Buy Realty now but with due diligence

Property rates and interest rates on home loans are showing signs of coming down. It is likely that in the next few months buyers may slowly return to the Market. But experts believe that given the recent events and the global downturn, it is quite likely that buyers are going to be more circumspect, more likely to do their homework than in the heady boom days where projects were sold within hours of being thrown open for booking.

Historically, recovery in the property market starts when actual users resume buying. These are typically buyers looking for affordable housing. Even today there is buying interest in the market, make no mistake, but only if the price is right and it is essentially from actual users.

He points out that another facet of a market like this is buyers take extreme caution while taking a decision. Typically they would prefer buying in ready construction flats or in properties where the possession rate is just a few months away. They may not even mind paying a small premium for this, as it gives them a greater sense of security…

Buy buying in under construction projects has its own benefits, especially now then developers, keen to offload inventory, are offering incentives ranging from preferential pricing to deferment in loan repayment up to the time of possession to buy back offers to protect the downside in case the value of the investment drops.

How then can one avail of these benefits while also addressing obvious concerns about the safety of the investment in terms of timely completion of the project? Here are some tips from exerts:

The important thing is to look at whether the project is adequately funded for completion. The buyer should also get a reasonable idea of how many flats are actually sold in pre-sale booking. A higher percentage of bookings are likely to ease the developer’s working capital burden and lead to timely construction of the project.

It might be a good idea of check out the status of approvals from the BMC. Depending on project size, a developer could have to pay municipal authorities dues running into crores of rupees. The project will not get an occupation certificate unless these dues are paid. It is important to know whether a developer has the financial ability for this.

A buyer should have a checklist and do a thorough scrutiny on various points before a buyer zeroes in on his property. After deciding on the area he wants to buy, he should shortlist a few developers and their projects. He could talk to a leading advocate in the area and find out about the credentials and reputation of the developer. The next important thing would be to discuss with senior officials of financial institutions like HDFC, ICICI about the developer and the project in question.

Thirdly, it helps to get as much market information as possible about the developer. Talking to customers residing in recently completed projects of the developer would give a fair idea about the developer. One should speak to at least four or five different buyers in a developer’s previous project which will give a fair assessment about a developer as to whether he has stuck to his commitments on the project and amenities.

It might be good idea to have your lawyer get in touch with the developer’s senior marketing team or the developer himself and check whether the developer is willing to give in writing in terms of the completion date and the compensation he is ready to give in case of breach of conditions. The ideal solution would be to get bank guarantee from the developer about compensation due in case contract conditions are breached. However, other experts point out that not many developers may be willing to get into such arrangements.

Analysts point out that today several real estate companies are listed on stock exchanges and as a result have comply with stringent disclosure norms. Having your chartered accountant go through the financial disclosures in case your developer is listed on the stock exchange will also give some clarity of financial status of the company, they say.

In case of a good name and good brand the chance of things going wrong are less but he also sounds a note of caution pointing out that past history of a developer is not good enough today. Today it is a function of how much debt he is in, and his cash flow.

In few countries buyers have the advantage of a separate escrow account wherein the bookings and finance meant for a particular project goes. There are also ratings for developers like A B and C category depending on the materials and specifications used. They would be accordingly priced. It then becomes easier for a buyer to choose depending on the grade, quality and price he is looking for. Till the time such steps are made mandatory in India, buyers would be well advised to do their due diligence to protect their investment.