A developer with a strong balance sheet commented on the scrapping of the deferred land payment policy. It's not a good idea to get a land parcel from the government if it only has a future value. He said that small-time brokers turn into builders.
The seeds of market malpractices in this part of the world were sown due to the deferred land payment policy of Greater Noida where the developers had to pay only 10 percent upfront and the rest in 10 years or date of completion.
The larger aspect is that the trust deficit between the developer and the buyer is not limited to Noida alone. Buying a promise and not a product is part of the trust deficit.
Who should be a builder? If you have the financial resources, then purchase the land, build homes and become a builder, according to this developer. The story shows how to build a product and sell it. Why do builders need to borrow from buyers before they make a product?
Real estate is not the same as other industries according to a builder. Middle class home buyers would not be able to afford a real estate project if the cost of borrowing was added to the project cost. Is it all about affordability because of the build-and-sell model or is it about a builder's viability? Entrepreneurs start businesses and sell products before the product is ready.
Home buyers need to borrow for an under-construction project to be able to pay for it. They don't have to pay interest on the funding mechanism. Developers who lack credibility for bank funding get away with the buyers' advance receipt. Subvention and Assured returns are some of the schemes that flood the market. It's easier to take a public deposit than it is to borrow from a bank.
Buyers didn't mind paying for under construction properties when the market was good. The buyers wanted double-digit year-on- year growth. The builder was able to sell the unit at a higher price because of the cancellation. Buyers don't have an incentive to invest in under construction projects. There is a tax on delayed projects.
The price difference between a ready-to-move-in apartment and an under-construction one is less than 10%. It doesn't make sense to buy an under-construction house if you add the interest burden. The market makes more sense with ready-to-move-in homes.
The average home buyer needs to borrow around 80 percent for an under-construction or ready-to-move-in unit. The reason for this is that many times home buyers outgrow homes by the time they are completed, which means that their requirements and financial conditions change when they get possession.
A marketing professional got possession after seven years. When he got the house keys, he had moved up financially and his needs had changed, but he was still a newlywed.
Buying an under-construction apartment doesn’t make sense in today’s housing market. Considering that appreciation is not high and buyers’ requirements undergo a change by the time the house is delivered, it makes prudent sense to buy a ready-to-move-in apartment.
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