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Stay away from delayed projects

Stay away from delayed projects

Towards the end of 2009, several homebuyers faced an ordeal—delayed projects. As is common knowledge, the real estate sector took a massive hit owing to the 2008 global economic crisis. In the process, a lot of units remained unsold and many brokers found themselves stuck with them.


The risks

Low price appreciation potential: Usually, units in the same delayed project are available at multiple price points. So if you happen to buy at the highest price point, the appreciation potential of your unit takes a hit. “If the rate is at a level where you do not get any further appreciation, you may not get any buyer at that price band in case you want to exit the project," says Pradeep Mishra, a Delhi-based real estate consultant.

Take the case of New Delhi-based real estate firm, Parsvnath Developers Ltd’s luxury project, Exotica, which was launched in April 2005. Located on the tony Golf Course Road in Gurgaon, apartments were offered at Rs3,300 per sq. ft at the time of launch. The project got delayed. At present, the developer is selling the remaining apartments in the range of Rs8,000-8,250 per sq. ft. However, initial investors may offer the apartments at a lower price to exit the project, albeit at a lower profit. At the same time, some dealers are offering the same apartments at a higher price—Rs9,000-9,500 per sq. ft.

This kind of situation creates confusion among homebuyers and also leads to insecurity in case they want to sell it. Putting a fixed price range on the apartment becomes impossible and thus the potential of price appreciation takes a hit.

Delivery issues: It is evident that a delayed project will not be ready on the scheduled delivery date. But owing to a bad precedent due to whatever reason—cash crunch, demand-supply mismatch leading to poor sales or lack of infrastructure—there is always the risk of further delays. So even a new delivery date may not look that reliable.

Change in layout: Often projects that do not take off after their formal announcement witness a change in layout, primarily to adjust costs. So a three-bedroom flat may become a two-bedroom one; while that means lowering of prices, it may not meet your needs. Similarly, a particular floor in a tower may accommodate five flats instead of the earlier four while another tower may go with the earlier layout. This again creates confusion among buyers.

For instance, Gaursons India Ltd had “reformatted" a project in Ghaziabad, Gaur Green Avenue, after its formal announcement. The number of flats per floor also went up.

What should you do

We wouldn’t really advise you to take risk and invest in a project, which already has a bad track record. However, if you are getting a really good deal and a massive discount from the company rate, you may want to go for it. Even in that scenario, we advise caution. Here’s what you should keep in mind.

Completion date: Visit the site. The extent of construction work on the site can give you a sense how long the project will take to complete. Don’t forget to ask the developer about the new completion date. You should also contact early buyers in the project to verify the new completion date.

Compare prices: Look at similar delayed projects as well as new projects in the area and compare the prices.

Take the case of Parsvnath’s Exotica discussed earlier. The company rate is Rs8,000-8,250 per sq. ft and you may be getting a discount on it. However, in a nearby area, Golf Course Extension in Gurgaon, apartments are available at an average price range of Rs5,000-5,500 per sq. ft.

Compare features: Just because you are getting a cheaper deal doesn’t mean you settle for it. For all you know, the features of the apartment which is slightly expensive than the one you have chosen are better and hence the extra price.

For instance, the definition of luxury keeps changing and new features get added every year. Says Sanjay Sharma, managing director of a Gurgaon-based real estate firm, Qubrex.com, “What was considered upmarket flooring some two years back is now offered as part of the entire price. Even smaller developers are now using foreign architects to design landscaping in their projects—a feature not so common in older projects."

New projects come with inaugural discounts, which you may not get in delayed projects. So weigh your options well.


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