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Media Information
Builders' Baits – Investor’s Alert

Published & Updated as on - 2010-05-04

Real estate developers are using ingenious lures to sell their projects. Here are the false promises you need to beware of.

Rohit Sinha's dream was short-lived; it lasted 12 months before morphing into a nightmare. Lured by the builder's promises, Sinha bought and moved into his apartment, in Delhi, in 2007. But much like the promises, the construction quality proved flaky. The advertised facilities were not delivered - the swimming pool was the size of a kids' pool, the club was not even part of the plan, the green area was taken over by the state government.

Even as he, along with other residents, is fighting for his rights, the builder has launched another project in the same locality - holding out similar promises. "Surprisingly, even though we informed prospective buyers about our problems, the builder has managed to sell a large number of units," says Sinha.

When money today approached the builder, all he said was, "We sell our projects separately and one has nothing to do with the other. Also, today the situation is very different from that in 2007." It is indeed different, not in terms of the risks buyers face, but in the ingenuity used by builders to sell projects. They are using old tricks, new lures and many false promises. Here are some promised attractions - and the reasons you shouldn't take them at face value.

SELLING THE LOCATION

Real estate is all about the right location and a project within 'walking distance' from a metro station or 'along the highway' seems good. This is one reason most developers are selling the location more than the project. But before considering the offer, visit the site. Some developers have renamed locations without official sanction. So you will hear of Gurgaon Extension, Whitefield Extension or Noida Extension despite a denial about the existence of such localities by the respective local authorities. Similarly, a five-minute drive will probably translate to a 45-minute crawl during rush hours.

PROPOSED INFRASTRUCTURE PROJECTS

Most speculators, or investors who want to sell at a huge profit, blindly follow one rule - buy property near a proposed mega infrastructure project, such as a metro, second airport or expansion of an existing highway. When the project is completed, the price of the property around it or along the route tends to jump manifold. However, beware of the word 'proposed', be it the access road or a metro station. Housing projects are being sold on the basis of proposals that may be at the approval stage or may not have been planned at all. The Greater Noida location was sold on the promise of an upcoming airport, but it's not even close to being a reality. Most such 'proposed' projects are delayed, shelved or cancelled. In such cases, the property's value remains stagnant, even falls, as speculators cash out and look for other investment opportunities.

READY FOR POSSESSION

This is the most common differentiator between a project that is likely to be delayed and one that you can shift into as soon as you buy it. However, the meaning of the phrase varies for different projects and cities. In some cases, buyers have been given 'possession' without basic facilities like lifts or water connection. In others, they have been shown a tower nearing completion, only to be told later that 'their' tower is still under construction. Experts advise a site visit before paying up.

CONSTRUCTION-LINKED PAYMENT

The builder's marketing agent will tell you about the meticulous track record in delivering projects on time. To make it more convincing, he will offer you a construction- linked payment plan - "You can pay according to the construction. Don't pay if we are slow." But irrespective of the construction being on schedule, he will make sure you pay on time. Once you've paid half the amount, he can threaten you with cancellation. Remember, construction-linked payment is not an insurance against delayed projects.

GUARANTEED RETURNS

Till some time ago, this was used as a carrot for commercial projects, but is now being advertised for residential ones too. It's mostly the smaller developers desperate for funds who are offering such schemes. So, only after you make the down payment will you be told about the fine print - you get the returns only if you share the property with two others or the advertised returns are only for investment above a certain amount. The builder knows that after you put in the money, you will either stay put or invest more for better returns.

AFFORDABLE HOUSING

It has been the buzzword for more than a year, but before you buy, discount the project's advertised value and see what you are actually getting. There's likely to be a huge difference between the promised and the delivered project. So the super area-carpet area ratio could be highly skewed. Also, find out the true cost of the project; the builder may not have included the price of club membership, maintenance, pool charges, etc.

TODAY'S LUXURY, YESTERDAY'S MIDDLE CLASS

Luxury seems to be back in demand given the number of such projects launched in the past three months. A good opportunity for investors ? Not really. The builders are peddling these projects because the margins are higher, but today's 'luxury' is yesterday's 'middle-class'. A comparison with the current box-sized 'affordable' projects makes these seem 'luxury' and gives the developers the right to charge a premium on costs like club membership and maintenance. Experts believe that a double dip may be in the offing when it comes to premium projects as there aren't enough buyers. Some developers have also been selling agricultural land in the name of a 'farmhouse' development without permission from the authorities.

DUBIOUS DEMAND

If you tell the developer you need time to think before buying, he'll rattle off the list of buyers queuing up to buy the property. Others will warn you of a possible rise in prices, how these have increased in the past couple of years or how phase 1 of the same project was sold within days. In 90 per cent of the cases it's a lie, and if you haggle, you're bound to get a better deal.

ARRANGING FOR FINANCE

Attractive schemes like zero EMI come with a catch. Don't believe the builder if he asks you to make the down payment and promises to arrange the finance later. Even if he puts you in touch with the bank's representative and assures you of the loan, ask the bank directly for better rates. In most cases, the rate offered by the bank's agent, who has put up a stall at the project site, is higher than that offered by the bank if you approach it directly.

Source: Mail Today 03/05/10.

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