In a recent circular, the National Green Tribunal (NGT) asked developers to stop construction in some parts of the Noida Extension and Gurgaon regions of the National Capital Region (NCR). This was done to control air pollution caused by building activity in the area. No doubt the order will affect the completion of under-construction projects in those areas. Project delays and other issues related to under-construction properties, either due to a regulatory matters or because of developer fault, is a major setback to home buyers.

Lokesh Sharma had booked an apartment in a housing project in Sector 135, Noida Expressway. The project was launched in 2009, but is still incomplete. Sharma, and many other buyers, had paid up to 95% of the total value of the property by October 2013. They are paying their home loan equated monthly instalments (EMIs) as well as rents in the meanwhile.

Another home buyer, Dhiraj Tiwari, in 2010 bought an apartment in a project in Faridabad that was launched in 2006. The real estate agent through whom Tiwari had got the house had said that the project would get completed in the next nine months. But it was only four years later, in 2014, that he finally got possession.

These are hardly isolated cases. If you, too, plan to buy a house, make sure that you take a decision based not only on the price but also associated risks.

The biggest danger in buying an under-construction property is delay in completion. Six months to a year are commonly accepted, but delays of two or more years is not uncommon. Sharma said, “The developer launched a total of 18 towers and said delivery would be by 2012 for those who booked units in 2009. But till now, possession has been offered in only four towers, and that too without occupation certificate."

According to PropEquity Analytics Pvt. Ltd, a realty research and analysis firm, among projects that offered possession between 2011 and 2014 in NCR, 78% are running behind schedule. The average delay is of 30 months. In Mumbai Metropolitan Region (MMR), average delay is 20 months.

In a dull real estate market, developers intentionally slow the pace of construction if sales in their projects are sluggish or a large part of the project is unsold. Developers also divert money collected from the pre-launch or initial sales of one project to another, or use it to pay off debt. “Projects can get delayed due to the developers’ funding issues or failure to obtain all approvals. Projects can even be declared illegal if the developer has failed to comply with all regulatory guidelines," said Santhosh Kumar, chief executive officer–operations, and international director, JLL India.

Too many projects being launched is another reason for delay. “The overstretching leads developers to divert the initial sale proceeds from newly launched projects towards their under-construction ones. This, in turn, leads to a complete drying up of capital for the (newer) projects when there is oversupply in the market and sales decline," said Samir Jasuja, founder and managing director, PropEquity.

There can be many reasons for delays but developers usually lay the blame on municipal authorities for not providing approvals on time.

When one will get the house isn’t the only uncertainty, what you will get is also unknown. The actual apartment can be very different from the sample flat. Many home buyers know that the furniture and fittings in a sample flat are not part of the apartment on sale; their major concern is the difference in the promised quality and actual delivery by the developer. “Quality of construction has been a challenge in markets such as India, where serious flaws become visible after 5-10 years of completion," said Jasuja.

There could also be a difference in the size of the apartment. A deviation of up to 5% in apartment size is usual; but it can be more. Developers put in a clause in the builder-buyer agreement regarding this, and if the final house is bigger than what was in the plan, the buyer may be asked to pay more. For example, if there is an increase of 4% in the final super built-up area and the apartment size is 1,300 sq. ft while initially it was to be 1,250 sq. ft, the final cost will be 3 lakh more assuming a per sq. ft rate of 6,000.

“I was asked to pay 1.15 lakh extra as additional charges," said Sharma. The same happened with Tiwari: “The developer asked us to pay about 2.5 lakh more than the estimate."

Home loans can be exceptionally burdensome if the house is not being delivered. According to the income tax rules, you can claim deduction for both principal repayment ( 1.5 lakh a year) and interest payment ( 2 lakh a year) on a home loan. But you can’t avail this benefit till you get possession of the property. So, if a project is delayed, you will continue paying the EMI without getting any tax benefit on it.

Moreover, you can only claim tax benefit on the interest paid during the construction period in five equal instalments starting from the year you get the possession. The problem here is that interest payments are high during initial years, and project delays can result in unclaimed interest getting accumulated. You may not be able to claim deduction for the entire amount, along with the interest payment in the year after possession. Here’s an example. Say, the loan is of 18 lakh at the rate of 10.25% for 20 years. The borrower gets the house only after four years of having paid EMIs. This means, she has paid about 7.12 lakh as interest in four years. In the fifth year, when she can claim tax benefit, the interest amount at her disposal is 1.4 lakh (one-fifth of the 7.12 lakh) and interest of that year, 1.83 lakh—a total of 3.23 lakh. But tax benefit is only till 2 lakh a year. If she had got the house sooner, she would have been able to get tax benefit on the full interest paid.

Once you buy an under-construction property, there is limited scope of getting out of it. If you decide to opt out of the project, you may have to incur heavy loss, especially if market conditions are subdued. Typically, a developer either restricts a buyer from selling a unit for a certain period or has high transfer charges; 150-250 per sq.ft, or even more. In some projects, you have no choice but to sell the house to the developer itself. In such cases, it is unlikely that you will get the market value.

And, of course, a fully constructed house will get a better rate from potential buyers than a house that’s still being built. If a project is delayed, there may be little interest from other buyers.

A ready-to-move in property is safer for end-use home buyers, even though these are more expensive and require lump sum payments. Projects that are under construction, while cheaper, come with many risks. Moreover, considering the high inventory available, finding buyers for the price that you may be expecting can be difficult. Avoid buying at a pre-launch stage.

Under-construction properties look tempting, especially when they are sold based on schemes such as 20:80, no EMI till possession and construction-linked payment plans. Such schemes offer low initial contribution. If you are a prospective home buyer, do a complete background check on the developer. Delivery track record of previous projects is an important thing to look at. Try to get an accurate idea of the project’s progress. Ensure the builder has free and clear ownership of the land on which the project is being built.

Yes, it is indeed difficult to get most of this information. Hopefully, once the real estate bill is passed, these tasks will get easier. Some of the clauses such as maintaining 50% of fund collected in an escrow account will stem fund diversion and ensure timely completion of projects. But till that happens, a ready property may be a better choice.