Stories abound of unimaginable returns on realty investments by friends and family members. The lure of lofty valuation gains prods many of us to book homes in the early stages of a housing project. True, there may be big value in store for those who take such decisions, but it is not without commensurate risk. There are no free lunches.
Anecdotal evidence may reveal that some homes available for Rs. 2,500 per sq. ft in 2007 may today cost no less than Rs. 10,000 per sq. ft. The same can be said about some stocks trading on the bourses — they may have been multi-baggers. But a few instances don’t make a rule. There are good eggs and bad eggs in every asset class. The promise of hefty gains is the one clear benefit of getting in early. The risks are many more: the developer may stall the project due to a funds crunch or bad market outlook; the specifications indicated to you at the time of booking may be significantly changed (so that what you booked is not what you get); prospective buyers may be offered better terms than you even a year or more after your investment; realty prices may dip sharply after your purchase. Changes in project specifications, either at the behest of a regulatory body (for granting approval) or at the developer’s discretion, may also require you to pay a higher price based on the new specifications.
In nearly all of the above instances, you will likely have limited room for redress other than approaching a court of law, which will spell a long and protracted battle.
For every big gainer from realty investment, there is perhaps another who has lost value due to money being locked up in projects for years on end. Worse, if you are paying an EMI on a home loan, you may end up servicing the debt without the benefit of a new home for several years. If you evaluate returns considering these factors, you may well find that the investment isn’t offering any value at all.
The good news for home buyers is that much of the risks associated with home buying will get addressed by the new realty sector regulations, when they come into force. Developers will be barred from accessing funds from home buyers before obtaining all clearances; they will need to adhere to specifications and be required to deliver projects on time.
Till then, be careful when investing early. And if you must, mitigate the risk by selecting a quality developer with a good track on timely project delivery to specifications.
Formerly Editor, Outlook Business and Executive Editor, NDTV-Profit, the writer is now an entrepreneur and takes keen interest in personal finance. Mail him at hinduhabitat@gmail.com
