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Pre-Launch Booking Offers: Think Before You Jump In
Posted by Pradeep Sadanapalli | November 4, 2007 | 272 views
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Loading ...A pre-launch booking could fetch handsome returns, but be careful while you do so, says Padma Ramakrishnan.
It is a growing phenomenon and while in the bestcase scenario works as a win-win situation for the buyer and developer, due the inherent risk involved, pre-launch bookings have now started attracting the attention of regulatory authorities.Pre-launch booking refers to the practice where a developer accepts money from potential flat buyers before the formal launch of the project – sometimes even before getting the necessary approvals and commencement certificates. For the developer, it is an easy source of working capital which otherwise would have to be borrowed from banks or financial institutions.
For the flat buyer, given the rising property prices, it offers a huge potential upside; typically pre-launch prices are far lower than the prices offered once the project is complete. However, like in any risk-reward situation, these handsome returns mean that there are risks involved as well – in fact, the higher the potential rewards, typically, the higher the risks. And sometimes the equation could go awry.
According to a recent report, the Ministry of Corporate Affairs had decided to keep a close watch on the pre-launch announcements made by real estate developers after receiving investor complaints on the issue. The ministry believes that often customers do not understand the risk-reward equation and take decisions based on incorrect or incomplete information.There is also a thinking within the Ministry to ask the Monopolies Restrictive Trade Practices Commission to look into the matter, as an unfair trade practice.
Builders contend that pre-launch bookings have their place. They are good if the builder is reputed and has a track record. Financiers who finance builders, investors and a sections of customers invest in the projects at an early stage and exit after the project is complete, booking handsome profits. However they caution that for the ordinary customer, it is better if he enters the scene when the commencement certificate is obtained and when sample flats are ready.
Today, middle-class buyers are tempted to get in early, as prices in the last two years have gone up 100 to 200%, points out builder Devang Trivedi, MD, Progressive Group. The customer has to decide between higher risks and higher returns or go in for ready constructions where a safe package would mean higher prices. Generally the risk reward ratio is proportionate, feels Trivedi.
According to advocate Uday Wavikar, the precautions include ensuring plans are approved and sanctioned, the architects and builders are reputed, water and electricity are taken care of. Experts like Sanjay Dutt, Deputy Managing Director, Cushman & Wakefield and Akash Deep Jyoti, Head, Corporate and Infrastructure Ratings, Crisil, believe that pre-launch bookings are fraught with too many risks to be understood clearly by the typical middleclass buyer. They believe any price concessions are not worth these risks,and that the practice must be regulated.
Some real estate watchers and funds are of the view that we are still far away from the model of sales only in completed projects. They ascribe different reasons to this. Developers point out that in countries like the United States titles are clear, and approvals are fast, unlike in India, where it would not be viable for developers to hold the property till the project is completed, which may be three years. The builder needs working capital as he has invested in the land, invested in approvals. The consensus is buyers need to exercise discretion in selecting the builder and prudence in terms of the risk.
Quick BYTES
• The Ministry of Corporate Affairs will keep a close watch on pre-launch announcements made by real estate developers to prevent unfair trade practices
• The customer has to decide between greater risks and returns or going in for safer ready constructions at much higher prices
SOURCES:
Times Of India
Topics: Property Matters, The Facts, Real Estate |
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