Pros and cons of buying property from secondary market
The chief advantage of buying from the secondary market is that the price tag is lower than the developer's. In many parts of Gurgaon, resale rates are 20% lower than the developer's rate
Dec 15, 2014
Source : The Economic Times


Kapildev Bhagat, 46, an executive with a travel agency, plans to buy an apartment in the National Capital Region (NCR). He has zeroed in on the upcoming Dwarka Expressway, where prices are within his budget. Recently a broker advised him to consider buying from the secondary or resale market as he could get a heavy discount that way. Not having thought of this option earlier, Bhagat wants to weigh the pros and cons before proceeding.

The advantages

The chief advantage of buying from the secondary market is that the price tag is lower than the developer's. Says Nishant Singhal, director-strategy and alliances, Investors Clinic Infratech: "This is a good time to buy an apartment in the secondary market. In many parts of Gurgaon, resale rates are 20% lower than the developer's rate." In many micro-markets across the country, where sales have slowed down, the gap between prices in the primary and the secondary market has widened.

"Investors who had purchased a number of apartments a few years ago, when prices were rising, are finding it difficult to sell them They also lack the capacity to hold on to them. Now they want to exit even if they have to sell at a steep discount," says Pradeep Mishra, head of Gurgaon-based Sainik Estates. Since the investor is also competing with the developer to sell in a tight market, his price has to be more competitive. However, you will have to act quickly. "We expect prices in the resale market to rise by 15-20% over the next year," says Singhal.

A second advantage of purchasing from the secondary market is that you can get possession of the flat within 6-12 months.

If you buy from a builder at an early stage of construction, you may have to wait for 3-4 years. "By buying in the secondary market, you can bypass development risk—the risk that the project may get delayed or not be completed at all," says Mishra. Nowadays many buyers are also keen to get early possession to avoid having to pay rent and EMI simultaneously.

Today you are also not starved for choice in the secondary market. Says Sajid Mustafa Baig, manager-residential services at Bengaluru-based Silverline Realty: "Possession will be offered in a large number of flats in Bengaluru in 2015, so there are options galore."

Disadvantages and risks

The biggest disadvantage of purchasing an apartment from the secondary market is that the seller may demand payment in cash to avoid paying capital gains tax on the premium— the amount by which the price has appreciated. To circumvent it, sellers demand that the buyer pay the premium in cash. Besides being illegal, the cash demand also acts as a deterrent for many.

"The salaried class depends on a bank loan. They can't get a loan for the cash component," says Baig. When you buy from a builder, he offers you a payment plan customised to your needs even if the project was launched 2-3 years ago. This allows you to make staggered payments. In the secondary market, you will have to pay right away the portion of the cost that the first buyer has already paid to the builder. If the project was launched 2-3 years earlier, he would have paid 70-80% of the total cost.

You will have to pay that cost and the premium right away. "When you buy in the secondary market, your immediate outflow is much larger," says Sanjay Sharma, managing director, Qubrex, a Gurgaon-based real estate consultancy. Finally, you may also find yourself in a difficult situation if you don't check beforehand and buy in a project that has got stuck for some reason.

Checks you must run

Before paying the seller, get the latest account statement from the developer. This document tells you the amount that the previous buyer has paid and what is due. "There should be no overdues or late payment penalties to be paid," says Singhal.

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