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How to correctly calculate returns from an under construction flat?

Posted on 03 Mar 2024
Author: Sayan Sircar

Tags: Calculator ; Real Estate

4 mins read
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This article gives an easy-to-use calculator for knowing the returns from buying and later selling an under-construction property.

How to correctly calculate returns from an under construction flat?

📚 Topics covered:

How to calculate returns from a real-estate investment?
How to use the calculator?
Case 1: Held until possession without home loan
Case 2: Held until possession with home loan
Case 3: Sold before registration

How to calculate returns from a real-estate investment?

Real estate investors who have invested in under-construction properties need a way to correctly calculate the return from their investments since

the builder is paid at different points of time and not all at once
stretched out payment plans allow you to pay a small amount now and the rest later
home loans can be taken today and only a small amount of might be paid in the moratorium period (only interest and no principal) to enhance returns

For this purpose we have created an easy-to-use calculator for calculating your overall returns when you sell the asset.

We have used the concept of Extended Internal Rate of Return (XIRR) to calculate the final returns since money is paid on different dates in an irregular fashion.

How to use the calculator?

We will use Google sheets to create a simple calculator for this calculation. There is a link to download a pre-filled copy of the Google sheet via the button below.

Important: You must be logged into your Google Account on a laptop/desktop (and not on a phone) to access the sheet.

This calculator is in the “house-sale-return” tab.

We will show a few cases below. In each case we will consider a house purchased for ₹1 crore where the construction takes place over multiple years.

A home loan of 75% of the house value is taken, if applicable, for 15 years at 9%. The EMI for such a loan is 1%: EMI Calculator: know your EMI per lakh to easily know how much total EMI you have to pay.

For simplicity, we have assumed that the final sale price is post tax.

To understand how to calculate your returns from your real estate investment:

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Case 1: Held until possession without home loan

In this case, the investor makes payments to the builder out of their own funds, takes possession, pays for registration, interiors and other costs. The property is sold after some time.

Returns From An Under Construction Flat When Held Until Possession Without Home Loan

The final return is quite sensitive to the final sale price as we can see below:

Sensitivities of Returns From An Under Construction Flat When Held Until Possession Without Home Loan

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Case 2: Held until possession with home loan

This case is the same as the one above but 75% of the price is paid via home loan. For the period before registration, only interest is paid on the home loan. EMI starts once registration is done.

Returns From An Under Construction Flat When Held Until Possession With Home Loan

Case 3: Sold before registration

In this case, the investor sells off the property before hand-over and registration is complete. There are significant savings since registration, interiors etc. are not done. The house is sold at a 30% premium to the allotment price and the investor makes an excellent return.

Returns From An Under Construction Flat When Sold Before Registration .

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