Buying an under-construction property is often cheaper than a ready-to-move home, but financing it through a home loan comes with its own rules, risks, and cost implications. Many Indian buyers underestimate how EMI structure, interest burden, GST, and project delays can impact their finances.
This 2025 guide explains everything you must know before taking a home loan for an under-construction property in India.
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What Is an Under-Construction Property?
An under-construction property is a residential project that is still being built and has not received an Occupancy Certificate (OC).
Examples include:
Apartments under development
Projects in early or mid-construction stages
Properties launched but not completed
Banks treat such loans differently compared to ready-to-move homes.
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How Home Loans Work for Under-Construction Properties
Unlike completed homes, banks do not disburse the full loan amount at once.
Loan Disbursement Structure
Loan is released in construction-linked stages
EMI starts only on the disbursed amount
Interest is charged from the date of each disbursement
This leads to Pre-EMI, not full EMI.
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What Is Pre-EMI?
Pre-EMI means you pay only interest, not principal, until the property is completed.
Example:
Loan sanctioned: ₹80 lakh
First disbursement: ₹20 lakh
Interest @ 9%
👉 Monthly Pre-EMI ≈ ₹15,000
As more amounts are disbursed, Pre-EMI increases gradually.
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Pre-EMI vs Full EMI (Major Difference)
Factor Pre-EMI Full EMI
Payment Interest only Principal + Interest
Amount Lower initially Higher
Loan tenure Does NOT reduce Reduces
Total interest Much higher Lower
📌 Pre-EMI increases total interest cost significantly.
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EMI Example for Under-Construction Property
Assuming:
Property value: ₹1 crore
Loan amount: ₹80 lakh
Interest rate: 9%
Construction period: 3 years
Scenario
3 years of Pre-EMI ≈ ₹21–23 lakh paid
Full EMI starts after possession
Total loan tenure remains same
👉 This can add ₹20–30 lakh extra interest compared to ready-to-move homes.
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GST on Under-Construction Property (Hidden Cost)
GST is applicable only on under-construction properties.
GST Rates
5% GST – Non-affordable housing
1% GST – Affordable housing
No GST on ready-to-move homes
📌 GST is not included in the loan and must be paid separately.
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Bank Rules for Under-Construction Home Loans
Most banks follow strict guidelines:
Common Bank Requirements
Project must be RERA registered
Builder should be bank-approved
Clear land title & approvals
Construction progress verification
Popular Banks Offering Such Loans
SBI
HDFC
ICICI Bank
Axis Bank
LIC Housing Finance
Banks may stop disbursement if construction is delayed.
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Major Risks of Under-Construction Property Loans
1️⃣ Project Delay
EMI or Pre-EMI continues
No possession
Rent + EMI double burden
2️⃣ Builder Default
Project stuck
Legal complications
Difficult loan exit
3️⃣ Higher Interest Cost
Long Pre-EMI period
No principal reduction
4️⃣ Limited Tax Benefits
No Section 24(b) interest benefit until possession
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Tax Benefits: What You Can & Cannot Claim
During Construction
❌ No tax benefit on Pre-EMI
❌ No principal deduction
After Possession
✔ Interest deduction up to ₹2 lakh/year
✔ Principal deduction under Section 80C
✔ Pre-EMI interest can be claimed in 5 equal installments
📌 Tax benefits are delayed, not lost.
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Ready-to-Move vs Under-Construction (Loan Comparison)
Factor Ready-to-Move Under-Construction
GST No Yes
EMI start Immediately Pre-EMI first
Tax benefit Immediate Delayed
Risk Low High
Total interest Lower Higher
👉 Ready-to-move is financially safer.
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How to Reduce Risk in Under-Construction Home Loan
Choose RERA-approved projects
Check builder track record
Avoid very early-stage projects
Opt for shorter construction period
Keep emergency fund ready
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Can You Convert Pre-EMI to Full EMI?
Yes, some banks allow:
Starting full EMI early
Reducing total interest
Faster loan repayment
This is a smart move if your income allows it.
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Is Under-Construction Property Cheaper in Reality?
While base price is lower:
GST
Higher interest
Delay risk
Rental expense
👉 The effective cost can be similar—or even higher—than ready homes.
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Who Should Buy Under-Construction Property on Loan?
Suitable If:
✔ Stable income
✔ No urgency to move
✔ Strong emergency savings
✔ Long-term horizon
Avoid If:
❌ Tight monthly budget
❌ Dependence on possession date
❌ No buffer for delays
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Final Verdict
A home loan for an under-construction property can work—but only with careful planning and risk awareness. While initial pricing looks attractive, factors like Pre-EMI, GST, delayed tax benefits, and project risks can significantly increase the real cost.
For most buyers, a ready-to-move home remains the safer and financially predictable option.
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Disclaimer
This article is for informational purposes only. Loan terms, interest rates, tax rules, GST applicability, and bank policies may vary based on project approval, borrower profile, and government regulations. Readers are advised to consult banks, builders, legal experts, or financial advisors before making any property or home loan decisions. This content does not constitute financial advice.