Should you buy your Dream Home like Ice-Cream?
When buying something as simple as ice cream or a shirt, you check different options before deciding—so why not compare apartments the same way?
There are two major parts of any RE purchase, ie advisory and transaction. (Image: Freepik)
By Amit Raj Jain
“Standing Up Sitting Down
Real Estate NOW is a Common Noun
Apartment Investing is like ‘Future Tense’
Choose one with common sense”
This parody of a popular saying from our childhood makes perfect sense in today’s real estate investing landscape. Post-Covid, the market has experienced an unprecedented surge.
However, looking back in history, we can see that…between 2012 and 2020 nobody was investing in real estate, and developers were sitting on huge inventories. It was during this time a lot of self-styled RE experts had started to preach that “Developers should lower the price”. This was said by a sitting RBI Governor too. Even during that time my firm belief was people do not buy real estate because of decreased prices, people buy something that they believe will increase in value in future. Also, some of these experts had completely written off real estate as an investment class, saying that all the major-multiple appreciation in RE values was history and future may hold just a small inflation adjusted value enhancements.
Owing to this slowdown most of the developers, especially in North India, were in bad shape. Banks slowly but surely closed the tap of funding for this ailing lot, which added salt to injury.
During this time there were hardly any new apartment launches and most of the apartment projects launched between 2010 and 2013 showed negative returns from the launch price even after 8-10 years of booking. During this period only people with genuine need were buying ready-to-move or nearing completion projects. Investing was happening primarily in commercial spaces with prospects of creating a rental yield for oneself. Some plot deals were also happening, but the rate of appreciation was just a few points above inflation. During this time the Govt of Haryana stepped up and announced Affordable Group Housing policy for middle- and lower-income group wherein maximum sale price was fixed by the Govt itself, thereby ensuring fair pricing and housing for all. RERA also was adopted by both UP and Haryana during this time.
But need for real estate investing was aggregating/penting up and RE developers started getting funds from NBFCs. Although it was costly, but was a lifeline.
So, with this pent-up demand of a habitual RE investor we saw the post-Covid (2021) rally for plots. It is to be noted that even till late 2022 or early 2023, RE investing was just plots, plots and plots. In most of the locations/projects, plots gave an absolute return of 250% to 400% in a span of 18-24 months. This was supported by govt policies such as allowing smaller plotted development under Deendayal Jan Awaas Yojna (DDJAY) where plotted colonies could be developed on land packets as small as 5 acres. Clubbed with low risk of development buyer confidence in RE developers was reinvigorated and product launches came in thick and fast which sold with the same speed. This was a strong base for the RE Investing environment to look up because plotted township projects generally have a smaller payment plan (12 to 18 months from the date of launch) and booking amounts are substantial ie 25% of total value or even 50% of total value in some cases. Hence it had no space for small-time punters or so-called booking only investors. Most of the purchases here were self-funded by the buyers. This all happened so fast that many of salaried class just missed the bus in this golden opportunity.
But like all good things, plotted projects in major markets almost dried out due to low margins for RE developers, paucity of land in developed markets viable for plotted developments, and discontinuation of popular DDJAY scheme by the Haryana Govt in Faridabad and Gurugram. Also, the Govt disallowed 4 floors with stilt in entire Haryana.
This is the base of the story happening now in NCR.
Come the Q2 of 2023, a feel-good factor after plots’ spectacular rally had set in and developers sensing this opportunity launched their popular product which till just 3 years ago was an anathema to all RE investors. Since then, we all have seen a plethora of group housing projects being launched in NCR by all types and sizes of developers, be it corporate RE developers or large traditional RE developers, or medium-sized developers. Even developers whose projects were in NCLT started doing structured deals to ensue they do not miss this gravy train.
With the advent of Group Housing (Apartments) launches, now every one is making a beeline to book a ‘Luxury Apartment’ and developers are again selling dreams that are to be realised in the coming 5 to 6 years.
One of the major factors driving these launches and sales is FOMO amongst the Indian upper middle class, ie everyone is making money.
There is a lot of hype around apartment launches with developers spending crores on launch parties alone, multi media campaigns, decked up show flats and glitzy site sales offices. With such shrill and in your face campaigns, you need to cut through the noise and buy something you hopefully do not regret a year down the line.
For all investing in apartments now following are a few pointers they should consider before investing in this asset class ….
“Devil lies in the detail.”
Check price: Please check the actual price of the apartment you are buying. Do not go just by the BSP number. Ask for a full COST SHEET detailing all the cost involved in purchasing of the apartment in question; as per RERA, asking full cost sheet is your right. After noting down all the cost add applicable GST to each and every item in the cost sheet. If you are (most likely you will be) going in to finance the purchase of the said apartment, then add the cost of pre-EMI interest you will be paying during the tenure of construction. Now add all this cost and see the TOTAL COST carefully and ask yourself, can you afford it even if it does not appreciate at all during the construction period?
Also, do not go by the marketing number of developer communication. In most cases (more so in case of new and small developers), there is hefty payout for middlemen. You can negotiate and should negotiate hard. Talk to different sources for the same project, talk to the company directly also, and then take an informed decision.
STOP EOI INVESTING: Another evil that has crept in the market is EOI investing, ie booking apartments in prelaunch or the phase where developer has not got all approvals and RERA Registration is awaited. During this time any information said or received has not gone through the sieve of RERA panel. No matter whatever may be the lure, just avoid it. If you get duped here, I think even RERA may not be able to help you in such a case.
Ask for exact carpet area: RERA stipulates every RE Developer to disclose exact carpet area to all buyers. Do not just go by super area because % of super area differs from developer-to-developer project and is a pure function of design.
Developer Track record: Do not just go by glitzy brochures and EDMs. Marketing can even prove that I am not Amit, I am Shahrukh Khan (although it’s tough to do in my case). Check developer track record by visiting/checking earlier group housing(s) projects delivered by the developer. Talk to the existing residents of their group housing and rate the developer on the basis of quality of material used, quality of equipment left for RWA and responsiveness in attending post-possession complaints. Rate the developer only after checking quality, timely delivery and post-possession responsiveness.
Location: Much has been said in public domain on this subject. But one advice is to physically drive to the site, spend time there, check for nearby developments, assess distance from social infrastructure like malls hospitals etc. Check driving time form your work place, spouse’s work place, kids school etc.
Design of apartment: Not many buyers go through it thoroughly. Visualize each room with usage. Compare the size of each room with your existing accommodation. Do not just rely just on show apartments built on site. They are designed and decked by top-notch interior designers who ensure they look bigger and more well placed. Unless you are willing to spend on interiors more than the total cost of house, do not be swayed by cosy and expensive looking show flats. Its like looking at mannequins in a shop show window and not trying the garment you intend to purchase.
Taking Advice: There are two major parts of any RE purchase, ie advisory and transaction. Most of the channel partners excel in the second part of purchase i.e. they are very good at getting best rate for you. Advise like legal advice, location advice, developer knowledge etc..use different sources to achieve desired result.
Make comparison: Once you have studied, comprehended and assimilated every detail, make a chart wherein you list all the projects and rate them on a scale of 1 to 10 on each aspect listed above. Then take an informed decision. It is the biggest purchase of your life. When buying something as simple as ice cream or a shirt, you check different options before deciding—so why not compare apartments the same way?
Or, maybe we are buying ice cream like real estate and real estate like ice cream.
(The author is Founder, Stride Homebuild and Oram Colonizers. Views are personal)
