What are the various kinds of taxes and charges you have to pay when buying a property, residential plot, or apartment in India?

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

Ok, you have finalized your property; i.e. residential plot or an apartment. Now what? Well, in addition to paying the property price, there are other charges which are incurred and are broadly categorized as follows:

1. Transaction charges
2. Stamp duty and registration charges
3. Service tax
4. Value Added Tax (VAT)
5. Capital gains tax to be borne out by the seller for a resale transaction

Transaction charges:

Transaction charges are those that are spent in availing the services of property broker. In case, you are buying an under construction property from real estate developer, then transaction charges are Nil. However, if you are buying the property from resale market such as a residential plot or a completed apartment, you will be paying the brokerage fee which is equivalent to 1% of the property value.

Stamp Duty and Registration Charges:

Real Estate Stamp duty is a type of tax accumulation by the Government of India. Stamp duty is established on the agreement value or on the market value whichever is greater.

For other states across India, click stamp duty and registration charges in India

The procedure also includes a registration fee for properties costing more than Rs. 30,000, which is fixed at 1% of the market value or the agreement value, whichever is higher.

Service Tax:

Service tax is applicable for under-construction property. In other words, if you are buying in an under construction project (apartment, flat, villa, etc.) from real estate developer, then you will be liable for service tax on property price. 

Service tax under composition scheme stands at 3.71% of property price.

Value Added Tax (VAT):

Recently, supreme court of India ruling states that the sale of an under construction property would be liable to VAT. It is likely that real estate builders will pass on this additional VAT on buyers. The VAT under composition scheme stands at 3% of property price.

Here is an example showing different charges for buying an apartment in Gurgaon, Haryana.

So the question to be asked is, if you would like to purchase an under construction property or completed one? While, in an under-construction property you will pay as per the construction plan whereas in a completed project the entire amount is payable within mutually agreed upon time period of 2-3 months.

In an under-construction property, you can make payment through cheque (white) whereas for a completed property you will end up paying by cheque and cash (black). The amount of money you pay by cash is dependent on the market value of the property minus the value of property as per the government circle rate. Why do a seller prefer cash component? Well, to save on capital gain taxes which stand at 20%.

Now, that you have a bit of information about various charges and taxes in property transaction. You decide J

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Project launch-Vardhman Flora Byculla Mumbai

Press Release: Vardhman Group launches Vardhman Flora in Byculla

Luxury project with 2 & 3 BHK apartments to change skyline in Byculla

Mumbai: Vardhman Group, one Mumbai’s leading and oldest real estate groups, has recently announced its new project – Vardhman Flora in the up-market area of Byculla, in South Mumbai. Soaring up to 36 floors, Vardhman Flora rises above all else in Byculla promising to alter the skyline of this neighborhood. The project offers a magnificent view of Mumbai’s famous skyline.

Vardhman Flora is one of the first projects where the tenants will be shifted in the transit accommodation provided by MHADA in the same belt opposite to the project; hence the tenants are shifted in the new transit accommodation provided by MHADA in the newly constructed building of the mill land.

The project is centrally located, and is close to local stations like Byculla, Cotton Green, Reay Road and Chinchpokli. Also located in close proximity are hospitals like Prince Ali Khan and J.J Hospital as well as reputed ICSE and SSC Schools. People living in the complex will be spoilt for choice with numerous leisure options ranging from 5 star hotels like ITC Grand Central to shopping malls and theatres in the vicinity. The central business district of Lower Parel with corporate parks is also within quick access, besides the upcoming monorail will add a lot of value to this project.

Vardhman Flora gives home-buyers the opulence of spreading out their life, by giving a very rare privilege that exists in this city: the luxury of having only 2 flats per floor. With choices of 2BHK for 1100 sqft and 3 BHK for 1500 sqft, the apartments at Vardhman Flora have enough natural light and cross ventilation from all sides. Column free spaces add to the luxury of limitless size of the apartments. The project also features majestic full height windows for a panoramic view with high ceilings. Immaculate finishing whether it’s the veneer on the door, wall paints, concealed wiring or window frames add to the impeccable interiors.

The design for Vardhman Flora adheres to the group’s philosophy of ‘Responsible Living’. The concept of responsible luxury will be pioneered by Vardhman Flora across every facet of its iconic residential haven. The structure is designed to provide adequate natural light and air that give the residents clear visibility and coolness without flicking on a switch. Every fixture and fitting used to light up the building’s compound will be energy efficient and rain water harvesting systems channelize the abundant monsoon productivity. Besides, every apartment in Vardhman Flora will be designed after intensive sun path analysis to ensure optimal sun light within the living spaces with minimal heat gain.

Speaking of the project, Mr. Rajesh Vardhan, Managing Director, Vardhman Group says, “Vardhman Flora is the most ambitious project for our group, and the entire project is driven by a passion to create not just residential apartments but rather a landmark that catalyzes the future structures in this city. I am sure that this project will redefine the perception of luxury to include spaces that encourage responsible living.”

Spread over more than 250,000 sq. ft., Vardhman Flora is likely to be completed by 2016.

About Vardhman Group 

Vardhman Group is a revered name in the real estate industry and has become synonymous with luxury living and engineering sophistication. The Group has grown exponentially during its journey spanning close to 50 years. Mumbai city bears witness to a lot of the Vardhman Groups signature structures – innovative, well-engineered landmarks that make no compromise on quality. Customer satisfaction and value for money is the motto of the Vardhman Group.

Around 140 families, 35 floors, and a thousand affected people face demolition of constructed floors in Mumbai's Campa Cola Compound Worli. Whose fault is it?

This is a post on behalf of the Campa Cola complex and all those facing demolition of their homes.

"A man is determined to find justice after the loss of a loved one, even though he is incapable of fully remembering the crime. Is the same true for a person who is about to lose their home?

How does one deal with knowing they will have no place to go tomorrow?

Is it an emotion that can be contained in a blog post? Is it something that can garishly be described in a picture of a demolition ball? What face do you show your 90 something year old grandmother when you have to tell her we have nowhere to live any more, we need to move out of your home for the last 20 odd years. What would you do?

We’re all crying here. Do we rent? Do we move city? How will we get through this? These are the larger questions, this is the surface, we haven’t begun to digest or acknowledge what we are really feeling inside.

Worli Naka is now going to be iconic not for its fantabulous view, it’s going to be known for a tragic site, something like what Jalianwala baug was, the same gravity and intensity, but jilted sentiment and energy, energy that could well be consumed in better and more important tasks.

We at the Campa Cola Compound Association, will do all the government asks us to, we will respect and heed the law. We have started packing our bags haven’t we ?  We have started looking for rental houses too. Some of us have help, some of us don’t. Some of us are young, some middle aged and some old. Some of our kids have exams, some of us are about to have children, some of our parents are paralyzed, all simple stories of real homes, being demolished.

35 Floors.
140 Flats.
A thousand people.

Each flat has a story. Each flat has a set of lives. Each of these lives, are fighting the thought of losing their homes.

They say you’ll never know what you have - unless you’ve lost it. We are this close to losing our homes, the place we go to every night – at the end of a long hard work day, when all other lights shut, those at home shine bright. Help us keep our homes, help us keep our light".

- A soon to be homeless person... 

Own an Office space property? How to make best use of it and generate maximum revenues?

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

You chose office space property – why?

Many of us invest in real estate for hedge against inflation, wealth creation, and returns. Within real estate some of us have the propensity to take on higher risk and invest in commercial real estate. Now that you have invested with a reputed builder in a commercial real estate project and own an office space property. There are possibilities that you would have conducted your own due-diligence about the builder, its track record. During the construction phase, builder promised you assured returns and you were satisfied with the entire deal. Finally the construction has been completed and the office space property has been offered to you. Now what?

Now, you would like to either use the office space property for your own use or lease it out to other tenants. Either way, you would like to justify your investment for office space property. Hence income generated by leasing out the office space property will signify how successful has your investment been. If there is demand for office space, then income from leasing will justify your investment. However, if the property remains vacant for considerable period of time then the investment may turn out to be a burden. How can you as the owner of the office space property make best use it?


Enhance the property value

At any given point of time there will be supply of many similar office space properties in the market and user will have the option to choose from those options. For example, the market for Office Space in Gurgaon continues to remain upbeat. However, to stand out from the crowd, you can enhance the value of your property by following below presented tips:

1. Make sure your builder has delivered on what was promised at the time of contract agreement including the super area, carpet area, and efficiency of the building. It is noticed that tenants prefer office spaces where building space utilization is high. This is to make sure that they are able to utilize majority of the space for their staff and minimum amount of space is lost for common areas such as reception, corridors, etc.
2. Parking: Parking is a key consideration for tenants when occupying a particular office space. Make sure that parking space allotted for your office space is properly demarcated. If required, do not hesitate to buy or rent the additional parking space from the builder. 
3. Facilities: Facilities such as power back-up, maintenance, and house-keeping enhances the value of entire premises and not just your individual office space property. Before taking possession, verify if these facilities are properly in place or not. In many cases, builder outsources the property management function to third parties. It is advisable to check the credentials of the property management company so that future disputes related to property management can be avoided.
4. Form an association with other property owners and make sure that there is an easy entry and exit for people from the building premises. Nobody likes to visit the building that has bad entry and exit points.
5. For your individual office space unit, check if the lifts are working properly.
6. Go for fit-outs of your office space property and adjust the rent accordingly. There is likelihood that tenants will choose the ready to use office space as opposed to bare shell space. Negotiate for rent with tenants for your ready to move space.

Market it properly

Having made sure that your office space is in proper condition, it’s time to market it and generate qualified leads.  There are multitudes of channels to reach out to prospective tenants and one can choose among these channels based on his/her comfort.

1. Spread the word that your office space is ready to occupy with all its features and unique selling points. Inform your friends, colleagues, relatives, and people within your network.
2. Hire a professional real estate broker and again highlight the unique selling points of your property.
3. Use internet and list your Office Space on property portals. Make sure, you advertise your property on a platform that is not too crowded and at the same time has the capability to bring leads to you. Provide latest pictures of your property and other unique points. Advertise Office Space here.

Due-diligence of tenants

1. Financial statements/income statement – balance sheet
2. Credit ratings (if available)
3. Any analyst reports on the firm/industry
4. Bank relationships
5. Existing obligations (debt, other leases)

Closing the lease

Underwriting leases is a very important component of risk assessment, which ultimately affects the cash flow produced by the property and hence its value. There are varieties of terms in a lease document; therefore, it is advisable that you hire a professional agency or an advocate to complete this task successfully.

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Real Estate Bubble in India! Will it bust and will property prices come down in India?

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

On recent interaction of our team with broker’s community in Delhi NCR region, one can easily feel that the business is down on accounts of slow transactions. One of them even quipped, “If players such as DLF start launching 80:20 schemes you can understand”. One of us asked…but “why are prices still moving up”?

Well, our team discussed the scenario "will real estate prices fall”? Sales volumes are shrinking; government policies are not helping the sector either…so, will prices come down? Here are some of ideas we came up with which suggest “YES” prices will come down.

Why did prices appreciate so fast in recent years?

• Favorable demographics

Well, we all know about favorable demographics theory and it still exists. It will continue to exist. The urban population is supposed to grow from 340 million in 2008 to 590 million in 2030. During the same period, the urban middle class households will rise from 22 million to 91 million. However, what we need to mention here is that this kind of urbanization needs affordable housing and not swanky villas and luxury apartments. We need apartments that can be provided for about Rs. 1 million in order to satiate this massive urbanization. Do we find anything within this budget? NO…unless the government policies, builders interests are aligned, we may never have the kind of affordable housing that we as a county require.

• Shortage of housing

We all know there is a shortage of housing in India…or shall we say affordable housing. Till 2012, the housing shortage was estimated at 26.53 million. How can this huge gap be filled? Well, it isn’t going to be filled anytime soon because misaligned interest of government policies, lack of focus on affordable housing, and developers interests.

• A move towards nuclear family

Families are getting nuclear and all of them require housing.

• Easy credit

During those good old days of 2003-2008, credit was cheap and economy was growing. People borrowed at low interest rates and invested heavily in Property in India….primarily in residential asset class.

• Increase in black money that needed to be parked

Government records suggest that there are only 35 million taxpayers, about 3% of the population. Out of which 1.5 million declare yearly earnings of more than 10 Lac rupees. Shall we believe this? NO.
Well, we all know businesses under-report their incomes to save on taxes. This unaccounted income now has to be parked somewhere and real estate is the place it is parked because of ability of real estate to absorb huge amount of cash.

• RBI released excess liquidity into the economy during 2009-12

Post Lehman Brothers collapse, all major economies around the world provided stimulus to their economy to keep the investment and demand going. This excess liquidity through various channels ended up in Real Estate in India and prices were zooming.



Why would prices now come down?

• High inflation and lack of affordable housing

What has changed now, that will bring prices down? Demographics, housing shortage, and formation of nuclear families are still prevalent fundamentals. True, but as we discussed, the need of the hour is affordable housing to fulfill this demand. However, as things stands “government is not in any hurry to fix the issue of affordable housing”. The Income levels have not kept pace with inflation, Supply of affordable housing projects is low, and lack of job growth has all put pressure on real estate and there are no takers now.

• Elections coming up

Elections will further put pressure on realty sector. Real estate has been a parking place for unaccounted funds. The need for funds in upcoming Lok-Sabha and state elections will aggravate the outflow of money from this sector over the next 18 months.

• Rising government subsidies

When government subsidies rise, it tightens the liquidity in the economy and cost of borrowing increases. Subsidies remain high and all attempts towards fiscal consolidation looks unrealistic. Today, subsidies account for 42% of gross fiscal deficit, exactly twice as many times a decade ago. Therefore, high rate of interest will further put pressure on real estate sector.

• Exit of foreign funds

Foreign private equity funds invested over $20 billion into Indian real estate during 2006-13. After 7-8 years, these funds are reaching their end of term and, so, would have to sell their holdings. Again, this will put pressure on real estate sector and developer might be forced to lower the prices.

When would prices start depreciating?

We predict from November-December 2013 onwards, the prices might start to come down. With festive season of Diwali behind and an eye on elections, funds will move away from real estate sector and that is the time when one can expect price fall.

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Solutions for reducing the uninterrupted influx of black money into the real estate sector

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

Talking to any common man on the street about real estate sector would draw animated conversations on how the sector is riddled with black money, corruption, and political maneuvering. In this section, we will focus on how the black money enters the real estate sector, its effects on economy, and ways to tackle it.



How black money enters the market?

1. Parking place:
Real estate has become the parking place for businesses to park their unaccounted cash in real estate particularly in residential real estate asset class. Most business houses, small or large, even though claims to be doing the business by rule of law but would under-report their profits to save on tax. And that under-reported income would land in the real estate sector which tends to raise the prices of real estate in a land scarce country like ours.

2. High rates of stamp duty and registration charges:
Stamp duty and registration charges account for 12.5 to 15% of property value in most states across the country. As an example, the property with market value of Rs. 1 Crore would elicit Rs. 12.5 to 15 Lacs for stamp duty and registration charges. However, the circle rates (or government decided rates) of property in most cities are much lower as compared to the market value of the property. There lies the incentive to under-report the true market value of the property to save on stamp duty and registration charges. The amount saved is paid in cash to the seller and that cash is again ploughed back into the real estate sector giving rise to a vicious circle leading to ridiculously exorbitant property prices.

3. Capital Gains Tax:
Most of us have observed the real estate deals wherein cash forms the significant part of whole deal. There are instances when cash constitutes as high as 75% of the total property value. Now, cash transactions are encouraged in real estate sector to save on capital gains tax which is 30% of the total gains. There is data available which suggests that more than 70% of that cash is again ploughed back into the real estate sector leading to rapid appreciation is real estate prices. The comprehensive knowledge of capital gains tax including exemption on profit from home sale can be found from following sources.
Capital gains tax exemption makes sale of house more profitable
Tax exemption on profit from home sale


Effects of black money

1. Unaffordable prices of property:
The entering of black money leads to irrational prices in real estate sector. In a country, where demand for affordable property is high and land supply is limited, the whole influx of black money spirals out the prices of property to a level which is almost unreachable for the middle class families. We all have seen how housing prices have multiplied in many cities across the country in the past decade and yet the rental prices haven’t kept the same pace of appreciation.

2. Negative impact on economy:
Real estate is an asset class where money is invested; it sits there and over a period of time produce capital value appreciation on account of true demand in a rational economy. However, when black money or the excess money enters the sector, it not only drives the property prices to irrational level but also leads to deviation of funds from productive sectors. This excess money which has been the subject of greed could have been invested in entrepreneurial ventures, business expansion plans, or if reported genuinely can be collected by government in the form of tax revenues. This would result in circulation of that money into the economy and subsequently expansion of economy creating more jobs, more demand, and production of goods and services.


Ways to eliminate the black money

1. Decrease of stamp duty and registration charges:
The reduction in stamp duty and registration charges can result in proper reporting of the true market value of the property. Even though, government revenues may get affected on account of reduced stamp duty and registration charges, it can however be compensated on accounts of capital gains tax.

2. Paying in Cheques:
We all have been inspired by Anna Hazare movement against corruption; however, we would do that cause a great justice by doing our bit when it comes to property transactions. What can we do? Well, quite simple, Stop paying or accepting in cash when it comes to property buying or selling. The simple yet practical step would reduce the entering of black money into the property sector and would drive away the speculators from entering the market to make quick bucks.

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Start-ups and the challenges of finding the right Office Space

Office Space in Gurgaon by NirrtiGo on GoAnimate


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Find your next Office Space in Gurgaon

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

Find your next Office Space in Gurgaon

Over the past one month, we have analyzed the market for Office Space in Gurgaon. And having done that and understanding the intricacies of commercial real estate, we have now launched the new feature “Office Space Search” on www.nirrtigo.com. While we’re not the first to ever show office space listings on the web, we do believe we bring a new obsessive focus to how we present a simple listing. We assure that, whichever office space we list on our portal, we have been there, we collect information at ground zero including the picture, lease term, lease rate, facilities, etc. We care about delighting our users in the same ways a building developer cares about the feel of new lobby, the way an architect cares about the materials of a new project.

Currently, we are sourcing office space listings directly from landlords, however, as we move along we will bring in brokers to list the office space in order to free the unorganized yet useful Office Space in Gurgaon and bring it online on the portal. The objective is to help start-ups, companies find their office space.

Why this now?
We have been there and faced the similar situation as any of the other start-up. Despite being in the real estate domain, we found it difficult to find office space within our budget. With this in mind and keeping the requirements of start-ups, we launched “Office Space Search”. We understand how difficult it is to get authentic information on office spaces for rent or sale. We have an in-house data-collection team which physically goes and verifies every detail of the office space and the locality before uploading it on the Web site. We’re constantly refreshing our data, so you have the most updated information.

How it works?
1. Visit Office Space in Gurgaon. You can also filter the listings based on micro markets such as Cyber city, MG Road, Sohna Road, etc.

2. Click on any of the listings and it takes you to the details of that listing including the real photo, summary, size, and other important details.

3. Get all the details regarding the office space including the lease rate, floor number, facilities, rent, extra charges, brochure, floor plan, map, and even read and write reviews.

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How well do you know Indian Real Estate? Crossword - 1

IntriguingRealEstate

nirrtigo

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IntriguingRealEstate

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1 S 2                                   F R A U D A N D C O R R U P T I O N   A 3   T B   4   H I I     5         O L L E A S E   6     M D L I         A R E Z 7         8 H S G G I A             O J I A N D             U B R L G V             S A I S R E             E R J A U R 9                                   B H A R T I Y A J A N T A P A R T Y             O A V D E I             L T Y M E S           D T A I E       S N M     I E 10             T E N A N T N     G T

Across The World Bank has debarred CES (India) for five years on charges of a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset party that promises flat for every slum deweller in delhi(if comes to power) An occupier of a leasehold estate

Down RBI policy considers this the main immediate macroeconomic task the father of modern advertising Durga Shakti Nagpal was suspended for taking action against Hon’ble Minister of Housing and Urban Poverty Alleviation, Govt of India The occupants of a residence constitute a paid classified messages in newspapers, magazines,etc. to sell a product, item or service

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Basics of office Space leasing and what’s in it for the tenant (companies) and the developer/landlord who is offering the space to lease.

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

Office Spaces are leased to tenants for a specified period of time. The lease document assigns rights, duties, and responsibilities between the lessor (owner) and lessee (tenant) for the duration of the lease. The terms of the lease include legal considerations that are designed to protect the interests of both the lessor and lessee and specify how rents and expenses are to be paid.


General contents of a lease: 

1. Parties to the lease, namely, lessor and lessee
2. The date of lease agreement
3. Occupancy date (move-in date)
4. Identification of area to be leased
5. Duration of the lease term
6. The base or minimum rent
7. Method to calculate the future rent
8. Description of any concessions and other inducements to be provided to the tenant by the landlord
9. Deposits and any indemnities
10. Guarantees from third parties or co-signers
11. Condition of the leased premises to be provided to the occupant on the move-in date, including any tenant improvements
12. Allowable uses of the property, restrictions on occupancy, and prohibitions regarding future changes in the use of the property
13. Any restrictions on assignment or subletting of any of the leased space by the tenant
14. Use of common areas and facilities such as lobbies, rest rooms, and parking lots
15. Responsibility for maintenance and repair of the tenant’s space and of general premises
16. Any restrictions on alteration or improvements to the property by the tenant
17. Construction of any expansion in the future by the owner and provisions for affected tenants
18. The responsibility for payment of specific expenses by the lessee and/or the lessor
19. The extent to which the lessor and/or the lessee must provide for fire and casualty insurance
20. Any lease renewal options
21. Estoppels

For large corporate users who may be leasing large amount of space and who plan to move many employees and equipment to the space being leased, many conditions are negotiated in the lease agreements.

Leases and Responsibility for expenses (recoveries):

Owners of office space property incur many operating expenses. Some expenses such as electricity, water usage, and gas are paid by tenants individually. However, expenses related to the areas of the property (common area) used by all tenants, the normal way is to recover those expenses by prorating them among all tenants.

Typical operating expenses for office space properties:

1. Cleaning: Housekeeping
2. Repairs
3. Maintenance
4. Landscaping
5. Electricity
6. Water/Sewer
7. Security
8. Management
9. Real estate taxes
10. Insurance

Different combinations of rent and of operating expense recoveries are possible:

1. Gross (full service leases): tenant pay only rent and owner provides all services and pays for all operating expenses.
2. Modified (full service leases): tenant pays rent and pays for individual, specified expenses identified in the lease such as electricity, gas, water and the like. Such expenses are usually linked to tenant by sub metering. Tenant also pays pro rata share of certain operating expenses (known as CAM Charges) incurred by the property owner.  This is the most preferred lease mechanism in India.
3. Leases with expense recoveries in excess of an expense stop: tenant pays rent plus a pro rata share of certain operating expenses incurred by the property owner. Here stop is usually calculated as the total operating expenses per square foot of rent-able area in the building that is incurred by the owner during the specified base year. The tenant agrees to pay only for expenses per square foot in excess of this stop. This way, the owner hedges its risk of increasing operating expenses and passes it on to the tenants.
4. Pass through leases: these leases are made when a few tenants lease very large amount of space in a property. When fewer tenants lease large amounts of space, operating expenses tend to be identified and linked more directly to those tenants. In this case, base rents tend to be lower than for full service, and modified full services lease.

Some Important terms:

Rent-able area in a building:

Total area on all floors + lobby – thickness of exterior walls – any columns or protrusions through the floors – mechanical equipment closets – basements and any area needed by owner to maintain or operate the building + elevator landings + reception areas + restrooms + any other area that could be used by tenants

Multiple tenants – Rental area per floor:

When there are many tenants in a building, each tenant will occupy its usable area on a floor. However, there would be some common area used by all the tenants. In that case, the common area will be prorated among the multiple tenants in order to determine the actual rent-able area. 

Load factor: 

Total rent-able area/total usable area. Load factor is seen as “efficiency measures”. High load factors generally mean a large number of common areas and therefore lower building efficiency. For example, load factor for Office Space in Gurgaon varies from 1.25 to 1.67. Generally, tenants occupying larger office space has lower load factor relative to the tenants occupying smaller office space.

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Why don't we Rate and Review Real Estate Projects?

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

Create your free online surveys with SurveyMonkey , the world's leading questionnaire tool.

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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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Group Buying for Real Estate

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

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.

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