Home > Money > Personal Finance > Choosing a listed builder doesn’t cut out the risk

Though the real estate sector is witnessing an unprecedented slowdown for the past few years, there is one segment that has bucked the trend. Some of the listed developers saw their sales go up at a time when overall sales went down. According to data provided by Liases Foras, a Mumbai-based research firm, the sales of listed companies (those that are part of S&P BSE Realty index) have gone up by 28% between the October-December 2018 quarter and the July-September 2019 quarter. The overall industry witnessed a decline of around 2% in sales in the same period. Further, the share of these listed companies in the overall sales has gone up from 3.2% to 4.2% over this period.

So what explains this preference for listed developers? Does buying from such developers insulate you from risk? Read on to know more.

Why the preference

Given the mounting cases of delayed or stalled projects and other irregularities over the past many years, homebuyers have now become cautious and are opting for better-known brands of developers with a good track record, said experts. “Listed or big developers are being able to get a better response from the market due to the perceived reliability for delivery. Also, over the years, these listed developers have established a good track record," said Sudhanshu Kejriwal, managing partner and co-founder, EverVantage, a real estate consultancy.

The trust factor goes a long way. “The real estate industry is among those which often depend heavily on customers’ trust towards the developer and other stakeholders. Thanks to the guidelines put in place by market regulators and other government bodies, listed companies are supposed to abide by certain strict rules and regulations and that makes them, in some cases, more disciplined than others," said Abhinav Joshi, head of research, CBRE India, a real estate consultancy.

Apart from this, the market share of listed developers has gone up, with many small companies exiting the industry. The unorganized and small developers are finding it difficult to survive in the regulated environment post the implementation of the Real Estate (Regulations and Development) Act (Rera). The tough liquidity condition due to the ongoing non-banking finance company (NBFC) crisis is also posing a challenge.

“The industry is passing through a major consolidation phase as half of the real estate developers that were operating in 2011-12 across the top nine cities have either exited the business or tied up with big builders due to a demand slowdown and regulatory compliance," said Sankey Prasad, managing director and chairman at Colliers International India, a real estate consultancy firm.

Is listing a guarantee?

No. Just because a company is listed or reputed does not mean it will deliver a project on time or not indulge in any irregularity.

“Being listed cannot be seen as a sign of being successful and reliable or vice-versa," said Kejriwal.

In the past few years, several such cases have come to light. For instance, Unitech Ltd failed to deliver projects on time and is currently facing various cases from buyers and investors. Many of its projects are stalled currently. Jaypee Infratech Ltd is another example of a listed company which failed to deliver homes to thousands of buyers across various projects. The company is facing insolvency proceedings currently, which is yet to reach the final stage of resolution (read more at bit.ly/39XBfh4). Hindustan Development and Infrastructure Ltd (HDIL) and Ansal Properties and Infrastructure Ltd are other listed companies that failed to deliver projects on time.

Do your due diligence

These are but just a few names in a long list of defaulting real estate companies; which is why it is imperative for you to do your due diligence.

Check the financial statement: Listed companies are required to declare their numbers publicly. “The clear advantage of buying property with listed developers is that their balance sheets, sales figures and other financial details are easily available in the public domain. Numbers are indisputable hard facts and their careful scrutiny should help a consumer judge the financial standing of the developer," said Anuj Puri, chairman, ANAROCK Property Consultants Pvt. Ltd, a real estate consultancy.

One of the factors to look at is whether the developer’s debt level is rising or it has been able to reduce it. “Today, most of the developers are stressed due to high debt levels. Therefore, looking at the debt servicing ratio of listed developers will give the buyer some idea of their financial well-being," said Pankaj Kapoor, managing director, Liases Foras. Debt servicing ratio tells about the cash flows of the company to service the debt obligations.

Check the track record and other details: It is also important to look at the past projects of a company in terms of delivery timelines and other aspects. “There have been incidents where even the financial numbers (of listed companies) have failed to show the actual state of the company. Hence, it’s recommended to do a bit more spadework and look at the past projects of the developer and check its track record of meeting construction deadlines," Puri added.

Homebuyers can also check the Rera website to cross-check important details about other ongoing projects of developers. “Track record can be checked on the Rera site to see if any projects are running delayed or stalled," said Kejriwal. You can also find out the exact approvals it has obtained for various projects. Also, the Rera website has other details, such as the carpet area, project layout and title deed, of various projects.

You can go and visit the construction site of the project or check the projects which are already completed to assess the quality of construction. Talk to people who are already residing there about how satisfied they are with the project. “Let’s also not underestimate the importance of first-hand feedback from residents staying in other projects to gauge the developer’s dependability and customer service," said Puri.

Use the social media to check customer reviews of projects or complaints against the project or developer. “Technology has opened up a plethora of information available to anyone and everyone, ranging from online reviews by existing customers, quality and process certifications achieved by developers, financial health, project update and real-time status details of projects, among others," said Prasad.

Mint take

With prices subdued currently and unlikely to go up in the near future, it may be a good time to buy a house for end use. It, however, may not make sense to look at it as an investment given the low possibility of a price hike in the near future.

Still, given the present scenario, prefer a ready-to-move-in apartment, whether it’s from a listed developer or not. “If you have a choice between an under-construction property from a reputed developer or a ready-to-move-in property from a developer which may not have a big brand name, check the market reputation of the developer to ensure its track record and the quality of construction. This will ensure that you don’t have to deal with faulty construction and defects. Irrespective of whether a property is under-construction or ready, good customer support is also imperative. However, in the present scenario where projects by reputed developers are also facing delay due to lack of funding, a ready property is a safer bet," said Puri. Also, goods and services tax (GST) is not applicable on ready-to-move-in projects.

Remember to do proper due diligence: don’t go by just the brand name or peer pressure but check all the facts properly before buying a house. Listed builders inspire hope but they are not infallible.

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