Investment on vacant plots-protect thyself !

What do you look for when you buy plots for investment?

Ganesh , an NRI, has decided to buy a plot in the outskirts of Chennai; his idea is to use it for constructing a house a few years later once he returns to India. Alternatively, he reckons, it will appreciate well and he would use the sale proceeds to buy an apartment within the city.

He received several offers from various developers, who have established housing layouts in the north, south and western suburbs of the city. Finally he shortlists a property near Sriperumbudur in the western suburbs which seems to be an ideal fit for his needs. It is a good corner plot and there are more than 100 plots in the layout and once people start constructing houses, there will be a thriving neighborhood, he is told. He invests the money and gets two adjoining plots registered in his name after the developer sweetens the deal with nil registration charges who also agrees to safeguard his property for three years for a nominal fee.

A few years later he is back in India for good. He decides to construct a house in the layout and sets out on the process of getting bank finance for the same.

When the bank inspects and scrutinizes the property, he is told the layout remains unapproved by the Govt.; he goes through his papers and finds that the property has indeed been approved by the panchayat president who has signed on the layout drawings. When he presents it to the bank, he is told the panchayat president does not have any authority to issue such approvals.

To top it all, there is information that there is a Govt. plan to acquire land in the neighborhood for formation of a mega industrial estate which would cover this layout also. It is said the compensation payable for land owners in such unapproved layouts will be negligible and it won’t even cover the cost

of his purchase, leave alone any appreciation.

Who is at fault here ? When Ganesh approaches a lawyer, he hears out his story and tells him that he should have been more careful before investing. There is nothing much he can do now, he is told!!; he cannot proceed against the seller as he has sold it only as agricultural land and thus there are no illegalities in the sale.

He tries selling the plots but soon realizes there are no buyers and the fate of several such investors who have purchased land in this layout is similar to his.

Ganesh reckons, he would lose about Rs.20 lacs ultimately should the Govt. take over the land give compensation as per the prevailing Govt. guideline rates!!

His investment would have been safer had he carried out a due-diligence through a competent engineer with knowledge on the approvals and property values.

Do write to us in case you have some interesting information or feedback!

BVe Consulting Engineers

Engineering Project Consultancy & Property Advisory Services,

Residential-Commercial-Industrial-Infrastructure Designs

Due-diligence studies -Asset valuation services

Chennai -600 083

bv.consultingengrs@gmail.com

www.bveconsultingengineers.in

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Trust , but verify ! A Golden rule in property investment !!

Sekar, a senior bank professional, met me recently in connection with a real estate issue. He has sold a vacant land property in the outskirts to a builder who as part consideration has given him an apartment in another on going project of his. The value, he was told, is Rs.75 lacs. This amount is to be offset from the total sale consideration. The apartment is good in terms of location and construction, he is told. It will be ready soon and he can occupy it in a matter of few months. Rest of the consideration for Sekar’s property is to be paid based on some terms. The builder insists and gets the flat registered in Sekar’s name. So far so good !

Soon Sekar has a change of mind ! He wants to live in another part of the city which is close to his work place; so he goes to the builder and tells him that he would rather hand over the apartment back to him and let him give Sekar equivalent amount as payment so that he would buy an apartment of his choice close to the work place. The builder informs him that he cannot take back the apartment as he does not have the money to recompense him. So if Sekar wants, he should sell it in the market and realize the money.

At this point of time Sekar came to the author of the blog. After perusing the documents like approved plans, details of UDS of land, actual working plans pertaining to the allotted apartment and based on a knowledge of the price trends in the locality, the author came to the conclusion that the builder has pulled a long one on Sekar by palming off an apartment which is very poor in terms of layout, compliances, car parking space and the like. Its real value if sold in the market (provided there are takers) will be atleast 20-25% lesser than the price fixed by the builder . Also given the extent of deviations from the approved plans, the ventilation, natural lighting and car park space is seriously compromised which would make getting a buyer very difficult for Sekar.

Things which appear so simple on paper , are, in reality, not so simple after all !

So always take a hard look at the property and get it investigated by a competent person before agreeing to sign on the dotted line. Now Sekar is poorer by at least Rs.20 lacs on a notional basis and in addition he is saddled with a property which will not give him a good quality living that he has paid for!!

Do write to us in case you have some interesting information or feedback!

BVe Consulting Engineers

Engineering Project Consultancy & Property Advisory Services,

Residential-Commercial-Industrial-Infrastructure Designs

Due-diligence studies -Asset valuation services

Chennai -600 083

bv.consultingengrs@gmail.com

www.bveconsultingengineers.in

www.bveconsultingengineers.com

Big Brands also let you down !

A major developer was in the news recently all for wrong reasons; the company was handed down a hefty penalty by a statutory authority for following monopolistic and customer unfriendly practices with regard to a particular project. One must congratulate the buyers of the apartments for not taking things lying down ! Of course the company has gone to the court for relief; Let’s wait for the court verdict.

But how come hundreds of property buyers, with so much of resources at their disposal fail to ask the right questions while buying apartments whose value must be in crores of rupees ? Is this the magic of brand value ? Precisely what has gone wrong here and why are the buyers upset ?

The highlights of the case are :

The developer has planned to construct a given no. of floors in the high rise towers he had proposed in a premium locality. The development was to be as per the plans sanctioned by the authority concerned ! A leader in the property development industry , the developer sets standards for others ! what a magnificent tower this is going to be ! look at the 3D visuals ! so breathtaking ! look at the landscaped spaces in the perspective ! Amazing, is it not ? you get to see the whole of the city from the higher level floors !

Things are really hunky dory !

Or so everyone thought !

Midway through the game the developer with the connivance of the civic authority decided to increase the no. of floors of the towers which meant the no. of units will be higher than originally envisaged and consequently lesser quantum of UDS of land for the buyers who have already booked. More crowded the building would become, the buyers reason! Resources have to be shared with so many more people, they grumble !

How they could have prevented it ?

Just by insisting on inserting a clause that the development would be strictly as per the original plans sanctioned and clearly specifying the UDS of land each would get at the very beginning itself!

This I suppose should lock the developer into adhering to the scheme of things originally proposed ! While I have no clue about the covenants of the agreements the buyers have signed , I guess the developer would not have dared to deviate from the original scheme if such binding clauses have been there in the first place !

But generally in the Indian scenario the developer decides the agreement terms including the fine print. Buyers only sign where they are told sign!

A typical apartment buying scenario is captured here (this does not refer to the case mentioned above)

You ask questions about the agreement terms ? No problems ! you can choose to buy some where else ! See we are a Rs.’xxxxx’ million company ! And we are a ‘yyyy’ years old construction megalith !!

we have delivered ‘zzzzz’ no. of flats all over the country ! we have practically developed this entire city ! dude, you know all this !

After all, these are standard agreement terms and you know these cannot be amended for a single buyer ! So it is your choice, you were told !

So you get bulldozed into signing where you are asked to sign !you are asked to pay 70% of the amount as advance ! wait a minute ! 70% upfront money, that is quite a lot man, you groan ! Not much has

happened in the site and I need to pay 70% on the first day , you ask !

The reply is quite predictable and will be on these lines !

Hey! come on ! this is how the industry works ! after all you know the land cost is already incurred and it is the biggest element in the value matrix ! so many banks have approved this project ! so what’s the problem, dear friend ! sign on the loan papers and we would take care of the processing !

In such a standard scenario where does the buyer stand ? How does he decide ?

Does he not need professional advice as to whether he should go ahead with so many terms in the agreement loaded against him ?

Sure he needs ! But where does he go ? Are there enough no. of competent engineers who are ready get into this kind of small time advisory services ?

These are some of the gaps in our real estate system that needs to be plugged by systemic corrections !

Do write to us in case you have some interesting information or feedback!

BVe Consulting Engineers

Engineering Project Consultancy & Property Advisory Services,

Residential-Commercial-Industrial-Infrastructure Designs

Due-diligence studies -Asset valuation services

Chennai -600 083

bv.consultingengrs@gmail.com

www.bveconsultingengineers.in

www.bveconsultingengineers.com

Intricacies of property selection for industries

A mid sized industrial establishment with an annual turnover INR 10 billion and good profitability decided to invest in a new premise for expansion! After all they had clocked appreciable top & bottom line growth for five years in a row !; capacity expansion has become a necessity than a strategy , the true blue management advisory firm appointed by the Board concluded in its glittering presentation to the directors.The Board gave its nod in due course and the project began in right earnest.

They worked on the sales projections, ROI nos., decided the budget for investment for plant & machinery, manpower, logistics and other parameters; they then started looking for a premises to establish their dream second unit which was billed to be a cutting edge production house with green construction and green energy generation to boot !

The team tasked with the selection of new premises engaged an army of property dealers to give them various options!

They routinely inspected with gusto the various sites offered by the real estate dealers; elaborate comparative charts were made, flashy reports with latest management jargons thrown in for good measure were generated; differential weightages and scores were assigned for each property candidate and power point presentations were made; after almost six months the team zeroed in on a property which was found to be ideal from all angles!

Property valuation and topo survey of the land using latest equipment were carried out as part of the analysis.

Bingo! Here we go ! The management cooed and signed off the deal! About 20 acres of land changed hands for a not-so-small a sum of INR 400 million!....Continue Reading

Do write to us in case you have some interesting information or feedback!

BVe Consulting Engineers

Engineering Project Consultancy & Property Advisory Services,

Residential-Commercial-Industrial-Infrastructure Designs

Due-diligence studies -Asset valuation services

Chennai -600 083

bv.consultingengrs@gmail.com

www.bveconsultingengineers.in

www.bveconsultingengineers.com

A Landowner’s Dilemma!

Are you a property owner looking to develop your property as residential or commercial apartments?; Are you well informed about the buildability of your property ?; How do you compare the offers of various builders who seek to develop your property?; how is the ratio of share of built up area / apartment space between the land owner and developer worked out ?; how do you rate the builders whom you have shortlisted ?; do you have any realistic idea about your property value in the market place? Or do you wonder how do I price my property?

If the above questions agitate your mind, you would need to carry out a technical due-diligence for properties/immovable asset!   Continued...

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