Vision of Life; by Sanjay: Customer is the New King; Real Estate's Mantra!

“For example, if I make money, I put it in real estate. I always did very well. Location, location, location”... Ivana Trump.

Ivana Marie Trump is a Czech-American businesswoman, former fashion model, author, and television personality. She was the first wife of Donald Trump.

“Home is where one starts from”… T. S. Eliot.

Thomas Stearns Eliot, was a British essayist, publisher, playwright, literary and social critic, and "one of the twentieth century's major poets". He was awarded the Nobel Prize in Literature in 1948, for his outstanding, pioneer contribution to present-day poetry.

If you are confused why I used two quotes to start my sharing then let me know as the subject itself is fusion of two things, which on face may appear same but in actual are two totally different concepts. Yes I am referring to real estate & home, these two terms goes hand in hand yet real estate is to make money (read for builders) & a home, as Eliot said is not just physical thing but a feeling for everyone who aspires for it. At the same time for Ivana Trump (The Trump in name says it all) thinks home as real estate & for making good money, may it be location for her, which is one of the aspect of real estate. Joke is its sheer business entity named real estate where there is no place for feelings is the tool to make this feeling named home a reality for most, at-least that’s the scene in our country. People do need real estate to build homes but it’s the difference of attitude in both the parties i.e. builder & client (read home buyer) towards the term home is what given not so good image to the real estate, is a fact. On top of it post RERA, GST, Demonetization, in real estate major turmoil is being witnessed & the outcome is many top names in real estate are breaking down under debts, though if few names are in public yet in private rumors are being discussed about many others. Outcome is, investors of real estate lobby are panicked, so are the small depositors who have faced the burnt most as their day to day life used to be dependent on high interest by the builders even the Banks are keeping real estate in non priority segment. At the same time more in problem are the people who has booked their home (read flats) with projects in making & which are now being delayed for indefinite time; as they have to spend for their EMI’s as well their present rent & then they are not sure when their hard earned home will be in their possession?

And then main problem is to know the reality of real estate as media keeps on publishing either paid news or the news which common man likes to read, for e.g. Demonetization, RERA & GST all these things will make the homes cheaper! So, now the question is common man is asking, where are the cheaper homes? At the same time builder lobby is blaming above three aspects for slowing down real estate & reason of delays in delivering ongoing projects! And on all such background Urban Development dept keeps bombarding real estate (if we call it as Industry) with every day some new policy, making the scene more chaotic. On all such topics my real estate blogger friend Ravi who is active to make people aware about real estate as well builders, asked me for an interview regarding financial conditions of the builders in market. And his first question was there are many big names in Pune real estate who have broke down under debts or financial burden & their depositors as well flat holders who have booked flat in ongoing projects are panicked, so what’s the fact & what the new flat buyers shall look for before booking with a builder. It’s just one question but it covers entire real estate & for that we need to look in past to know about financial machinery of real estate, sharing here the interview’s gist in my words. Let me share that I am not a bit finance or marketing person when its real estate though I am in the field for last 25 years & will apply my analogy of engineering to answer the question is what I told at start.

Some 40 years back in early 70’s real estate started growing in Pune with fewer players & less raw material i.e. land. For years our govt was rural focused as we were Agriculture State & obviously most of the major policies were as per rural development & this made the govt neglecting needs of the cities like Pune & Nashik. Resulting lesser lands available for home making as well existence of a complex system for permissions of projects of buildings! On such background those few lucky gamblers (will explain why I used the term) who bought lands or got hold of such lands which eventually become builders has hit the jack pot. As demand was huge & supply of homes was less, so appreciation is more than twice or even thrice till the projects gets complete. This resulted hoard of aspirant builders as all one has to do is raise some finance & get the hold of land & launch the project, were the only criterion for becoming a builder (they are still same) as booking used to follow immediately after launching of the project. This made financers happy as banks were not funding to buy land unlike other industries; the builder has to get money via private financers, who were smart enough to milk the builders at high rate of interest. Then most builders’ greed got increased & they started to take bank loans on construction even when having booking money available for construction. This surplus money was used to buy more lands or for other businesses as they started considering themselves as has got success mantra of business just because they made money in real estate! Some were smart to buy lands with open eyes but most ended up buying lands with heavy rates considering future appreciation; so in a way on one project three charges got created, investor’s for land buying, flat buyer’s collection & project finance! But the scene was even with all these charges the project used to get successful due to rate appreciation as builders used to hike the rates in phases so covering the interest tally, which can go in totality nearly 40%!

Another aspect was, with rise of IT boom era, mostly all builders started making bigger, luxurious flats thinking, a client paying more money means more profit margins. This strategy was not in respect to the market needs of real estate as builders forgot that any market runs on affordable or budget product which is affordable home in case of real estate. As well on other side, the flat rates hike went on & on, taking the final product out of the budget for most flat buyers. At the same time there were hardly any innovations on the front of product development as home; for e.g. take first I Phone & I phone X, there has been extensive research as well advance technology to make the product more user friendly as well technology savvy but can we say so about home or flats? All what we got is change of specifications i.e. in 70’s there was mosaic tiled flooring, in 80’s there was kota, in 90’s ceramic tiles were in demand & in 2000’s we are having vitrified tiles flooring, that’s all! Same was on plumbing fittings & other aspects of home, nothing related to planning for cost cutting or use of advanced technologies, yet prices were rising only because of scarcity of land! One more aspect was less number of builders, because of hassles in land buying as well clearing process for the projects, making it a monopoly market for few names.

Though by late 2000 the real estate scene started changing as govt has realized majority vote banks are shifting in cities & their need was affordable homes. So the govt started thinking on making policies for creating more homes as increasing supply of homes was the only way to reduce the prices of the same. So the policy came by virtue of which even 20 acres agriculture land can be converted in to residential zone, a limit which was earlier available only for 100 acre area of land at one piece & which was beyond capacity of most builders. New land governing bodies like PMRDA has been bought in function to get more land under development around PMC & PCMC. At the same time finally a stage came when luxurious clients were done with their demands & whatever flats were available in the market was way beyond buying capacity of flat buyers as their need was small, budget flats which wasn't available. So the game of the real estate was changing slowly as no more bigger or luxurious flats were in demand, appreciation has gone away from the lands prices, rates of ready possession flats has become steady & there is no more monopoly in the market with lots of options available for homes. I wonder how many builders understood this change & all those who kept on following old rules of the game they are the one who has come under financial burden!

And finally once rates of real estate have become steady, govt moved in with Demonetization, RERA & GST as check-mate for real estate. Out of this Pune market I doubt has anything to do with demonetization as here are real buyers with mostly loan based & no reason except sentiments why demonetization will hit them. About RERA it will act as a tool to assure the builders gives proper information as well service to his clients, so only the builders with ethical practices will remain in business. And now there is GST 12% on flats in making (though a builder is supposed to pass on the rebate to the client after the project is complete) but there is no GST for completed flats, so more & more people will prefer to buy flats (read homes) like any other commodity i.e. across the counter! Now does it mean one shouldn’t buy in making project; because with all efforts of the govt yet location remains the key criteria in real estate & there can be shortage of supply of homes in well developed areas! This can make people think to buy the flat in booking i.e. ongoing projects, so what care they should take? My reply is, knowledge is the key & track record of a builder doesn’t mean just how many projects the said builder has completed but in the way, he has completed those projects. Use social media which is available to you on your cell phone & gather as much information about the way builder has given service to his existing clients & then decide. Also ask the builder about his financial planning to complete the project, his liabilities as well assets & get this information crosschecked via professional people in the field & then only go ahead with the deal. Ask as much questions you want & don’t book unless you are satisfied with the builder & his team & if you don’t get proper response then “Don’t Book Flat With Such Builder”! Here I will give simple example if you go to Swargate Bus Stand to catch a bus to Kolhapur then what you see first, a board on the bus displaying destination Kolhapur on it, right? Would you go & sit blindly in bus without any name board & expect it will take you to Kolhapur? No, is the answer any man with some common sense will give, well then why don’t you apply such common sense while booking a home which you will be getting after two or three years while you keep paying for the same, is what I will ask. At the same time keep in touch with the builder’s team while the construction of your flat is in progress & do ask if you feel the speed is not as per what has been committed to you, as that’s your right. Even when you are buying a ready possession flat still there are many legalities involved as well services regarding maintenance & quality too, needs to be checked.

Lastly remember, no builder is doing any favor too you by giving committed possession or good service, it’s a fair deal, you pay & get service! But to identify such builder is your responsibility only, as we all have some wisdom & some foolishness in us. But problem is while buying small things like vegetables, we use our wisdom but when its buying our life time home we let the fool within prevail our decisions & then blame builder or real estate for making fool of us! Days of real estate have changed & if you fail to understand, that as a customer you are now the king; then you don’t deserve to be a king in first place, is all I will say to conclude!

Sanjay Deshpande