe LTV norms are, 90% for property less than 30lakhs, 80% for property between\n30lakhs-75lakhs and 75% for property above 75lakhs. No lender can fund beyond\nthe LTV norms. The LTV criteria remain the same for resale purchase or builder\npurchase of under-construction or ready to move property. But the final loan\neligibility on the basis of the property is calculated as lower of the two i.e.\npercentage of the agreement value or applicable LTV of 75%-90% on the market\nvalue whichever is low. In resale purchase 100% of the agreement value will be\nconsidered while in builder case 80% of the agreement value is\nconsidered. <\/p>\n\n\n\n

For\nexample: If the market value of the property is 1cr and the agreement value is\n80lakhs, the loan eligibility will be:<\/p>\n\n\n\n

In resale purchase<\/strong><\/p>\n\n\n\n

1cr *\nLTV of 75% = 75lakhs<\/p>\n\n\n\n

80lakhs\n* 100% of 80lakhs = 80lakhs <\/p>\n\n\n\n

Therefore loan eligibility will be 75lakhs (lower figure).
<\/p>\n\n\n\n

Alternatively,\nif the market value of the property is 1cr and the agreement value is 60 lakhs,\nthe loan eligibility will be:<\/p>\n\n\n\n

1cr *\nLTV of 75% = 75lakhs<\/p>\n\n\n\n

60lakhs\n* 100% of 60lakhs = 60lakhs <\/p>\n\n\n\n

Therefore loan eligibility will be 60lakhs (lower figure).
<\/p>\n\n\n\n

In builder purchase<\/strong><\/p>\n\n\n\n

1cr *\nLTV of 75% = 75lakhs<\/p>\n\n\n\n

80lakhs\n* 80% of 80lakhs = 64lakhs <\/p>\n\n\n\n

Therefore loan eligibility will be 64lakhs (lower figure).
<\/p>\n\n\n\n

Alternatively,\nif the market value of the property is 1cr and the agreement value is 60 lakhs,\nthe loan eligibility will be:<\/p>\n\n\n\n

1cr *\nLTV of 75% = 75lakhs<\/p>\n\n\n\n

60lakhs\n* 80% of 60lakhs = 48lakhs <\/p>\n\n\n\n

Therefore\nloan eligibility will be 48lakhs (lower figure).<\/p>\n\n\n\n

However\nplease note in the builder case the cost of the property (COP) is of vital\nimportance. Many lender banks\/NBFCs consider this COP as a base instead of\nagreement value to calculate the loan eligibility i.e. 80% of the COP is\nconsidered. The COP consists of the agreement value, legal charges, share\nmoney\/society formation charges, club house charges, maintenance charges,\ndevelopment charges, water connection charges, GST charge, etc. Stamp duty and\nregistration charges are not considered in COP.<\/p>\n\n\n\n

4) Know the OCR requirements.<\/strong><\/p>\n\n\n\n

Own\ncontribution refers to the own funds required for purchasing a property. The\nground rule of the home loan mortgage industry states that banks do not provide\n100% funding for your property. The standard ratio is assumed to be 20:80\npercent i.e. 20% own funding and 80% bank funding. However as per the\ncalculation of the property eligibility norms of the lender, it is seen that\nthe loan funding in builder property is always lower in comparison to the loan\nfunding available for resale property purchase. Low funding implies requirement\nof higher own contribution and maximum funding means less own contribution\nrequired. Particularly true in the resale purchase, especially when the market\nvalue of the property is high while the saleable value of the property is lower\nthan the market value. In such a scenario, you can draw maximum funding at\ntimes more than 100% of the agreement value. What you pay is just a stamp duty\nand registration charges. But such a type of deal is a rare combination. <\/p>\n\n\n\n

For\nexample- if the market value of the property is 1cr and the saleable value is\n70lakhs, as per the property eligibility criteria the loan eligibility stands\nat 70lakhs. Which means if you make an agreement of 70lakhs, the entire 70lakhs\nwill be funded. What you have to shell out from your own pocket is just the\nstamp duty and registration charges.<\/p>\n\n\n\n

Alternatively,\nif the cost of builder property is 50lakhs (inclusive of stamp duty and\nregistration cost of 3lakhs + 5lakhs other charges), agreement value is\n40lakhs, your own contribution will be:<\/p>\n\n\n\n

50lakhs\n– 3lakhs (stamp duty + registration) = 47lakhs * 80% (funding norms) i.e. 20%\nwill be your own contribution which will be 9.4lakhs. Your total own fund\nrequired will be 9.4lakhs + 3lakhs.<\/p>\n\n\n\n

5) Understanding the Pre- EMI cost.<\/strong><\/p>\n\n\n\n

Pre EMI is generally associated with under construction\nbuilder properties. In pre EMI you pay only the interest on the partial\ndisbursements of your loan amount. The Pre-EMIs paid do not have any impact on\nyour principal amount or loan repayment tenure neither is it deducted from the\ntotal interest you will be paying. It is not a part of loan repayment tenure.\nYour loan repayment tenure will consist of Pre-EMIs tenure + loan tenure. Also\nthere are no tax benefits on Pre-EMIs. In resale purchase the concept of\nPre-EMIs does not exist. In resale you directly start repaying the loan through\nEMIs <\/a>which consist of both principal and the interest amount.\nPre-EMI is suitable, if you have interrupted flow of funds or you are staying\non rent or you have financial crises or medical emergencies to meet, etc.\nPre-EMI is a cost incurred only when you opt for a housing loan on\nunder-construction property. However if you are capable of paying the initial\nslab wise demand of your builder through your own funds, you can save a\nsubstantial amount of interest or you may simply save your Pre-EMI  by\ngoing for a ready to move property. <\/p>\n\n\n\n

Additional Read: IS PRE \u2013 EMI BETTER THAN\nFULL EMI. FIND OUT YOURSELF.<\/strong><\/a><\/p>\n\n\n\n

6) Identifying the investment opportunity.<\/strong><\/p>\n\n\n\n

The\nbasic intention for investing in a property is to build an asset for you, an\nasset which will have an appreciation value in the future. Either of the\nproperties whether resale or builder will have an appreciation value in the\nlong run. With a personal note, a resale property that can go for redevelopment\nwill be your bonanza. In redevelopment the re-developer\/builder offers you an\nextra 20-25% square feet area in addition to your existing property area. This\nat once appreciates the value of your property by 20-25%. In urban cities\nlike Mumbai, there exists a lot of scope for redevelopment projects. The properties\nas old as 30-100 years stand a chance of going for redevelopment. But before\ninvesting in 30year+ old property ensure the property has clear and marketable\ntitle and the minimum age of the property is 7years if you are going for a\nhousing loan. Get a title search and structural audit done for the property.\nThe title search gives the ownership details of the property over the years and\nthe structural audit report shows the exact age of the property and its current\ncondition. But be cautious with redevelopment investments, as the fact remains\novershadowed that the properties going for redevelopment do not qualify for\nhousing loans. <\/p>\n\n\n\n

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