Investing in a Resale Property Has Its Advantages and Disadvantages

Better known as the secondary market, resale properties do have its positives and negatives.

Whenever the subject of investing in residential property is raised in conversations and discussions, the emphasis is primarily about the new present stock available and of upcoming real estate projects. A home buyer or an investor usually prefers to explore the domain of new and under-construction residential property as it allows her more options. But, there exists a large segment of re-sale property which is as significant a component of the real estate market. Here, the buyer can directly look up existing residential property, through a classified advertisement or a real estate agent, in the locality of his preference.

In a gloomy atmosphere caused by a sluggish market with alarming levels of unsold inventory and sagging sales, investors who had entered the market in better times, may find it encumbering to continue to hold on further, seek to make distress sales and thereby give a boost to the inventory of the re-sale market. At such times when prices are down and can be negotiated, the wise and well heeled buyer may also decide to dispose of her smaller unit and upgrade to a larger unit, taking advantage of a downswing in prices. Such a market is characterized with substantially large discounts, hectic negotiations and at times hastily concluded deals. Experts in the field advise caution as entering into in a re-sale agreement has its upside and its downside and buyers needs to prudently gauge the market before committing themselves.


The Advantages of Resale Property

Discounted sales: There is no denying that there are tangible advantages of taking recourse to the re-sale market, when you spot a good opportunity. The market has show that discounts ranging from anything between 15 to 20 percent are available for the diligent customer. Investors and upgrading buyers anxious to exit the market before further erosion in value takes place, are more amiable to negotiate in favour of the buyer. Developers with similar properties are largely reluctant to reduce their prices for fear of loss of reputation.

Quick possession: The risk that a buyer of an under construction property runs is eliminated when she opts for the re-sale route. Possession takes place faster and with the minimum of formalities.

Increase in Rate of Investment: Buyers having purchased at a discounted rate, stand the chance of gaining a better rate of investment over a short period of time as the markets stabilize and revive. As business cycles evolve, markets perk up, giving better gains.

Ease of transaction: Usually, buyers purchase re-sale property when they are in possession of sufficient funds to do so. Retiring personnel, having not bought any property earlier due to family responsibilities, now with lump sum final settlement of retirement dues are ensured ease of transaction.


The Disadvantages of Resale Property

One-Time Payment: Purchase of re-sale properties entails a one-time payment to seal the deal. Only those with the potential to cough up the usually large amount can effect a deal. Most salaried employees when buying from a developer, rely on a bank loan with payment in installments would find themselves unable to raise the money when dealing with an investor. Azmat Shah, Head, Sales and Marketing, Realty Merchant cautions buyers and says, “Only those who have the capacity to pay lump sum amount should enter the secondary market. Those preferring staggering payments via home loans and EMIs should choose fresh sale as they can avail the easy payment plans offered by developers.” There is the chance that the buyer in a re-sale transaction may have to pay as much as the initial buyer or the present owner has already paid. This could entail a rise of 60 to 80 percent of the entire project cost in case it had been launched a few years ago.

The Demand for Cash Payment:  The seller may demand that the buyer pay a part of the sum in cash to avoid paying capital gains tax on the premium earned i.e. the amount by which the price has appreciated. This is not only illegal but a major obstacle for those who cannot borrow that amount as a loan.

Complexity in Documentation: The documentation of re-sale properties can be hassle as the buyer needs to acquire documents to ascertain that the seller is genuinely the sole owner and there are no other claimants. She also has to ensure that the seller has no outstanding dues towards the developer and would need a ‘No-Objection Certificate from the developer. If the seller had purchased the property with the aid of a loan, them the buyer has to ensure that the loan has been paid in full and a certificate to that effect is handed over to her. In case the loan is still being paid by the seller the process shall take longer to have it transferred to the name of the new buyer.

Buying a house from the secondary market is definitely an option but it is mandatory on the buyer to undergo due diligence in all matters before deciding to invest via this mode.