Sunday, August 14, 2011

Group Buying for Real Estate

Author: Sachin Gupta | Find me on Twitter
Group Buying has emerged as a latest fad dominating the e-commerce industry all over the globe with sites such as Groupon leading the way. Group Buying as a concept is not a new thing for Indian mindset…we have seen in our childhood days when our elders would talk about buying certain consumables in thok (bulk) as opposed to buying in retail. The idea in its original sense, however, is believed to be China’s export to whole world. Even though, I always thought, China’s export to the world is cheap (I mean, not sasta) manufactured goods:).

Buying property, primarily homes in bulk has been prevalent in Indian market for decades when certain powerful individuals (underwriters) with access to funds would buy residential dwellings in bulk at a discounted price from the builder and sell it to retailers at less than the builder quoted MRP. The process is a win-win-win situation for all stakeholders in favorable economic conditions. Builders are happy because their inventory of residential dwellings moves fast, consumers are happy because they got the housing unit at relatively discounted price, and underwriter is happy to have made money by buying at lower cost and selling it at relatively higher price.

In certain parts of India, mainly Gujrati and Marwari communities have had a long tradition of buying property in group….thereby eliminating the underwriter from the chain of Builder – Underwriter – Consumer. By doing so, the group of people would act as underwriter even though each member of the group is buying a single unit for himself individually. This whole process shortens the chain and eliminates the profits shared by an underwriter.

Buying homes in a group has clear benefits to consumers and some of them are listed below:

1. Cost reduction due to higher discounts on residential properties
2. Assessment of builders’ track record
3. Due – diligence of residential project including legal, construction, and delivery schedule

Some of these benefits, primarily due – diligence is an expensive process and can only be conducted when enough buyers are buying the apartment in same project to offset the cost of conducting due – diligence. Moreover, an underwriter may not conduct the due – diligence of the project because of his vested interest.

However, forming a group of like-minded people from faraway places has been a major challenge to adopt this form of group buying in real estate in other parts of the country. More and more families are going nuclear and buying property at a given point of time by forming a group has rendered to be a distant reality.

This is where the latest fad of buying property in group can make sense and could be possible for dispersed customers through group buying web portals dedicated mainly to real estate and run by real estate professionals. These professionals, in addition to aggregating the demand can also conduct comprehensive due – diligence of the project, assess builders’ track record, and talk to banks that have approved the residential project for financing.

Have any Questions?