Vison of Life...It speaks about my views towards what's happening around us, though many of the things represents Pune, a becoming Metro in Maharashtra,India yet most of us live in similar city life. In city day to day life all we face is problems around us; from traffic to water to slums to power supply & many more, but who has solutions? That's why the name
Vison of Life!
Sanjay Deshpande

Tuesday, November 13, 2012

Group Booking, a win win situation!

Never doubt that a small group of thoughtful committed citizens
can change the world; indeed, it's the only thing that ever has...Margaret Mead

The very apt quote whenever I think of group booking concept in real estate or
any such deal. It has worked everywhere yet I wonder why it’s not popular with
our real estate? First of all we need to understand the group concept in depth.
To me a group is a bunch of likeminded persons coming together, that simple!
Though in our Indian mentality it’s this coming together is the main problem.
We are very fine as an individual but collectively we rarely deliver. It’s our
history & maybe that's why we are one of the countries which have been most
ruled by outsiders, just because we don't come together easily & stand
together for a cause.

Many will wonder what it is to real estate? Well the term or the entity builder
ever thought how it has come in existence? Day by day land development is
getting difficult & as we don't come together & develop the land, it’s
some individual who takes the advantage of the situation & becomes the one
who develops the land & becomes the builder. There have been earlier times
when people collectively used to form societies by coming together & buy
the land which eventually they used to develop it by themselves either in form
of plots or get it build as flats by appointing contractor. In early 70's/80's
there have been many such developments in & around Pune. These were mainly
either Bank employees or people from some industry like Tata’s who have done it
successfully. But lately we haven't seen such development is a fact. The
reasons are hassles in land procuring & developing & then in the era of Internet &
mobile, the world has come closer but people have gone apart is an unfortunate
fact! And result is such developments in real estate are being seen
no more. To develop any land jointly, a group has to be formed which trusts
each other, has a close communication & meets regularly, where people take
responsibilities & work for benefit of all. Such people are getting rare
& that's why we see no more group developments in real estate.

Off late surprisingly I came across few such transactions & realized how
beneficial this type of development is for real estate; both for the developer
as well for end users! As the land rates & accordingly finished
products rates i.e. flat rates are souring all the way. Day by day it’s
difficult for even a high income family to get a budget home. And when you are
dealing single handedly then naturally your negotiation strength is very less
especially with a developer who is cash rich & who can hold on with stock
he has. Here is where the group strength comes in picture as mentioned in
quote. No developer can’t afford to let go a single big chunk of amount
as real estate is & never was dear to the banks for financing. Agreed now it’s
difficult for common people even they form a group to buy a piece of land &
develop it but what if we make the developer itself part of the group? Here is
where this topic is dearly related to today's scene of real estate.

Categorically the group concept can be divided in three types
when applicable to real estate. First is buying flats/plots by group in ongoing
project. Then second is buying flats in form of a complete building or
project at or before launch of the project from the developer. Third is joining
hands with the developer right from the land buying & book the entire
project by making it tailormade.

First type was common though you have to decide the size of group, it has to be
big enough to lure the developer for hard negotiations so as to get maximum
benefit. Here the concept of group remains only for getting better deal as the
project is ongoing there are issues like availability in single building or
floors, so you cannot be sure that all the group will be located nearby within
the project. We will have to compromise as per the availability of the
flats/units at the time of booking. Another aspect is we can’t dictate
amenities of the project as it’s been already fixed. Also we have no control on
planning or availability of the units as per sizes i.e. 1/2/3 bhk availability
or the floor or in a single building. So we need to form the group only after
knowing the availability in the project & types of units. But at the same
time we can be assured about the project work as well time frame as the work is
already in progress. Also the legality & title clearance like issues are
taken care in such case. Many a times the project is cleared by financial
institutes so that time span is saved. Yet there are equal chances that if the
project is a success then the developer may not be interested much in
negotiation & may not pass on much of the share from his earnings to the
group. As for any developer the main investment is in land & the time in
getting the projects clearances & once he has it then all he has to do is
wait for the building to come up & booking follows. Yet from the developers
view if he gets a single good group booking then he can have that funds for
construction or for new land buying & then hold on for other units to get
appreciated.

In second case I think is the best option for both i.e. developer & the
group. As it’s the launching period which is most critical for any project. The
work needs to be started instead of whatever response & today's trend is
people does wait till the project comes up & major booking starts only when
the slab work i.e. frame structure gets towards completion. So if the developer
gets a group who is ready to buy entire building or one of buildings if it’s
cluster of buildings then his major investment is taken care as well the cost
of marketing the project is saved significantly. Here the group has to be on
search & in tune with the developments around in a locality where they want
to settle down. For that we need to decide the area i.e. locality in which we
want to book our home. It’s always beneficial if we have made our ground work
in form of study about the land rates as well flat rates in the localities we
have zeroed down. That will help while negotiating with the developer as he
will be expecting them in tune with the surrounding rates. We can either
approach the developer who has bought the land in the locations we have been
looking for or keep an eye on launching of the projects in the locality. Here
the advantage is the developer can give much better deal than the case one
where project is already in progress. Also the choice of the units along with
minor changes in the internal planning is there. The finishing amenities like
tiles, sanitary wares can be part of negotiations & we can have upgraded
versions of the same. Only thing is f its layout of buildings then we may not
be able to change the same but can book the entire building with better view or
location within the cluster of buildings. Considering period of project as 2
years then we can save up to 15% from the current booking rates which is huge
saving which if you go individually no builder will give that kind of discount.

The third case is very interesting as when I say make the developer part of the
group; many will ask why he will become so? Agreed no big house will be
interested in this option as they have their handful in their own work load but
a mid level developer will surely interested in this, mainly for two reasons.
One is less risk as land cost is being shared & another it’s like assured
turn over though the profits may be limited. Also it’s indirectly widening his
customer base on other's expense! Here the group choose location of proposed
development in the locality they are interested in & give the builder approximate
estimate of the size of development they want; budget wise as well number
of units they want to go for so the developer can choose the land accordingly
& plan entire project as per the need of the group. We can decide the land
cost then construction cost with mutually decided amenities & specification
& then put some more money on it as developer profit margin & mark a
line as a final deal rate for the group. This is helpful for people working in
a single organization such as Hinjwadi IT Park, where they can choose location nearby
to their work premise or people from any educational institute such as
Symbiosis at Lavale. In this type another important factor is time span in the
process. As to find a land is tedious job that to when you are looking for a
particular location. This type of deal is usually possible in suburban parts of
the city where lands are still available & we can choose from the same. In comparison
to all three types the third one is most money saving as you are directly
benefited right from land rate but obviously little bit risk factor is there as
land deals are getting shady by each day & title is a big problem.

In all above types of group deals the formation of the group & purpose is
very important, things like allotment of the units within the group has to be
kept very clear. Mostly I will recommend lucky draw allotment system to follow
if unanimously group can’t agree on the unit allotment. This will ensure no
injustice or favourism & the bitterness coming out of it, as it’s possible
that more than one member is interested for a particular unit. Reasons may be
many i.e. a particular view or floor or numerology etc. Also confirm the budget
limits as well fund arrangements for the deal as we are dealing in a big
chunk we need to stick to payment commitments with the developer. A very big
group may have a committee of persons which should be authorized to deal with developer;
preferably this should be put in written to ensure the confidence of the
builder in the committee. A periodical meet of the group is must & everything
should be written down about the proceedings of the deal & should be shared
with the group; this will help in maintaining transparency within the group
members.

Even after the rate & planning part is over, it is advisable to appoint
group's own technical consultant in case of type second & third. So he can
ensure the work is being carried out on right track on quality as well
time schedule. Also put this condition in the contract with the developer
itself. Also the group can engage their own lawyer for scrutinizing the
legality of the project as well agreement terms & conditions, just to
ensure that all that has been agreed between the developer & the group has
been properly incorporated in the documents. Such expenses may look unnecessary
by some but they never get wasted is a fact.

Now the most important question, what should be the criteria to find a suitable
developer? Here I will share example of the great investment Guru “Warren
Buffet". When asked to him what’s his criterion for the company in which
he invests? His reply was "I ascertain three things about the company I am
going to invest in & they are; Consistency, Consistency &
Consistency!" I too will share the same thing, look for the consistency of
the developer you will be dealing with, see his track records on the basis of
commitments delivers, and speak to his existing clients & short list on this
single criterion, though he may be a bit high on price. Remember mostly all quality things in life
come with their price & its better not to negotiate without ensuring that
aspect. When we are dealing in chunk then we are putting all our
eggs in one basket, it’s always better to get the basket tested so as not
to break one with the load of the eggs!

By each day homes are going to
be costlier & coming together can be a great solution to make them
affordable to your pocket. Group booking is the in thing for real estate &
in my view is the way to breech the gap between the developer & the end
user. All we have to do is strike out a line which will be win-win situation
for both sides!Last but not least it’s not about just getting a good deal for your
home but you will be living with your friends around sharing every moment
together & after all a society is
not just group offew affordable homes
but a feel of togetherness which is assured here!