22/01/2016
Investing into a project at pre launch/under construction stage!!!
The risk factor lies less in the stage of construction than in who is constructing the project
Buying a home is a costly process at the best of times. Making the down payment alone can consume a normal middle class family's entire savings. A home loan sets the stage for anything between 10-20 years of debt and paying the EMIs on a home loan can take up a significant part of the monthly income. It is therefore natural for homebuyers to look for every possible means to reduce the financial burden of buying a home.
It is no secret that homebuyers can save up to 30 per cent of the cost price of a property by investing at the pre-launch stage of a project. This is, in fact, the most popular mode of property investment among a lot of Pune property buyers. Essentially, this is seen as a riskier method of property investment, as one is investing in a 'product' that has yet to be 'manufactured'.
Those who are averse to any kind of risk prefer to invest only in ready-to-move flats. However, in this day and age of illegally constructed buildings being identified and demolished by the authorities, even the supposedly 'risk free' route is turning into a nightmare for buyers. Evidently, the risk factor lies less in the stage of construction than in who is constructing.
If you speak to people who had invested in their homes at the pre-launch stage in the past and are happy inhabitants of completed homes today, the secret of their success is easily seen. Though they technically exposed themselves to risk, they were confident of their developer. It is this confidence that he gives his buyers - not his land banks or bank balance - that is a developer's greatest asset. Buyers feel safe to invest in an under-construction project by a reputed developer, because they know that they will get the home that they paid for - on time, and with no unpleasant surprises.
So the first thing to keep in mind while considering a pre-launch project is the developer's reputation and market standing. Many names infuse confidence without buyers having to delve further - these are the developers who have a clean track record.
If the name does not ring a bell, this does not means that the developer cannot be trusted - but greater due diligence is definitely called for. And if the developer has not delivered a single project before this one, one needs to be extremely alert and look for other options.
Buyers should establish whether the developer has been able to deliver his projects on schedule in the past and also whether there have been instances of project designs and specifications changing in the interim.
This is not a desirable scenario, as buyers should be able to expect to get what they had originally signed up for. For this reason, it is always best to stick to reputed, established developers.
Even if the developer's reputation is not in question, one still needs to ask the right questions and be aware of certain facts. For instance, it is important to know the actual completion and handover timelines. An acceptable window would be 1.5-2 years from the time of investment. One should also be clear about the actual size and layout of the flat one is buying and the facilities and amenities that will be included. All these will invariably be mentioned in the purchase agreement.
If the developer is completely new and has no verifiable track record, buyers should under no circumstances rely solely on the bank to do the necessary due diligence. They must establish the legal bonafides of the project at every level.
This includes asking to see the sanction plan, commencement certificate, draft agreement and the title search report, which proves the developer's free and legal ownership of the plot on which the project will be built. The agreement should also clearly mention the penalty for the developer if he fails to deliver on time or as per the project design.
(The writer is managing director, Pride Group)
Courtesy: Financial Chronicle
