by Mr. Om Ahuja, JLL
India
Regardless of the
state of the economy, associated market sentiments & on going funding trends, developers need to
generate initial capital to successfully launch & complete their
residential projects.
Only by doing so can
they maintain the kind of churn that makes the real estate development business
profitable.
Investing Pre Launch
..!
However, lending to
the real estate sector is currently in a low sentiment phase. Interest rates
are high for funding that is still available, and some developers do not meet
the required eligibility norms for funding at all.
 | ||||
| Om Ahuja | , CEO, JLL India |
In such
circumstances, they may seek to raise interest free capital from the market by
pre-launching their projects.
A pre launch (or
/ ‘soft’ launch) is a situation where a
developer apprises an inner circle of brokers & investors of the
availability of properties for sale in a project that has not been officially
put on the market yet.
Word of such an
arrangement spreads by word of mouth & via email, but does not figure on
the developer’s website or in other marketing media. The kind of buyers who
show interest for pre-launch projects are usually opportunistic investors &
end users who seek to benefit from the price advantage & can wait for a couple
of years before getting possession of their flats.
Investing in pre
launched projects is a high risk undertaking which can pay off as long as one
has factored in all possible variables.
It makes most sense
to investors who have a high risk appetite & the ability to weather an
eventual setback.
Investing in
pre-launches is, generally speaking, not a route that end users are advised to
take unless there is a high degree of certainty implied in the builder’s brand
and track record.
The price advantage
of buying into a pre-launch project can be anything between 5 to 20 per cent,
depending on various market factors.
However, the high
risk factor must not be ignored. The project may not be cleared for housing
loan approvals, or / the developer / builder / promoter may not have obtained
all the required permissions for the project. Also, the funds generated by
pre-launching the project may not cover the total cost of construction &
the project may be delayed or / even shelved.
Investors into pre
launched projects need to do a fair degree of due diligence before deciding to
go ahead:
Free & Clear
Ownership .!
They must establish
whether the builder has free & clear ownership of the land on which the
project is being built. An agreement between builder and the original owner of
the land is not sufficient.
The project needs to
have a intimation of disapproval (IOD). This is a set of instructions that a
developer needs to comply with so that he can legally construct the project.
The IOD is valid for one year & needs to be reissued if the project has not
been completed in a year’s time.
The project also
needs to have a commencement certificate in place.
While considering a
pre launch option, it is certainly necessary to establish the trustworthiness
of the builder. This includes investigating his track record for transparent
dealings & compliance with legal formalities, his overall track record for
timely project completions & the magnitude of experience he has had in the
industry.
Established residential
property builders with good reputations in the local market are generally safer
bets, since they are able to bring in the necessary approvals & attract a
healthier response from the market.
The latter fact is
important because the developer’s ability to complete the project depends at
least partially on bringing in a certain critical mass of sales when he
prelaunches a project.
About the author..!
Mr. Om Ahuja is CEO – Residential Services at Jones Lang
LaSalle India
Om Ahuja
CEO – Residential Services
+919820436400
om.ahuja@ap.jll.com
Src: Jones Lang
LaSalle India Real Estate Compass
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