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 of  few affordable homes but a feel of togetherness which is assured here!

Sanjay Deshpande

Sanjeevani Dev.

Envo-Power Committee, Credai, Pune

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