Paying EMI for an Unfinished Construction – What Should You Do?

Everyone across the globe has a dream to build their dream home and live the rest of their lives under a secure shelter. Most people have a two-step process of buying a perfect house for their family that includes saving till they get enough for total upfront or minimum down payment and then getting home-ownership.

Most middle-class people always prefer paying monthly installments for their homes instead of paying monthly rent. Well, there are benefits to doing so! However, making a lifetime saving and putting it into your dream house is a big step that requires patience and well research. Below are the benefits of paying EMI over rent.

Build Your Own Asset: You are only getting permission to stay at home and use it for a month or so whenever you pay rent. With this, you are not building any assets for your family. When paying EMI, you are creating an asset that can pay you after a particular period. EMI helps you build your net worth over time. Your loan amount will either remain the same or decrease, whereas your income will increase, making it easy to repay the loan quicker and get ownership faster, which isn’t available in rental property.

No Price Uncertainty: With rental houses comes a yearly hassle of price hikes. It means, every year, you have to pay increased rentals, which disturb your monthly budget and deliver you nothing (in return). Moreover, you have to renew the rental agreement every year to continue using the rental property. However, a personal house gives you complete liberty from this. Instead, it keeps your EMI static (with a fixed interest rate) and hence saves you from price uncertainty.

Emotional Attachment: Purchasing your home brings a feeling of security and pleasure. Living in your dream nest gives you complete freedom to build memories with your family. After all, there isn’t any place like your dream house.

Financial Security: Undoubtedly, paying the rental amount is less when compared to monthly EMI. However, you will save a significant sum on buying your house via EMI in the long run. After a specific tenure, your EMI will end, and hence you get 100% financial freedom.

Match Your Expectations: Not every property owner builds a house matching your needs, resulting in adjustment for the tenure you live there. This isn’t a problem with buying a house. You always buy a home that matches your expectations. Moreover, you don’t depend on the landlord for water, electricity, or even interior decoration.

Get Tax Benefit: Paying rent lets you save taxes under the HRA category. However, EMI helps you save more tax additional than HRA. It means you save tax in two ways. With EMI, you can save on the principal you pay to the bank alongside interests. Principal payment will be saved under 80C, whereas interest amount will be saved under Section 24.

Additional Income Source: After your EMIs are over and you add construct additional floor on your house, you can get rental income on that will add more to your monthly income.

All in all, you have a great deal buying a house rather than paying the rental cost every month.

Nowadays, some builders sell their houses during the construction phase and give possession after a few years. As mentioned above, homeowners can start paying their EMI and take benefits during the construction phase.

However, during this scenario, they have to make two payments simultaneously. First is their regular rental amount and newly started EMI. This brings an additional burden on your monthly finances.

No Worries! If you can manage both, it will help you lower your EMI tenure and take advantage of low-interest rates. 

But Wait! Do you know that builders also take loans on their construction to complete it and give possession to the homeowners?

This brings a big mess for the homeowners to wait to get the possession and wait till the builder’s loan is completed.

What if your builder can’t repay the loan and extend possession tenure to an undefined time?

This is a big hurdle for homeowners who are already paying EMIs for their soon-to-be-possessed house.

In such cases, banks were earlier the liable authority to take possession of the construction and auction it to recover the loan amount. In this scenario, homeowners (already paying monthly EMIs) have no security and hence end up paying their home loans without owning what they are paying for. Unfortunately, they were also neglected when approached to court as concerned banks are already given the complete authority of the construction made by defaulter builders and are on auction for loan amount recovery.

Recently, the Supreme Court has taken a step in favor of homebuyers who are already paying EMIs and are waiting for the possession.

Earlier, in case a builder defaults on debt, lenders take possession of unfinished construction and auction it to recover dues. However, the Supreme Court has said that the interests of homebuyers will be kept above the banks in case a real estate builder defaults in repaying bank loans and delivering the possession on time.

With this announcement by the Supreme Court, homebuyers will get the opportunity to approach the appropriate statutory forum (RERA) that can specifically address their concerns. The supreme court has also directed the Union government to inform the court, within a period of two months, on how various states are implementing the rules and conditions on RERA.

This brings in another big question for the homebuyers, i.e., what should homebuyers do if the builder isn’t finishing the construction and you are still paying EMIs?

In case of bankruptcy, the biggest problem is construction of your property comes to a standstill. Here, homebuyers think of losing their hard-earned money and already-paid EMIs. So, what are the provisions for homebuyers under the Insolvency and Bankruptcy Code (IBC)?

Once the builder is declared insolvent, i.e., the buyer cannot pay dues, IBC gives two options to resolve the issue, i.e., resolution or liquidation. 

Earlier, IBC aimed to protect financial creditors’ rights, neglecting the buyers. However, the Supreme Court has now brought the interest of homebuyers above priority over financial creditors.

If the builder declares insolvency, an insolvency resolution professional attempts to resolve it. If the resolution isn’t possible, the professional verifies the claims of creditors and oversees the liquidation and settlement process.

The Insolvency and Bankruptcy Board of India (IBBI) provide homebuyers with Form F. They can use this form to raise the claims that help them get the amount they paid for the builder’s project. Earlier, banks were the first to get payments until the Supreme Court amended the rule and prioritized homebuyers over banks.

There are some scenarios when IBC can help you get possession of the property in the following ways.

  • The amount is raised by selling the builder’s asset and using it to complete the construction. Post-construction, the property is handed over to you (homebuyers).
  • You are asked to pay the leftover amount and use it to complete the construction.
  • Let homebuyers create a resident welfare association, acquire unfinished construction and complete it with personal contributions.

In this entire situation, when the builder hasn’t finished your house, and you are still paying EMIs regularly, you can file a refund. However, you need to terminate the purchase agreement to become a creditor and file for a refund. In such a scenario, you won’t get possession of your house. So, if you are looking for possession, you shouldn’t select this option.

With that said, below are some quick tips that homebuyers should consider after the builder defaults the payment.

  • Don’t stop paying your EMIs
  • File your claims within given tenure as announced by the Insolvency resolution professional
  • Work as a team with the authorities to get delivery of your house or get invested amount (whichever suits you best)

Therefore, real estate experts always recommend you select the right builder when buying your dream house. For your convenience, below are some tips you can consider when short listing the right real estate builder.

Online Reviews: Nowadays, online reviews are readily available that give you a clear picture of a builder’s potential. Google Listing is the best place to find genuine user reviews and evaluate the builder’s reputation.

Check Personal Website & Other Details: Every builder has a business website to showcase their previous projects, ongoing projects, and other details. You must check these details and evaluate whether they have the potential to complete the property you are planning to buy.

Check Previous Projects: Physical inspection of their previous projects is always a smart move to ensure the builder has done good work in the past. Visiting the builder’s previous projects also helps you talk to the residents and talk about various pointers like payments, possession, quality, etc.

If you still have any doubt w.r.t this critical situation, share your query in the comment section and let us help you with the best-suited solution.

Add comment