Recently, a well-known New Delhi-based real estate firm went for a
soft launch, or pre-launch, of its residential project at Gurgaon’s
Dwarka Expressway at Rs. 4,350
per sq. ft. In other words, the project hasn’t been advertised yet but
select investors/buyers have been apprised about it through the
developer’s network of brokers and given an offer at lower rates.
The project has attracted many investors and end-users, who would have had to shell out up to
Rs. 5,500 per sq. ft for a similar project in the same area.
For
developers, soft launches are an opportunity to attract a large bunch
of investors. But the low prices shouldn’t blind you to the risks that
soft launches come with.
Says Anand Naraynan, national director,
Knight Frank India Pvt. Ltd, a property consultant firm, “This is
definitely not a good idea when there is no regulation over the
practice. But since returns are higher when you invest at the time of
launch this has become a national trend.”
The risks
Incomplete paperwork/approvals: At the soft launch stage, developers may not have the paperwork complete and permissions in place.
Says
a Delhi-based resident, who booked in a project on the Noida Expressway
at the soft launch stage, “I didn’t know at the time of booking that
some approvals were not in place. Luckily, for me those issues have been
sorted out, but what if they hadn’t been?” He didn’t want to be named
himself or name the project.
At the time of soft launch, many
builders do not disclose entire details such as map, land acquisition
details and building layouts. So you put your money without even knowing
the project’s details. “Often these investments are done on the basis
of the developer’s track record. In many cases, builders do not give
enough details on the project,” says another Gurgaon-based broker, who
did not want to be named.
No regulation: What is worrying is there is no regulation in place in case something actually went wrong in the above-mentioned case.
At
present, there is a no regulation that governs the practice of soft
launch. It is for this reason that the draft Real Estate (Regulation and
Development) Bill, 2011, has proposed that no promoter would be allowed
to advertise about the project without obtaining complete permissions
from the authority. Also, the draft says that the promoter will have to
furnish all the details related to project, including sanctions and
approvals.
Says Samarjit Singh, managing director, India Homes
Pvt. Ltd, a pan-India brokerage firm, “State authorities and the
government do not have any laws governing soft launches. However, people
invest in such projects only to get lower rates. When the project’s
construction advances, there is a decent appreciation in the property
value.” As a brokerage firm, India Homes does not endorse investments at
the soft launch stage.
“You will get the allotment only at a
later stage. Companies usually show the receiving (initial booking
amount) as proceeds taken in favour of a future project,” says Ajay
Singhal, director, Avlon Group, a New Delhi-based real estate firm with
projects in Bhiwadi and Dharuhera. Avlon Group does not follow the
malpractice of soft launches in its projects.
No initial allotment: It
is usually seen that developers take some initial deposit from brokers
and end-users through cheques and book a flat without giving any
allotment or flat number. Once the project is officially announced “open
for all”, these initial buyers are considered first. At this stage,
they are allotted flat numbers.
After these initial bookings, the
company takes fresh bookings for the remaining inventory of unsold
flats. The resident we spoke to has a similar story, “I got my tower and
unit number only around the time my home loan was processed, not at the
time of the initial booking. At that stage, it was just a piece of
paper.”
Moreover, the developer may assure you at the beginning
that your preference will be considered, that may not happen at the time
of booking when the rush and pressure increases. Adds Singhal, “You may
give a preference of a flat on the second floor but you may get
something on the fourth or fifth floor. Your developer may give the same
flat to someone else who has given a larger lump sum or asked for less
discount.”
Risk of delay: Since there is no grievance
redressal mechanism in terms of loss due to delay, you may get stuck.
Therefore, your investments could be a risky one. “Only investors and
deep-pocketed brokers have the capacity to absorb such risks arising out
of a delay in projects,” says Ashutosh Limaye, head-research and real
estate intelligence services, Jones Lang LaSalle India, an international
property consultant firm.
Despite the risks, data shows that soft
launches are pretty popular and investors jump at them. Data from
Noida-based brokerage firm, Investor’s Clinic, corroborates the trend
that soft launch has been a practice in the Indian real estate market.
Mint has
independently confirmed the trend. This clearly shows that there is
little knowledge or realization about the associated risks among
investors and buyers. So are these risks worth the low prices? We would
say no. Go for it only if you can check each approval and permission of
the project before booking, which may be practically difficult to find
out since these offers are open for very short periods—about 10 days or
so. Our advice: stay away from soft launches.
(http://www.livemint.com/2012/06/12192447/Are-risks-in-soft-launches-wor.html)
