Pre-sales of Property before Construction in India

Pre-sales of Property before Construction in India

A pre-sale property usually comes with a tempting price that is lower than the market price and entices you only on that basis; nevertheless, you should only buy it if it is an investment for your future and you know who the builder is. Pre-sale properties are only profitable if the promoters’ track records are solid and proved – never otherwise.

Presale agreements have become a common practice for home transactions across the world, particularly in several Asian markets.

Although there is a growing empirical literature on presales agreements, just a few studies examine its theoretical roots. There is a market for a collection of interconnected theoretical models that explain how and why developers and customers enter into presale contracts for unfinished residential projects. Given divergent consumer views about future market pricing, developers and purchasers enter into presale agreements to avoid two interconnected, basic risks:

  1. Real estate market valuation and
  2. Default

Presales need a committed team of professionals, with typically two-thirds committed to technical activities (creating solutions to client issues) and one-third dedicated to commercial operations (managing deal qualification and bid). These initiatives have a two to three times greater impact on revenue development than lead generation.

Boosting the presales engine may result in a five-point increase in conversion rates;

  1. A 6–13 percent increase in income, and
  2. A 10–20 percent increase in the pace with which prospects move through the sales process.

On new construction, federal tax is needed and must be paid at the time of completion. If appropriate, the buyer’s lawyer will submit the GST rebate on behalf of the buyer. In other cases, the developer would charge the rebate amount on the GST and then wait for the rebate from the government.

Real Estate Market Fluctuation: The market fluctuates back and forth. Regardless of market conditions, purchasers must finish on the property. Real estate is a long-term investment, but be prepared to hold the home as a rental or move in.

Mortgage Approval: A mortgage cannot be given until the project is completed. As a result, lenders might give a pre-approval when acquiring a presale. However, another examination will be required upon completion to assure lending for the house. If the property is worth less than the purchase price at the time of completion, the purchaser may be obligated to make up the difference.

Purchasing off a floor plan: Purchasing pre-sale necessitates vision. During building, the floor layout may be altered. The developer will include a minor deviation tolerance in the Contract of Purchase and Sale and Disclosure Statement. Having a realtor represent you in the purchase from the developer can help you determine what variations in finishing and square footage may apply. It is critical to buy from a respected developer to assure a high-quality product.

Understanding Pre-sale:

A prevalent myth is that pre-construction properties are less expensive than new construction properties since you are buying on spec and must wait until the house is completed before moving in.

  • Presale homes are actually more costly than resale ones. As of the fourth quarter of 2018, the price of a Presale house in Greater Vancouver was around 25-30% more than the price of a Resale property in the same neighborhood. Presales are often constructed by major developers with substantial funds. Their business is real estate, and they employ skilled negotiators, economists, and salespeople.
  • Resale properties are often sold by members of the general public who lack the same resources as developers and have distinct conditions and reasons for desiring to sell. Presale projects are frequently delayed, despite the fact that it is not usually the developer’s responsibility. Due to extensive delays for building permissions, a shortage of trained labor, and other unanticipated obstacles, projects frequently run late (6mths – 12mths).
  • Rates are often locked in by banks for 90-120 days. If you buy resale, your costs will be predictable. Because your mortgage will not be obtained until the home is constructed, you are vulnerable to interest rate rises with Presale. When you get an appraisal done on a constructed property, you instantly know the appraisal value. When it comes to a presale property, the appraisal is completed when the building is finished. You must verify that you have accurately assessed the value, otherwise, you will be required to make up any difference between the value of the building and the value of your mortgage. People that buy Presale Properties profit from the price increases, which is not always assured.

Consumer Risks in Buying Presales: Typically, developers engage in contracts that demand apartments to be developed within two years at a specified price and require prospective buyers to pay deposits. Purchasing a “presale” is not the acquisition of an existing physical property, but rather a contract for the right to receive, and the duty to pay for, a finished unit at a later date. This distinction implies that there are difficulties you should be aware of before making an educated decision to purchase a unit in a new development.

A variety of events might occur between the initial presale contract signing and the project completion date that can affect a buyer’s ability to finance their purchase. For example, the cost of the development unit might rise, financing rates could rise, property values could fall, and a buyer’s job position could change. All in all, it’s a fantastic idea to buy pre-sales if you’re living in the area, but if you’re just looking to invest, I’d reconsider.