A question that usually troubles almost all home buyers is whether to opt for a ready-to-move-in house or book an under-construction one. Since both these property types serve and suit different purposes and intents, it is imperative to know their pros and cons in details. Here is a ready guide to help you take the decision. Plenty of buyers today choose affordable newly constructed houses owing to the advantages such as lower cost and greater customization freedom. However, most of the buyers are unaware of the additional charges and tax implications associated with an under-construction property. These include service tax and VAT which form an essential part of the cost while buying an under-construction property.
Plenty of households languishing for years on affordable newly constructed houses wait list and few public dollars available for brand new construction, the town is changing to its burgeoning condo market for help. Half a dozen condominium developers have inked deals with the city and non-profit housing providers to supply low-income families and individual’s affordable newly constructed houses rental and ownership units in their buildings.
Under-construction property
Buying affordable newly constructed houses has become one among the best ways to understand the dream of owning a home currently. This proposition in real estate comes with certain risks also, the foremost common being delayed possession. Let’s have a look at the benefits and drawbacks associated with such properties.
Advantages
Easier on the pocket:
An under-construction property doesn't hurt a buyer’s pocket as compare to as a ready home does at the time purchasing. If factors like location, area, property type and builder are same, affordable newly constructed houses costs quite an under-construction one. The difference in pricing can vary from anywhere between 10 - 30 percent.
Higher returns:
Purchasing an under-construction property normally yields a better return on investment due an inclusive window period between the purchasing stage and delivery timeline. If you sell the property closer to possession, you stand an honest chance of earning a healthy appreciation on your capital investment.
Disadvantages
Higher risk:
There is a component of risk involved when it involves investing in an under-construction project. There have been cases when the builder has failed to deliver on time or in some severe cases, failed to deliver at all due to various reasons such as funding crunch, rise within the cost of construction materials and increase in lending rates, among others. It is, thus, imperative to try and do in depths background check of the builder before investing in an under-construction project.
Discrepancy in the final product layout/features:
One of the foremost common glitches related to under-construction properties include the peril of not getting the promised product at the time of possession. Normal incoherence incorporates lesser usable region than guaranteed, changed format and lacking enhancements.
GST Implication:
Purchasing an under-construction property will attract a tax incidence of 5 percent of the entire cost of property. Stamp duty and registration charges will need to be paid separately, leading to heavy expenditure on taxes. Affordable newly constructed houses priced attract one percent GST of the entire cost of property.
Tax Implications:
Buyers usually finance their home purchase through loans. The benefits under different sections are restricted to only ready-to-move-in properties, once the possession has been appropriated by the customer. The tax benefits on the interest paid during the construction of a property can be claimed in five equal installments beginning from the year of possession.
However, there is a catch here. The tax exemption on the interest paid on a home loan for a self-occupied property is applicable if the construction gets completed and the homeowner shifts in the house within three years of availing the home loan. In case the construction does not get completed within three years, tax benefits can be claimed. These conditions are applicable only if the property occupied by the owner. In case, the owner decided to rent it out or leave it vacant (deemed let out), there is no restriction on the amount of interest deduction. As far as the tax exemption on the principle amount is considered, if the borrower ends up paying the entire sum before possession, there is no rule to claim back any reimbursement for the principle amount.
Since projects delays have become so very common these days, those who take home loans on under-construction properties risk losing out on the account of tax benefits. With the uncertainties of real estate, delay in the delivery of a project is quite common. Thus, with affordable newly constructed houses you have the risk of losing out on the tax benefits.
CAPITAL GAINS TAX
In case you plan to buy an affordable newly constructed houses by selling off an already existing asset, the construction of that should complete within three years from the sale of the property. If the construction takes longer than three years, the Long Term Capital Gains (LTCG) from the sold property is taxed at 20 percent, coupled with the payment of cess and surcharge.
Income tax rules allow tax exemption on the capital gains from the sale of a property that has been held for more than two years ONLY if the amount is reinvested in a property within two years or if it is invested in a house purchased one year before the sale of the asset or used to construct a house within three years. In such a scenario, if the developer delays the possession, you will end up paying a huge amount as 'capital gains tax'.
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GTAREALSTAR from Royal Canadian Realty Brokerage is a real estate Brokerage company based in Ontario, Canada. The well-established company has many years of outstanding experience in the Real estate Industry. The company focuses on being tshe "straight talking property people" offering a completely jargon free service. GTAREALSTAR use the latest software solutions to improve their service to their customers on a daily basis. GTAREALSTAR offers online access to website twenty-four hours a day, they even offer electronic signing. The company offers sales and rentals combined with first class service and support. Call Naveen Vadlamudi @ 416-837-9696.
Never too late to find your dream home. For available properties, visit http://www.gtarealstar.com. Call Naveen Vadlamudi @ 416-837-9696 Now.
Author : Naveen Vadlamudi
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