What are the Pros and Cons in investing in pre-launch properties in India?
The Indian real estate segment has witnessed an increasing number of projects and development across the length and breadth of India. Easy availability of home loans and good financial earnings for the middle class has also acted as a catalyst for more user interest in purchasing residential property. Buying a residential property can be a tricky prospect especially for the first time buyers. There are pre-launch property options which act similar to IPO’s in the stock market. Majority of good builders receive a lot of user interest during their pre-launch periods that help them evaluate the user interest as well as safeguard their financial interest in the property. Most end users also try and invest during the pre-launch phase to get financial discounts. While such a move can be a double edged sword, it is important to understand the positive and negatives in investing in a pre-launch property before taking the plunge. Here is a comparison of some of the positives and negatives of investing in pre-launch projects.
Pre-Launch Properties: The real estate prices of any new property are generally lowest at pre-launch. Such a move is done deliberately by the buyers to attract some initial interest in the soon to be launched project. Builders even offer bare minimum prices to increase the initial sale figures which can then act as a catalyst for marketing the project and increasing potential future sales. Pre Launches can be divided into two broad categories of soft launch and pre-Launch.
Advantages of Investing during Soft Launch: It is quite common to see a number of builders and real estate developers marketing projects sometimes even before getting the basic construction approvals from various authorities. Such initial launch also known as a soft launch helps the builder attain some initial cash flow to oversee the construction activity of the projects. With a growing number of real estate companies and increasing competition, not all projects can be financially beneficial for the builder. Such a soft launch also gives the builder a chance to evaluate user interest in the project before investing a substantial amount. The risks are equally high for the builder and pre launch gives them an adequate chance to test the waters. It is however imperative to know that a builder- real estate broker nexus also works in tandem when it comes to soft launch bookings. Brokers usually influence buyers to park their money during such launches which may not necessarily be in their favor. Once the project is launched, pre launch buyers can make a quick buck by selling their rights to new buyer. Since these buyers had helped the builder initially by providing adequate cash flow, the builder usually allows such buyers to sell their property as mutually beneficial trade practice.
Early Bird Discounts: After the soft launch, the next step is usually pre-launch. Pre-launch period happens before the starting of any construction activity, although the builder is ready with required permissions for the project in most of the cases.
While pre-launch helps in creating a market buzz around the property, the offering of discounts doubles up as a great marketing tool. The users are also equally eager to invest in such pre launches as it offers a good rebate on the overall costs if the project finishes as per its schedule.
Shortcoming of investing in Pre Launch Properties: Every coin has two faces, whilst there are apparent advantages of investing in pre-launch offers; there is a definite downside too. Projects can be delayed either deliberately by the buyer or due to some other legal reason. Such a delay means escalating costs and mental harassment for the buyers.
Conscious Delays by the Buyer: The dark underbelly of Indian real estate is the deliberate delays in construction due to unethical business practices by the builders. Usually there is a six to twelve month delayed clause in the builder-buyer legal agreement. But most of the builders take the liberty of using this as clearance for delays. While this is a legal loophole, there are far more unethical business practices currently being adopted by builders across the country. Builders who delay construction work deliberately usually eye the gradual appreciation of unsold flats. Since real estate prices in most of these delayed projects are quite lucrative for the builder, the delay is instigated more out of financial greed. If the prices of land in the region are stagnant or undergoing some sort of a correction, builders usually divert the money collected from the buyers to other lucrative projects. If the prices continue their downward trend or if the market overview is sluggish, builders eventually cancel their project and force buyers to invest their money in some newly developed project.
Another checklist for buyers especially those planning to buy in soft launches and pre-launch is to personally scrutinize builder’s property documents. As a potential buyer, one must check the documentation of the builder with the concerned land authorities including municipal corporations, declaration and sale deed from previous owners to other financial details of the project. Due to the lack of any industry watchdog to supervise complaints for deliberate delays, taking a legal course in the consumer court is the only remedial measure for buyers facing conscious delays
