Before Investing in the Secondary Real Estate Market of India

The secondary real estate market in India is attractive. It is advantageous. Many homebuyers are turning to the secondary market instead of purchasing directly from the builder. One can avail a great discount on such properties and get a house more than the budget. The primary reason for the growth of the secondary real estate market in India is the growing unsold inventories with the owners and the black money with the buyers which they want to get dispose of.

The recent scrapping of INR 500 and INR 1000 notes by the Govt. of India would be taking care of the black money with people and the slow phase of the real estate is supposed to pick up a pace in due time. The primary market is prominent but now, the resale market is where many home seekers are turning to. But it is not without the challenges. Let us see what are the benefits and drawbacks of investing in secondary real estate market of India.

Why buy a resale Property?

Many things lose the significance when they exchange hands but not the property. With the time, property prices rise because as they say real estate is the best investment. But that ‘second hand’ tag in India is unfortunate. As such, buying a resale property can be financially beneficial. Let us know in detail the benefits.

1. Negotiable prices: Secondary market means the owner is trying to get rid of the property and get his investment back. As such, he is ready to cut some slack to the buyers too. It is estimated that the properties are available at around 10-20% lower that the actual price. The huge difference between the two properties divides the property seekers.

2. Profit in short duration of investment: Buying at the lower prices means gaining a fair return on investment in the short term. One need not wait for longer to liquidate his assets. It is said that 3 years is the minimum time in Indian real estate to get a significant ROI but resale properties mature faster.

3. Less possession delays: Possession delay is the major problem that the homebuyers suffer from. They are seldom delivered the project on time. The reputed builders keep the promises but it is quite common for the newbie builders to deliver the keys after a delay of a year or so. The resale property has less risk of such happening. Since the owner has already purchased it from the developer, the chances are till he sells the property to have the investment back, the project would get completed. One can also explore the options in the resale market and choose a property that is possession-ready.

Why not buy a resale property?

While many arguments are in the favour of resale properties, there are complications related to it. The secondary market in India is highly unregulated. The recent Real Estate Act and the demonetization will show positive results but that is to be seen. Let us see why a resale property can be a bad idea.

1. No flexible payment options: Buying directly from the developers gives many payment options. Only those people can invest in secondary market who have the money in hand and are not dependent on the home loan. Generally, the owner of the property asks a huge lump sum amount as the first instalment and that instalment may be equal to what he has paid to the developer already. One can easily expect that to be the 70-80% of the property price. That’s a huge commitment and not all the homebuyers can afford that.

2. Dealings in cash: This is a very disappointing condition of the market that the majority of the dealings occur in cash. The cash payment saves some taxes for the owner and the stamp duty for the buyer. Thus, in spite of being illegal, this is how the resale market runs. One cannot avail a loan on the cash payment and thus, this is not for the middle-class people who cannot afford to pay without a loan.

3. The paper trail: There is a lot of paperwork involved in the transfer of ownership. Since the developer is the first owner of the property, in addition to NOC from the current owner, the buyer need to get one from the builder too. Also, now loan needs to be shifted from the owner to the buyer i.e. new owner. The whole process takes time and a lot of patience.

If low price is on someone’s mind, the secondary real estate market of India is for him. If he wants a smooth transaction and ready to wait till the property is possession ready, one should go for the primary real estate market. At the end, it is all about preferences.