Should you invest in under-construction properties to get high ROI in 2022-23?

There is no denying the fact that a couple of years gone by has instilled a sense of insecurity in the minds of realty investors. However, that reluctance was short-term and the industry is looking at a full-scale recovery. Despite this, there remains a dilemma as to which property type is better?

Ready-to-move-in or the under-construction one? As the year 2022 will be the flagbearer year for the sustainable recovery of the housing sector, investing in an under-construction property would fetch some excellent returns in the long term. Let us analyze why?

Low Input Cost
As the real estate sector is trying to get on its feet, the real estate developers are rolling out attractive offers and largesse to attract homebuyers. As the under-construction projects take time to complete, an investor can book a property with only 5-10 percent of the actual cost and the remaining can be paid in phases or as per the deferred payment plan of the developer.
In this way, the input cost is only a fraction of the amount that would have been used in the acquisition of a ready-to-move-in housing unit. In 2022, the developers are more willing than ever to invite the investors, therefore, the investors must consider under-construction property ownership.

Affordable Interest Rates
As the economy is recovering from the pangs of an unprecedented pandemic, the credit disbursal is also picking up the pace and the rates of interest on the housing loan is at the lowest of all time. While the nationalized banks are offering home loans in the range of 6.50-10 percent, the Non-Banking Finance Companies (NBFCs) are offering home loans at 6.90 to 12 percent.
This makes it an opportune time for the investors to avail of the benefit of low-interest rates and make an investment in under-construction properties. Moreover, the home loan can be synced with the payment plan of the developers so that the instalment is released when the construction phases are completed.

High Returns Potential
As the economy is recovering from a formidable challenge, the pace of growth will be tremendous in the coming decade. According to Moody’s estimate, the Indian economy is expected to grow at 9.1 percent in the coming year. This forecast displays the potential of the Indian economy. If the real estate investors consider an under-construction property, the rate of returns will be excellent on a 7-10 years timescale.
In addition to the residential segment, commercial real estate investment is also catching up. If earning a rental income is the sole purpose of investment, you can also consider an under-construction commercial property.

Attractive Offers
In order to woo potential homebuyers, the reputed real estate developers are offering attractive discounts, free furnishings, low booking amounts, stamp duty rebates, deferred payment plans (often construction linked), group discounts, and free club facilities for a specified time. The developers are doing this to attract serious buyers and encourage them to consider the project from a long-term investment perspective. Those investors who want to earn a rental income after some year can start with an initial investment and once completed, the investment might turn out to be a workhorse.

Conclusively, the year 2022 offers a unique opportunity for real estate investors to invest in an under-construction property as the initial investment cost is low, and there is a multitude of options to choose from. However, factors such as location, the reputation of the developer, RERA registration and connectivity must be kept in mind before investing in an under-construction property.
 
Authored by:
Suren Goyal, Partner, RPS Group