A typical real estate project development process

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Once the land development process has been completed successfully, a developer will focus his/her energies on the project development process. Developing and delivering a real estate project successfully is challenging and it lasts for several years passing through various phases. Primarily any real estate project can be divided into 5 phases:


Phase I – Land acquisition
The details about land acquisition process can be found in our earlier post of land development process.


Phase II – Construction
Construction phase requires applying for license (permitting), and project development.

• Permitting/Licensing:

The permitting process usually begins with an application which identifies the site, its location, and a preliminary design of the improvements to be constructed. This application is then used by public officials to verify compliance with its current zoning classification. If it complies, the permit is granted and the construction of the project may commence subject to building codes and inspections. If the permit is denied, the applicant will usually clarify or amend the application and will ask the city planning staff/director to review it again.

• Preliminary checklist – Project development:

This checklist is usually the first step that a developer reviews when evaluating a site for possible development.

1. Allowable uses per zoning classification.
2. Minimum lot size per zoning classification.
3. Maximum floor to area ratio (FAR).
4. Building bulk/density limits.
5. Setback/building line.
6. Building height limits.
7. Building footprint/envelope.
8. Parking ratios.

• Important terms/project development:

1. Setback/building line – requirement to construct building a specified number of feet (setback) from the right-of-way line or other landmark.
2. Right-of-way line – area designated for a public street or alley that is dedicated for traffic, public use, utilities, etc.
3. Building related terms:
• Footprint – it is the shape or outline of the primary building slab or foundation as it will be constructed on the site.
• Envelope – the total outside perimeter of a structure, including footprints and any exterior patios, mall ways, landscaping, etc.
• Facade – the exterior, usually the main entrance of a structure
• Bulk – a three dimensional space within which height, width, footprint, and number of structures/elevations/shapes are viewed in total relative to the land area upon which it will sit to determine land use intensity.
• Building codes – refer to required materials and methods used to construct improvements within a jurisdiction.
• Permit- document executed by the director of planning authorizing the construction, restoration, alteration, repair, etc., of a structure and acknowledging that it conforms to requirements under the applicable zoning ordinance.
4. Floor to area ratio (FAR) – it is usually calculated as gross building area divided by square footage of land area.
5. Height restrictions – used to limit the vertical height of a structure to be constructed.
6. Allowable use – user activities permitted in a zoning classification
7. Impact fees – charged by public entities to cover added public sector expenses expected to be caused by the development such as traffic control, drainage, etc.
8. Incentive zoning – used by city planners to accomplish community goals simultaneously with private sector development.
9. Inclusion zoning – part of a zoning ordinance that requires that a specified type of development be included in order to obtain permit for that site.
10. Minimum lot size – per zoning classification
11. Parking ratio – required number of parking spaces per sq. ft of gross building space or per number of apartment units.
12. Site plans – drawing done to scale depicting the placement relative to other requirements
13. Traffic counts – number of vehicle trips per hour past a specific site.
14. Encroachment – occurs when the construction of improvements extends over a property line on to an adjacent property.
15. Property tax abatement – forgiveness of taxes for a specified number of years.
16. Land to value ratio – calculated as rupee value of land to total project value (including land) anticipated upon completion of project.

Phase III – Completion and occupancy

There are certain risks in any real estate project development. Once the construction has been completed, there is an additional risk of selling and handing over the project to clients or bringing in tenants in case of rental property. Risk begins with land acquisition and increase steadily as construction commences until cash flows from the leasing phase materialize. It should be noted that factors determining the demand for type of space (such as office, retail, warehouse) being developed are critical to project risk. These factors may manifest themselves in current market indicators, such as vacancy rate levels, rent levels, or the extent of leasing commitments from the tenants.

A very good understanding of the underlying economic base of an urban area or region is critical when assessing the viability of real estate development.  The point is that investors must examine the demand for space in terms of the characteristics of the demand by end users (tenants) in a given market. This demand in turn depends on the type of employment in the local market and the nature of the functions tenants will perform. Only by understanding the local economy and the nature of employment can developer anticipate demand accurately and produce and supply the quantity and quality of space in the proper combination to satisfy market demand.

Phase IV – Management

Once the property is occupied by clients/tenants, there is need for professionally managed facility management team. This team can look into the property management tasks such as maintenance, HVAC, parking management, security, civil works, housekeeping, landscaping, etc. These tasks are equally important and ascertain the long life of property and thus ensure positive rental income as well as capital appreciation. 

Phase V – Sale

The developer may choose to sell the property from construction phase onward as happens in residential development in India. Or he/she may choose to hold the property in case of commercial developments provided rental income from the commercial properties is significant enough to justify retention.

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10 things to check when booking an apartment in a builder project

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Call it practices or malpractices; real estate in India is riddled with cases where buyers have been taken in for a ride. And in this environment, buying an apartment is not as easy as it may sound. Whether you are an end-user or an investor, you should pay attention to the following 10 items when booking a flat. These 10 items are categorized into two principal checklists namely Project details and Apartment details:

Project Details

• Land Titles

When making real estate investments, buyers of property typically want assurance that they will become the legal owner of the property and that the seller is lawfully possessed and has the right to convey title. When a real estate developer has “Title”, he is said to have all the elements, including the documents, records, and acts, which prove ownership. Therefore, a buyer should insist on documents that clearly demonstrate Land Titles.

Some of these builder projects are approved for home loans by banks or lending institutions. These lenders are also concerned about title assurance because the quality of title affects the collateral value of the property in which they have a secured interest. Therefore, if you as a buyer lack the capacity to verify Title certificates by yourself, you should at least check and verify with the list of banks that have approved the project for home loan grant.

• License Grant

The Town and Country Planning (TCP) Department grants license to private developers owing land for converting it into a colony or a group housing society. The license is granted upon fulfillment of parameters laid down by the TCP Department.

Ask for the License number from your developer and verify it at the TCP website.

• Intimation of Disapproval (IOD)

Check if the builder has received the IOD from relevant authorities (Town and County Planning Department). IOD lists out the conditions based on which the building should be constructed. It is usually valid for one year and has to be re-validated thereafter.

• Master Plan

A master plan typically demarcates city or region’s future development including residential, commercial, industrial, and recreational facilities. Visit the City Development Authority website and verify the claims made by the developer while selling the project.

• No Objection Certificates (NOC)

In addition to the License number granted by the TCP department, a builder should also possess NOC from environment, fire fighting, electricity, water, airport departments. Check these NOCs.


Apartment Details

• Location

First thing first, location is the key differential in selecting or rejecting a project. Make sure, you book an apartment in a project which is well connected by road to city’s CBD (Central Business District). In addition to that, look around for the presence of social infrastructure such as schools, shopping malls, college, etc.

• Floor Plan

You are going to live in this apartment. Therefore, pay attention to the floor and unit plan. In one particular project, we noticed there were about 14 apartments on one single floor and that was a big dampener in otherwise a good project. In an under construction project, it is very difficult to assess the floor plan and unit plan. Ask for the approved floor plan and unit plan from the developer and analyze these plans for open spaces, lobbies, lifts, etc.

• Amenities

After a long and hard day at office, one would like to relax and rejuvenate. Buy an apartment in a project which offers state of the art amenities such as park, jogging track, swimming pool, clubhouse, etc.

• Kitchen

Many people overlook the Kitchen; however, make sure Kitchen is not only spacious but also properly planned. Many developers in Gurgaon offer the option of Modular Kitchen, however, check if the same can be developed from outside suppliers at lower prices. There are numerous vendors of Modular Kitchen in Gurgaon, visit them and inquire about the quality and total price. Thereafter, one can compare and take a final decision on the modular kitchen offered by the builder with the one offered by outside vendors.

• Apartment specifications

Specifications comprise of kitchen fittings, bath fittings, flooring, electric work, walls, etc. Visit the sample flat prepared by the developer and assess the specifications first hand. Make sure that specifications provided in the brochure and shown in the sample flat are part of the builder buyer agreement.

• Carpet Area/Sale-able Area Ratio

Most builders would charge you on the basis of sale-able area. Ask for the efficiency of the apartment or in other words carpet area of the apartment. In most cases, ratio of carpet area to sale-able area is 75 to 80%. If possible, get that included in the builder buyer agreement.

We are sure you will have your own stories to tell, your own issues with real estate projects, your own experiences of buying an apartment with a builder, and your own follow-ups? Share them here with the larger audience and let’s help each other.

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What should I do if the builder has delayed the housing project or the delivery is not as stated in the builder buyer agreement?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Hello, and very warm greetings for Diwali. During the past one week, our team spent time meeting with some of the customers, readers, real estate consultants. During our interaction with customers, we noticed that most of them were frustrated with the construction progress of their homes which they have booked with real estate developers. Recently, a study published by PropEquity also showed the fact that construction progress is slow and many a residential projects will be delayed considerably.

As we write this on Diwali, a festival of light and happiness, we believe, there is no point in getting frustrated with housing project delays or any other housing related issues. In fact, you should take solid steps to overcome your housing related challenges. We list few of them here:

1. Read the document carefully:
That’s right, even though you should have read the document carefully before signing the builder buyer agreement. You can still do it, read it now carefully. And look for penalty clauses which are stated in the agreement. Approach your developer and ask for the compensation as stated in the builder buyer agreement. Even though, this compensation will be pittance relative to what you would be paying to banks in form of EMIs. Still, claim it.

Also do not forget to check if there are any deviations in the project layout, project plan, size of the apartment, specifications, amenities, etc. If there are any deviations in any of these from what was stated in the builder buyer agreement then approach your builder and discuss the things in detail. Ask for compensation wherever applicable. If possible, take the help of your legal associates.

2. Form a group with other buyers:
Yes, you read it right. You are not the only one sailing in this boat. Visit the construction site on a regular basis and interact with other buyers who are visiting the site. Make a group and discuss the common issues and approach the builder. There is no better way of putting pressure on the developer than a group of buyers coming together. As a group, you can explore various options such as cancellation, shifting to other housing projects by the same developer which is nearing completion, legal action, etc.

3. Rate and review the project:
Now that you have thorough understanding of the real estate sector and ways of working of the property developers, share this with prospective buyers. You can easily rate and review your project at www.nirrtigo.com and alert the prospective buyers of the positives and negatives of a particular developer. Just like, you would like to read reviews for things such as cars, phones, etc. others are also interested in taking tips from you about the housing projects, real estate developers, etc. So, go for it.

4. Use social media:
Social media has enabled all of us in voicing our opinions and most brands whether big or small are always conscious of the fact that social media can make or break their position in the industry. Whatever you do, from forming groups to reviewing projects, keep sharing it on popular social media such as Facebook, Twitter, blog, and LinkedIn. In fact, you can always look to form groups on these social media channels as well.

5. Approach the relevant authority:
Once, you have a group of people who are facing the similar set of challenges as you. It makes sense to approach the relevant government authority. And recently, government of India has set up a Real Estate Regulatory Authority to protect consumer interests. Approach the authority for speedy adjudication of your disputes with the real estate developer.


Above all, be calm and keep discussing the issues within the group. With so many avenues for you to take recourse to, we are quite sure that you will be able to resolve your housing issues. Good luck!

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What are the various payment plans currently being offered for real estate residential projects in India?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Booking an apartment with a real estate developer is not easy. While on one hand there is this question of finding the right property developer with sound track record and on another hand there is this nagging question about housing prices and payment plans. In last few years, real estate projects and in particular residential projects have been launched with attractive payment plans in order to attract end-users and investors to book an apartment. The creative and financial engineering skills of real estate developers and banks are showcased with every new type of payment plan.

At the end of the day each payment plan which is designed reflects the existing market sentiment. If market sentiment is good and there is growth in the sector, then existing payment plans can prove to be sufficient. However, in times of bad market sentiments, there is much more pressure on real estate developers and bankers to sit and devise new attractive payment plans. In recent months, some of the new payment plans which have been introduced in the market are 80-20 scheme, rent on home buy, etc.

In this section, we analyze the various payment plans on offer and their implications for customers.

Down payment plan

A typical down payment plan looks like this:

Down Payment Plan [(8 % Rebate on Base Selling Price (BSP)]

• At the time of Registration / Booking - 10% of BSP
• Within 45 Days From date of Registration / Booking - 85% of BSP + Car Parking + DC +Club Membership + PLC (if any)
• On Possession - 5% of BSP + Other Additional Charges etc.

In a typical down payment plan, one can get a discount on market Base Selling Price. The discount offered can be negotiated with the developer and generally ranges between 8-10%. Now, the question to be asked is, why would a developer offer this 8-10% of discount? Well, if a developer borrows money from bank or other financial institutions, then in that case, the developer ends up paying 12-15% yearly interest. And in down payment plan, a customer is willing to pay the entire apartment cost within 2 months at a discount of 10%. It’s a plan which suits the real estate developer most. However, investors with large amount of cash do also take considerable interest in down payment plans. Because where else can they park their unreported income but for real estate.

For end-users, this plan can prove to be risky in case the project is delayed unexpectedly.

Construction linked plan

A typical construction linked plan looks like this:

Construction/Time Linked Installment Plan

• At the time of Registration / Booking* Rs. 3.0 Lac
• On Allotment of Unit / within 45 days of booking* Completion of 15% of BSP
• On Start of excavation / within 90 days of booking* Completion of 25% of BSP
• Completion of basement roof slab / within 120 days of booking* 7 . 5 % o f B S P + 50% of DC
• Completion of 1st Floor roof slab / within 5 months of booking* 7 . 5 % of BSP + 50% of DC
• Completion of 4th Floor roof slab / within 7 months of booking* 7 . 5 % o f BSP + Car Parking
• Completion of 6th Floor roof slab / within 9 months of booking* 7 . 5 % o f BSP + PLC
• Completion of 8th Floor roof slab / within 11 months of booking* 7 . 5 % o f BSP
• Completion of 10th Floor roof slab / within 13 months of booking* 7 . 5 % o f BSP
• Completion of 12th Floor roof slab / within 15 months of booking* 5 % o f B SP
• Completion of 14th Floor roof slab / within 17 months of booking* 5 % o f B SP
• Completion of Top Floor roof slab / within 18 months of booking* 5 % o f BSP
• On Completion of Brick Work in Apartment 5 % o f BSP
• On Completion of Plaster Work 5 % o f B SP
• On Possession 5 % o f B S P + IFMS + Club Membership + Other Charges

In a typical construction linked payment plan, one pays a booking amount of 3 to 5 lacs and the apartment is booked. Thereafter, installments are paid as per the construction of the project. This plan safeguards buyer’s interest in case the project is delayed since installments are paid as per the construction schedule of the project. Most banks also offer home loan to individual home buyers on this payment plan in order to make sure that funds which are provided to developer as part of installment actually go in the development of the project. This is by far the most prevalent plan in the industry today.

Flexi payment plan

A typical flexi payment plan looks like this:

• At the time of Registration / Booking 10% of BSP
• Within 30 Days From date of Registration / Booking - 30% of BSP + Car Parking + DC +Club Membership + PLC (if any)
• Within 90 days from date of registration/booking – 30% of BSP
• Within 180 days from date of registration/booking – 25% of BSP
• On Possession - 5% of BSP + Other Additional Charges etc.

Just like down payment plan, flexi plan offers discount on base selling price usually in the range of 5%. As the name suggests, this plan provides flexibility to investor in paying the apartment cost over a period of time. Again, it is not suited to end-users who normally opt for construction linked plan. Most banks also do not offer loan on flexi payment plan.

20-80 payment plans

20-80 schemes are a new phenomenon. What it means is that one can pay 20% now and remaining 80% at the time of possession. However, the price per square feet for 20-80 schemes is much higher than the usual construction linked plan. As a buyer, it might look attractive on the surface, but one must be careful in understanding the price differential between a 20-80 scheme and a construction linked plan scheme. 

Even though, in 20-80 schemes, the pressure is on the developer to complete the project on time but there is all the likelihood that prices for 20-80 schemes will be much higher. The hidden point to understand is who is the paying the 80% of apartment cost during the construction period? It will certainly not be a bank, or the developer. Ultimately, the amount is passed on to the customer in the form of higher base selling price. Therefore, before, one jumps on to these schemes, check the price differential.

According to some media reports, Reserve Bank of India (RBI) has banned the 20-80 schemes.

Rent on home buy plan

Recently, some developers have launched rent on home buy. What it means is that if you book an apartment in the under-construction project with a particular developer, then developer agrees to pay the rent for your current accommodation if the project is delayed and in some cases the developer agrees to pay the rent for the entire construction period of the project. The idea is to ease the financial crunch a buyer faces when he/she pays equated monthly installments (EMIs) and rent during the period of construction.

Experts believe that such assurances come with a cost, but the builder is unlikely to disclose two sets of rate cards to potential customers — one that includes the rental offer and the other without it. Just like the 20-80 schemes, one must be careful in opting for these schemes as the pricing will be much higher than the usual construction linked plan.

At the same time, direct discount is far better as it is simpler to understand. Then, there is the time value of money you are committing over the period of construction.

Which payment plan one needs to choose?

For an investor with huge cash pile, it may make sense to go for down payment or flexi payment plans. But for, end-users, it is always advisable to stick to construction linked plans because of transparency and ease in availing home loans.

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What impact will RBI move of changing currency notes printed before 2005 and coming Loksabha Elections have on Real Estate sector in India?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

• Land purchase may slow down due to RBI move to change currency notes printed before 2005

We all are aware of the fact that virtually all land deals whether large or small takes place with huge amount of money paid in cash to avoid stamp duty charges. Now, Let’s assume, there is a land transaction that is going to take place between party A and party B and the market price of the land is rupees 5 crores. As per the circle rates, the land price comes out to be rupees 2 crores. The remaining 3 crores will be paid in cash by party A to party B. Given that, RBI has announced that currency notes before 2005 needs to be exchanged. In this situation, Party B is not going to accept cash amount with currency notes printed before 2005. Therefore, it puts pressure on party A to exchange his/her currency notes with the banks. And in certain instances, party A may not be in a position to go to banks for the exchange of currency notes due to the fear of income tax authorities taking note of such huge levels of unreported income. However, it is yet to be seen what impact will there be on realty sector, but there is all the likelihood of fewer land transactions due to the RBI’s latest move to change the currency notes printed before 2005.

• Elections and real estate

Elections are a democratic phenomenon, which happens every 5 years in India. There are two kinds of election namely assembly elections for respective states and general elections for parliamentary system in India. All political parties whether small or large, regional or national strive hard to win elections and form the new government. It is commonly known that to win elections, political parties use all kinds of methods from announcing distribution of laptops, offering cycles, to free subsidies. The idea is to target the voters with such schemes in order to swing the pendulum in their favor.

And to win these elections, large amount of money is spent on advertising, organizing rallies, pamphlets, banners, press, traveling to various constituencies. About Rs 10,000 crore was spent in Lok Sabha campaign in 2009. And according to some estimates, this time that figure will be between Rs 15,000 crore and Rs 20,000 crore. There is no hidden fact that, the huge amount of money required is spent in form of cash. So, where does this money come from? Well, political parties will claim that this money is raised from their followers, supporters. Who are these followers? To put it bluntly, there is no free lunch here. All these so called followers who provide cash to political parties will like to claim their spending if the party they support comes in power. These claims may vary from allocation of natural resources, tax benefits, subsidies, dissolved cases, etc.

Now, how are all these followers able to provide such large amount of cash to these parties? We all know that in India even though most businesses claim to do business by the rule of law, but in reality they do under report their income and it is that income that is ploughed in real estate, gold, or elections. All these sectors have the unending capacity to absorb unaccounted cash. Therefore it is fair to say that when elections are round the corner, the investment in gold or real estate may dip and funds may be diverted towards elections.

• Impact of elections on property sector in India?

As observed earlier that during the time of elections, the funds are diverted towards political parties’ election campaign. And the sectors that suffer the most are real estate and gold. Large amount of unaccounted cash is provided to these political parties which until now would have been parked primarily in real estate. In fact, during election times one can notice the increase in distress sale activity in real estate. Since, huge amount of money is required for elections; properties worth millions are sold at below market rates to generate sufficient cash for elections. It is also highly likely that real estate developers will cut down on new launches of housing units or commercial real estate and will solely focus on selling the existing inventory.

• Should I buy the property during election times?

From the end-uses point of view, it is possibly the best time to buy. One can focus on buying from secondary market or resale market. As suggested earlier, there is strong likelihood that distress sales will increase and it presents end-users with an opportunity to buy at lower rates. However, buying in secondary market means, one has to pay huge amount of property value in cash. It is also the good time to negotiate hard with the developer if one is buying directly from the developer.  Since developers are only focusing on clearing the existing inventory, it presents end-user with an opportunity to bargain hard and get substantial discounts on the property.

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Pre Launch Property - Shall I go for it or not?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

• What is a pre-launch offer?

These days, we are all accustomed to getting pesky SMS and emails about pre-launch offers of builder projects in India. What are pre-launches? Well, as the name suggests, these are projects launched by builders before the official launch of a realty project. Pre-Launch projects are usually launched by the builders to generate demand and assess market acceptability of their project.

• What allures customers to pre-launches?

As explained earlier, pre-launch projects are launched by builders to see market reaction for their project and therefore are priced below the launch price and also below the current price prevailing in the market for other similar projects. That’s the catch, this only attracts buyers (should we just say investors or flippers) to pre-launches wherein buyer/investor hopes to make decent amount when the project is launched officially at a higher price point.

• What are the risks attached with pre-launches?

Some of the risks attached with pre-launches are:

1. The builder may back out of the project due to financial constraints.
2. For pre-launch projects, the approvals from relevant authorities have yet not been obtained and therefore there is a risk of official launch getting delayed or in some cases the competent authority may altogether reject the project proposal.
3. The market may not value the project as expected by the developer and therefore the project launch price may not be as high as expected by the investor. In that scenario, relatively lower gains are offset by the selling costs, transfer charges, etc.
4. Pre-launches are illegal in nature. As per the norms in certain states, a builder is not authorized to sell any part of the project before officially getting all approvals.

• Why do builders go for pre-launch of a project?

Well, there are in-numerous reasons for builders to go for the illegal yet prevalent practice of pre-launching of their projects. Real estate is a capital intensive and risky business and regardless of the state of the economy, inflation, prevailing interest rates in the market, market pulse, and funding trends, real estate developers need to generate initial capital to successfully launch and complete a project. And as we see these days, lending to real estate sector by formal financial channels such as banks, private equity, and bond market is in decline and therefore developers need to raise initial corpus of money and they do so by pre-launching their project to their cozy circle of brokers and investors. And in most cases, this cozy circle fall prey to these offers in order to realize quick returns. Needless to say, the returns realized are in form of cash and those cash returns are again ploughed back into other real estate projects or pre-launches and the whole circle keeps on turning.

• Are all builders pre-launching their projects or there are some exceptions to the rule?

Recently, a reputed developer with interest in other consumer businesses such as body care, furniture, consumer electronics, etc, declared in the media that they have been able to sell all of about 600 housing units of their new project in Gurgaon in a single day. Interacting with service professionals gives one the feeling that they could have done so because of their brand and perceived ability to deliver what is being promised. However, the truth lies elsewhere; the very same project was being promoted by this reputed developer within their cozy circle of brokers and investors for about 5-6 months before the official launch. The developer himself did not put anything related to the project on website or in any other marketing media. The project was promoted by this cozy circle of brokers and investors by word of mouth and email medium. And needless to say, our press covered it as a success story.

• In a nutshell, is this a good or bad practice?

For investors or flippers, with high risk appetite, it gives them the opportunity to realize substantial returns on relatively small portion of their equity (after all, they book the property with about 10% of the total property value).

For end-users, the pre-launches are highly risky and they need to conduct the property due diligence and verify lots of things such as IOD, CC, and Clear land title before going in with the flow.

As far as, the practice of pre-launch is concerned, the big developers with their previous track record and reputation in the market can successfully bring in necessary approvals and not default on their promise of officially launching the project. However, some of the other developers may not be able to do the same. Therefore, it puts the onus on big developers to lead the way with fair processes and practices for the entire industry and safeguard the consumer interest first.

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