Given India’s weak economy and high interest rates, the early signs of pressure on property investors in key markets has led to intense festive season discounts this year. But there are some market tactics that buyers need to be mindful of.
Under pressure from banks and investors (PE or institutional) for delivering on promised returns, developers are often looking to offload their unsold inventory by way of discount schemes, freebies such as high-end cars, trips abroad, gold jewellery, free car parks and soft launch rates to lure buyers. While to-be-buyers may think of this as a golden opportunity, they are unaware of the risks involved and often get manipulated into buying a property for double the price and that too without proper due diligence.
But unique platforms like Home Buying Combine (HBC) and Groffer.com tackle the problem of unassuming buyers well and offer them the opportunity to come together as a community and help them purchase affordable houses in a cost effective and efficient manner.
“With combined buying, buyers get a discount of around 15 percent and developers can reduce dependence on PE firms and high networth individuals who invest in the projects and need a fixed rate of return,” Nitin Degaonkar, founder of Home Buyers Combine, told Forbes India in an interview this week.
How HBC operates:
Based in Pune, HBC was formed when Nitin Degaonkar, an engineer – MBA, moved to Pune and was horrified by the way ignorant home buyers were exploited at the hands of a cartelized market. After being manipulated by developers who were constantly overstretching property prices, Degaonkar decided to form a group within Infosys with his peers to hunt for a right kind of developer who was willing to play the ball with a “win-win” approach. Soon the group had a project and more and more people wanted to be part of this initiative, which is when Degaonkar decided to take affordable housing to more buyers and founded Home Buyers Combine.
HBC takes requirements of individual buyers, collates and compiles them. Clusters of buyers are then created based on individual needs with which HBC initiates projects with reputed developers or approaches developers for bulk offers in ongoing or under launch projects. It then negotiates substantial price discounts for each buyer. For example, in the first such large project, 150 buyers saved between Rs 5 lakh to 10 lakh per house. For a house of Rs 30 lakh, the benefit would amount to between Rs 3 lakh and Rs 6 lakh. Higher the price of the house, the greater is the benefit. Over 200 home buyers have already managed to save up to Rs 10 lakh each through HBC. Though HBC is currently operational only in Pune and Bangalore, it is coming to Mumbai within the next few months.
Win-win for all
The concept is a win-win situation for home buyers as well as developers. Since it allows for a large number of bookings at one time, developers are willing to offer good discounts against a sizeable down payment. It is further advantageous to them as all the members of HBC are genuine buyers and thus all transactions are transparent, Degaonkar told Firstpost.
How to buy realty as part of the group
Register with a group buying company for free. Check the deals available online and sign up for one or start a new group for an unlisted property you have your eyes on.
The catch: Be prepared to shell out a service charge to the company you register with. This typically ranges between 0.5% and 1% of the property value and covers expenses incurred by the company in conducting due diligence, hiring lawyers for the paperwork
Why developers offer such attractive deals to group buying firms when they are unwilling to do the same for standalone buyers even as the slump eats into their profitability
Group purchasing brings a ready and substantial cash flow to the developer without him having to advertise any kind of discounts. It’s similar to the set-up that developers share with speculators who generally buy in bulk where builders offer up to 24-26 percent discount to customers, who are ready to make a bet early.
Secondly group buying companies prove more beneficial for developers who are able to sell a guaranteed number of flats to genuine buyers. This reduces the risk quotient substantially for them.
But is group buying better than soft launches?
Says Degaonkar,” In a soft launch, buyers only get the left over flats that need to be sold to ensure PE investors maximise their returns, while a group buy ensures the flats are sold even before the pre-launch and at the same price as what the investor commands.” For example if a soft-launch offers buyers flats for Rs 4,500 a square feet, a bulk deal in the under-construction period will ensure the flat is not booked for an investor and is bought at Rs 3,500 a square foot.
When asked if HBC would venture into luxury housing too, Degaonkar said the HBC is a socio-economic set up to prevent the misuse of affordable housing.
The other option for Mumbaikars
If you think you do not have enough friends to team up with, log on to another group buying website called GrOffr.com, which get potential buyers for a project together for group discounts. Sandeep Reddy, founder, Groffr.com boasts the group sold 35 flats in one day for Oberoi Splendor in Andheri (East), Mumbai, at a discount of 32.5% after which it forayed into the home loan segment, enabling potential borrowers to get home loans at rates 0.25-0.75% lower than the market rate, with zero processing fee. The site, which gets 1,000 hits a day, offers deals in five cities including Mumbai and New Delhi and expects to increase its reach to 10 cities in the next six months.