6 promises builders make but may not keep

Whether a project can be completed on time or not depends on the financial strength and willingness of the developer. Making promises that are difficult to keep is common among real estate developers. With pressure deepening on developers to push sales—that dropped by at least 50% now across National Capital Region and Mumbai Metropolitan Region in the January-March 2012 period compared with the corresponding period a year ago, according to data analytic firm, PropEquity Analytic—they may be in a real hurry to clear their inventory.

While some developers may genuinely try to deliver on their promises, most do not. So when buying a property, do your own research instead of just giving in to what the developer tells you. Here are six promises that real estate developers are likely to make but unlikely to keep.

1. Prices to be revised soon

Never give in to this panic-inducing statement without carrying out proper market research. On the face of it, it is true that developers revise rates at various stages, such as pre-launch, launch and completion. However, in reality, you may get a cheaper rate from some brokers and direct sellers even at a later date.

Says a real estate analyst at the Emkay Global Financial Services, who did not want to be named because he is not authorized to speak to the media, “As prices are recorded at a pre-launch stage, market observers often tend to forget that the same developer has spiked rates at the time of its official launch. While this happens, local brokers and dealers and early investors may still be selling at lower rates.”

2. Assured price rise

This is one of the most common assurance that your developer would give you, irrespective of where the project is coming up.

There are instances where the developer would tell you that the project would have a school, hospital or a mall in its vicinity. Even if that is true, it is no guarantee of a price appreciation.

There are various examples, where prices haven’t really appreciated despite better infrastructure around the project. For example, the rate range in Vaishali-Vasundhara area of Ghaziabad has remained unchanged since June last year despite the fact that the area is well-developed in terms of infrastructure and other amenities.

3. Discounts are higher in down payment plan

Typically, you get three payment options when you buy a flat—down payment, flexi and construction-linked plan. Under the down payment plan you need to pay 90% of the flat’s price upfront (within 45 days of buying the property), while flexi and construction-linked plans let you pay in instalments as the construction progresses.

Usually, developers offer up to 12% discount if you buy the property under the down payment plan, while up to 5% and 2% on flexi and construction-linked plans, respectively.

“This largely depends on the various stages of construction. A person investing towards the end of the project may not even get a construction-linked plan,” says Sobhit Agarwal, managing director, Protiviti Consulting Pvt. Ltd.

However, what they won’t tell you that the high discount comes with associated dangers. For example, if the project gets delayed or gets stuck in a legal wrangle, your entire money gets stuck with the developer. A flexi or construction-linked plan is safer since you pay only as construction progresses. Moreover, if you bargain hard and the developer is looking at getting rid of inventory, you may bag higher discounts even on flexi and construction-linked plans. Says the analyst from the Emkay Global, “There is so many unsold units in the market that it is in fact a challenge for developers to attract customers in the right price bracket.”

4. Project is green and, hence, more expensive

The aim of a green building design is to minimize the demand on non-renewable resources and maximize utilization efficiency of these resources when in use. But there is little clarity on what really is a eco-friendly project.

Unfortunately, this lack of clarity is being misused by some developers as the “eco-friendly” or “80% green” tag helps them hike prices. “Using such solutions definitely increases the overall pricing of the project,” says Lalit Kumar Jain, national president, Confederation of Real Estate Developers’ Associations of India (Credai).

“A green building looks just the same as a conventional building. The difference is that the initial cost of green buildings is 5-30% more but the cost pays off in the mid term because of decrease in energy consumption,” says Vidhur Bharwaj, managing director, The Three C Universal, a real estate company. The company’s commercial project, Green Boulevard, is now among 10 green buildings in the world to have been recognized with the Platinum rating by Indian Green Buildings Council, an industry body that rates buildings, projects, special economic zones based on certain guidelines. Platinum rating is the highest it gives.

5. Actual site photographs

To generate confidence among prospective buyers, developers often publish actual site photographs in their advertisements. However, this gives only a limited perspective since you can’t assess the level of infrastructure around the site.

For example, a recent advertisement from a New Delhi-based real estate company has given actual site photographs of its project being developed in Faridabad Nehar Par area. Although the developer has built the project, the surrounding infrastructure still remains a problem for buyers who are willing to live in these units. The roads are still not fully developed and there is constant movement of heavy vehicles used for construction purposes.

“Incomplete and undeveloped surrounding infrastructure may not add value to your investments,” says Pankaj Dogra, a Faridabad-based real estate broker.

6. Construction is at an advanced stage

Whether a project can be completed on time or not depends on the financial strength and willingness of the developer. This, in turn, depends largely on revenue gathered from sales and loans. Even if a developer says that the construction is at an advanced stage and you have checked it on ground, too, there is still no guarantee that the project will get finished on time.

The only indication that you could follow is the developer’s past record in terms of delivering projects. “A buyer can easily find out if the projects in the past have been finished on time. For this, he can speak to residents of the society,” says a Gurgaon-based real estate developer, who did not want to be named.

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