Thursday, August 6, 2015

Where are "Achhe Din" in Real Estate?







“Well, real estate is always good as far as I am concerned”… Donald Trump.

Very few people in real estate will need the introduction to this name but for those who are not aware Donald John Trump is an American real estate business magnate, investor, television personality, and author. He is the chairman and president of The Trump Organization and the founder of Trump Entertainment Resorts. With net worth over four billion USD as per Forbes magazine, no wonder he stood by the above quote! And till few months back most of the developers in our country also of same mindset as the great Trump! No wonder in Pune it’s jokingly said that every alternate person is either a real estate agent or a builder by himself; such is the charisma of real estate industry as all wants to get in real estate. But suddenly something went wrong or out of control & there is trouble in real estate sales is what media is screaming & though not openly but in low voices the real estate community also saying the same. There are statistics making headlines about reduced rates of flats & about increasing numbers of unsold flats all over the country’s Metros & no inquiries even after full page advertises in news papers. Real estate industry engulfs not just builders & flat buyers but right from material suppliers to contractors to housing finance companies to rental home agencies to housing maintenance agencies, a lot depends on this industry & all are in worry which no one admitting but is reflected on faces! So what happened to an industry which stood first when it comes to either looked as investment or even as first essential buy when a man starts earning, considered as a best & safest option? Let’s have a realistic look instead going in rumors at least at our Pune city, as real estate is very local industry & each city has different reasons for its ups & downs!!

First of all refer what was the scene few years back in real estate, i.e. nearly five years back as today’s situation isn’t outcome of some overnight reaction or phenomenon but it’s been like lava accumulating below earths crest for years! In those days projects numbers were less, demand was more & prices were moderate though not at bottom line in short the city hasn’t reached to peak of its demand supply curve on all fronts. Now, one will ask what this meant; well, back then, the city hasn’t grown to its fullest capacity & there were more takers than the available stock of homes, choices of homes were less & even the numbers of developers weren’t much. The land bank wasn’t opened up like today with no TDR factor in play, land potential of the city was very much underutilized. Many of the lands were not even having proper access leave apart other infrastructure like water & drainage which is essential for any kind of living. All this resulted in high appreciation of real estate; to give example I myself have witnessed rates jumping three to four times than the launch rate till the project gets towards completion i.e. in just span of two or three! What was credit of the developer or the project in this rate appreciation? Nothing is the simple answer, all it was game of demand vs. supply deficit! But this high appreciation attracted every segment of the society towards the real estate & even the Govt wasn’t exception!

Outcome was every one suddenly wanted to become the builder & landlords have realized value of their land & they too started demanding share in rate appreciation. Even the Govt applied all sorts of taxes to duties on every deal of real estate & introduced premiums on every possible sq ft area not leaving the staircases or terraces also! Then the Govt realized another way of reducing the debt on the State & that make it started giving more FSI by charging premiums on it as well make every possible land buildable by way of asking certain amount to be paid per sft! Whereas the same Govt on other side speaks of making the home affordable but conveniently forget to make the buildable land available at cheaper rate & control the rates of finish product i.e. the home! Agree we can’t increase the land so to make the flat rates down to increase the potential of the existing land is important but then the land lords are not toddlers anymore; they understood the potential has been increased so they too hiked their land rates resulting the real estate scene back to square one i.e. high land rates, which is biggest obstacle in making home affordable! At the same time the so called land acquisition bill which even before coming in existence has been so hyped says the person whose land will be acquired for any purpose of reservation like road or play ground will get double compensation as that of market rate! This means double TDR if the owner is opting for FSI format of compensation but this is not started implementing so no one is handing over the reservation land; result is no TDR in market or whatever is its at very high rates! So the projects which are planned keeping in mind TDR utilization has to buy this TDR at whatever rate so again the outcome is high cost for finished homes!

On one hand greed of investors in real estate along with slow policy execution & high interest rates kept the prices mounting & on other hand due to availability of more buildable land more supply is coming in the market. I remember in year 2000, was working for a mega town ship on Sinhgad road & we were able to sale nearly one thousand flats of the project in just ten days! It was a record bin itself but the reasons were the demand was there & choices were very few to fulfill that demand & that too within the budget of the buyer! Now in very same premise i.e. on & around Sinhgad Road nearly hundred or more projects must be on & with supply over twenty thousand homes which is way ahead of demand for that particular locality & at much higher rate of selling! The same scene is all around city causing the market stand still on face. Outcome is a bit panicky situation amongst developers & we are seeing all kinds of negative publicity in media as well various deals being offered by the developers for sale of the homes.

In such situation if someone wants to wait further to by his home for rates falling further down then its individual’s choice but considering the scene, real estate is never a bad buy; if you look back after five years any rate you buy you are still in profit, is a fact! This doesn’t mean rush for the kill & buy blindly i.e. just for the rate sake. Many will say what’s wrong isn’t it a good sign for the buyers of the real estate? Well, answer is yes & no; yes, because there are choices & developers are negotiating which wasn’t the scene earlier or ever & no, because the developer who is negotiating just to remain afloat & accepting booking by any means, what guaranty of giving possession in committed time he can offer as well what about the quality of construction in such projects? Even if you go for a ready possession flat & the developer is giving you best of discount yet a home isn’t something which you get off from the deal in one day. It will be serving you for generations & you will need good service back up which the developer may not be in position to provide! Here the test is not of the real estate makers but is of the buyers, as not to just look at the best deals in term of money saved but analyze the surrounding market with open eyes. Judge the projects on all aspect i.e. workmanship to planning to surrounding infrastructure & then compare the rates you are getting after such negotiations & then decide what & where you want to buy your home!

For the developers this is an eye opener situation because the real estate as I always say is most unprofessional profession! We never relied on data or statistics but act by instincts or by hype, & both don’t work all the time & ever. It’s high time we should study the capacity of the market while we launch our project & then place ourselves in it. Just few flats of high end get sold that doesn’t mean all flats should be of high range & with luxury. Like most car buyers or car seeking persons like BMW & Mercedes so every car maker don’t go making BMW’s or else imagine what will be the situation in automobile industry? After all there are more Maroti & Hyundai buyers than BMW’s, lets don’t forget its same logic in real estate! Another important aspect is not entering in  rat race as someone has sold his flats at a certain rate doesn’t mean all the market  has raised to that level & same is about number game i.e. the city don’t want just townships & high rise luxury. Let’s understand what kind of product you can make & more important what volumes of the product you make you can sale! Also define the profit margins & stick to the basics as no point in negotiating after putting a high value tag on your homes. It spoils the entire market sentiments as well makes your own marketing image shady instead quote at the start only as low you can & stick to what you have quoted, if the customer is wise enough which today’s buyers are, they will definitely close the deal at your project only! Try to be transparent not just in your talks but in your actions too & be available for any question of the buyers about the home he is looking for & answer the facts & not the futuristic picture!

To conclude I will be sharing mail from one of my own customer, he wrote to my team after booking at one of our project, leave the praise part for us as that’s not what I want to highlight neither the name of the blogger, but look what he expected from the builder & my reply to the same. The mail from Mr. Kedar, actually its addressed to Ravi Karandikar, a real estate critic & blogger through whom he came to know about us...

“Hi Ravi Karandikar Sir,

You may publish this email on your Blog if you wish to 

I was on the lookout for a 2 BHK flat around the first week of January 2015. I always read your Blog with great interest and chanced upon your article of Sadafulee Phase 3


An average flat buyer always wishes for a transparent deal, delivery of the flat on time, completion of the flat as well as the premises as per the specifications and an involved and responsive team of people from the Builder's side to assist.

After going through your article and having once conversed with you over the phone over whether we should invest in the Property market I decided to visit the site and was impressed by the thoughtful design of the flat.

After discussing my requirements with the builder’s team I booked a flat in Sadafulee Phase 3 hoping that all my expectations listed above would be satisfied.

A couple of days back the builder had arranged a get together and tree plantation ceremony and I had the opportunity to speak with Mr. Sanjay Deshpande the CEO and realized that not just the team but also the CEO is very involved in all the processed and details.

Just yesterday we received communication that the flat is ready for possession which we had verified even before the email came through meeting the commitment of time that was given to us which was mid August 2015.

Not only that from my regular visits to the flat I have seen the excellent quality of the work that has been executed.

I am a happy Home Buyer in the Pune property market whose expectations were fulfilled thanks to the great team at this project.

Regards,
Kedar Koppikar”

And my reply to Kedar as below...

“Dear Kedar,

The markets are bad is what people say I feel there is nothing bad or good but it’s the way you look at your profession is what makes the difference; our homes are selling fast & rates are getting appreciated doesn’t necessarily means the product is good & at the same time if homes are not getting sold & rates aren't increasing doesn’t mean the product is bad. After all each of us wants to earn some money but problem is we are not clear with the definition of "some money" & that has been the main problem of real estate presently, from both sides i.e. buyer & seller! The developers shouldn’t forget home is not just a commodity but for most its one time buy & an object of sentiment too as well the buyer should not forget why he is buying a home; it’s not just getting good rate but what you are getting along with that rate is what decides whether you have got a good home or not!
Happy to assist always...
Cheers

Sanjay”

I think the above conversation is reflection of what today’s clients of real estate think about the builder as well the industry & it’s high time we as developers should respond with open mind as it’s the clients who runs the show in any industry & not the industry people! Once we accept this truth then no days will be bad for real estate & then only we can join hands with Mr. Trump in his quote about our profession which is noble in making people live in their dream home!!
Sanjay Deshpande

Sanjeevani Dev.

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2 comments:

  1. Excellent perspective Sanjay. Very few builders have the courage to accept what you say above. Quite a few are stuck because they foolishly bought land at a higher cost and now can't decide whether to keep holding or to sell at reduced profits, in some cases, at loss.

    This peculiar lack of understanding, has lead to one very dangerous trend. If you see, many business are closing down today, simply because no business can survive the rent they are being charged! Rent has become a business killer, excessive rental costs are leading to a higher sales price, which is leading to economic inflation...in Maharashtra in particular.

    I hope, the politicians dessert real estate as an asset class. It's only their absence from real estate, which will improve the situation. Given that they are investing in real estate for the mega profit, which was there, I see them slowly moving to greener pasteur's, given the decline in real estate profits.

    Thank you for writing such a courageous and honest article Very few in your industry have such in depth understanding of the market and your profession. Kudos

    I certainly agree with you about quality real estate assets, if a builder wants to give value and does give it, albeit at reduced margins for him, real estate is sure to turn around. No one will hesitate to buy a good value proposition, for sure.

    Pranav Sardesai
    pranav.sardesai@gmail.com

    ReplyDelete
  2. dear pranav thanks a lot, yes its frds like u who keeps my brain a bit working other than issues like FSI & TDR or salable area & such sharings are outcome is all I will say! More across about the subject as will like to analyze real estate on scale of other businesses!

    ReplyDelete

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Sanjay