INVESTMENT 10 NEW RULES FOR REAL ESTATE

Realty is no longer the asset that always gives good returns. The ground reality has changed. So have the investing norms. Rakesh Rai explains the new tenets and ways to exploit these for maximum gains.

1
Don't go by the MRP
Most developers desperately need cash to complete delayed projects and start new ones. You can wrangle discounts if you know how to drive a hard bargain.
    There was a time when developers used to quote a fixed rate and offer up to 3% discount if you paid the entire sum within 60 days of booking an apartment (through a home loan, of course). Things are different now. The 3% discount is not the upper limit; it's just the starting point to begin your negotiations. Today, most developers desperately need cash to complete delayed projects and start new ones, which means discounts and freebies if the customer knows how to bargain. Also, in some parts of the country, sales didn't pick up last year between October and January, the period that accounts for approximately 40% of the annual sales of residential projects. This is why it may be the best time to wrangle a good price.
    Seen from another angle, since there is no sanctity of an MRP, developers try to load charges surreptitiously. So, always keep some extra money at hand without which you may not be able to seal the deal. This has assumed greater importance now because in a bid to make the project appear affordable, builders do not load extra charges in the quoted price. 2
The discounts will continue,
so don't be in a hurry
Builders are more desperate to sell than customers are eager to buy. They will continue to offer discounts even if it means taking a hit on margins.
    Ask any builder and he is bound to tell you that his project is almost sold out and that prices will be revised upwards very soon, maybe even next week. The fact is that builders today are more desperate to sell than buyers are eager to buy. Overheated markets, sliding share prices and rising interest rates have made matters worse. While the IPO window is now closed, at least for the short to medium term, listed real estate stocks have taken a beating and tighter lending norms by banks have made capital scarce. Money is not cheap for builders even if it is available.
    Debt is a big worry, too. The 25,000-crore debt—which the RBI allowed to be restructured following the slowdown—is due for repayment. While private equity investments have thrown open an opportunity, investors are driving hard bargains and looking for higher safety and returns.
    Another comparatively cheaper opportunity for listed developers is to borrow against shares held by the promoters. But with most companies already highly leveraged and stock prices continuing to be low, there is not much scope on this front too.
    The only cheap source of money available to realtors is through the sale of their projects. This is where the discounts come in. Given that the situation is unlikely to get better any time soon, builders will continue to offer discounts to attract buyers even if it means taking a hit on their profit margins. The moment they realise that you are a serious buyer, most developers will be ready to negotiate the rates they have quoted. 3
The best deals may not be available with the builder
Brokers usually book multiple flats in a new project and can offer you the choicest properties.
    Real estate brokers have always made news for the wrong reasons—fleecing both buyers and sellers, selling one property to more than one buyer, and conniving with builders to create a hype. While much of this is true, in some cases brokers may also get you the most attractive individual discounts. Some large ones command the best deals from builders because they book multiple properties and then sell them to individuals; it is their way of benefiting from buying in bulk. So once you have zeroed in on a property, do not forget to check with the broker in the locality about the best rate he can offer.
    Another fast emerging layer between the builder and buyer is the underwriter. These underwriters buy a major chunk of the project from the builder and sell it in the market at a premium. In these cases, the developer cannot offer you a lower rate than the underwriter, but the underwriter may be willing to cut his margin if the sales are low. Another mistake most buyers make is ignoring the resale market completely. Sometimes financially distressed investors offload their property at a much cheaper rate than that being offered by the builder. Here again, a broker can be of help in identifying such properties. 4
Nothing comes for 'free'
Don't fall for freebies. The cost of these add-ons is usually factored into the price of the property. Try getting a cash discount instead.
    Freebies are the flavour of the season. From registration fee to modular kitchens, even cars, all are being offered when you book an apartment in a project. Don't fall for these lures. The catch is that all freebies are already factored into the price of the apartment. The same goes for the attractive schemes on offer. The latest to catch investors' fancy is the 'attractive' 10:90 scheme being offered by developers in many cities. The idea is that you pay just 10% of the property cost now and the rest on possession. The truth is that developers urgently need the cash and many of the projects have not even got approvals from the authorities. As HDFC Chairman Deepak Parekh puts it, "Within days of buying a plot, builders are putting out advertisements accepting booking at 10% upfront payment". This puts a question mark on these projects.
    Another such lure is the 'attractive' financing schemes that builders offer by tying up with banks. In most cases, you will get a better deal by approaching the bank directly.
    'Guaranteed returns' is another bait being used by builders to trap investors. It is only after you make the down payment that you are told about the fine print—you get the returns only if you share the property with two others or the advertised returns are only for an investment above a certain amount. The builder knows that after you put in the money, you will either stay put or invest more for better returns. The bottom line is, don't look for freebies; try getting a cash discount instead.

Advertisement