The festival season is here and the housing industry is going all out to attract demand, here is a checklist that can help in making the right decision.
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Prospective buyers often seek my view on individual projects. On principle, I avoid giving a recommendation. The reason is that every buyer has different factors that guide their decision-making. Yet there are certain factors that I recommend buyers to keep in mind before they make their decision. Given that the festival season is here and the housing industry is going all out to attract demand, it is perhaps a good time to highlight points that can help in arriving at the right decision.
Let me get three critical points out of the way at the outset. 1) Notwithstanding what consultants, developers and brokers may repeatedly claim, owning a house is no achievement. It is only an achievement for the sales person. 2) Do not buy real estate thinking of it as an investment. It has been a disaster in the decade gone by and will in all certainty remain the same in the coming decade. 3) Buy a ready-to-move apartment if the financial situation permits.
Given that most prospective homebuyers do not have adequate resources to make an outright purchase and instead prefer a staggered payment schedule—invariably the option chosen by most are under-construction projects— here is where the due diligence gets very important. I have a list of parameters that I keep in mind in assessing a project. It is not fool-proof but may help homebuyers understand what they are getting into.
Given that in an under-construction project there is nothing physical that can be meaningfully seen or assessed, one has to go by the track record of the developer. Hence it is mandatory to visit as many projects previously done by the developer. In an ideal environment, awareness of the financial condition may be extremely useful to interpret the capability of the developer to complete a project. Unfortunately, most developers are unlisted. And there’s a reason for that.
2) Carpet size
The only language that must be spoken to a developer is the carpet area of the flat—the space inside the apartment. Many of them still have their conversation with terms like built-up and super built-up. Do not entertain that. It is important to also keep in mind that “carpet area” defined by RERA includes things like the space occupied by internal walls. Hence the usable carpet area for a customer often is 3-6 percent lower than the RERA carpet area.
3) Possession date
Every homebuyer is given an earlier date for completion by the developer vs the date given by the developer to RERA. In several cases, the possession date given to a customer is two or three years earlier than the date given to the Real Estate Regulatory Authority (RERA). Example: A customer is told a delivery date of December 2021 but the date given to RERA is December 2023. The reason developers do this is to provide a buffer in case of a delay. That is a fair strategy by developers but customers in their mind should work only with the possession date given to RERA. An earlier possession should be considered a bonus.
Avoid buying at the pre-launch or early launch stage in the project. The offers may appear lucrative as developers try to rake in as much capital from customer advances and bookings but the history of real estate across India is littered with episodes of bumper launches that subsequently go nowhere.
5) Project site
Spend as much time on the project site as you do in the sales office. It is important to scout and see the extent of activity prevailing in a project. That is a good indication of the fate and direction of a project.
The role of a contractor is heavily discounted by customers as it is the name of the developer that attracts a prospective home buyer. Yet it is a role that is critical in the eventual finishing of the project. Contractors like L&T, Capacite, Shapoorji, Arabian Construction Company, etc are good names to have on board. The downside is that an incompetent or a fraudulent developer can make a fine contractor underperform.
7) Numerous projects simultaneously
Stock markets appreciate numerous projects being done at the same time by a developer. As a customer, I treat that with caution. A poor performance in one or two projects has the potential to bring down the others.
Always inquire about the lenders associated with a project. The involvement of credible lenders is a good positive. In case the project has the support of only a handful of reckless lenders with poor underwriting standards, be very skeptical.
9) Maintenance bill
Projects that provide a bouquet of amenities often have a high maintenance amount. That should be a necessary factor in considering the economics of a purchase. Premium projects in good localities of Mumbai often have monthly maintenance in the range of Rs 20,000-40,000.
These are some of the factors necessary to keep in mind before a property purchase. Even after the evaluation of all these elements, the reality is it may still end badly for buyers. But it does help in reducing the odds of a decision going completely wrong. For an industry like real estate in India, it’s the best most buyers can hope for. That is the ugly truth.(When not busy with his newstoon platform Snapnews, Vishal Bhargava is a real estate enthusiast who views and reviews new projects. The views are personal.)