The times are changing. Realty developer DLF seems to be on the verge of transforming to a business model where it will build and sell, not sell and build, as has been the norm for the realty sector till now. So now, you won’t buy a promise of a home, but a fully built home when you put your cash down. Good news? Yes.
But if you are one of those who has believed that investing in residential developments was a path to high profits, think again. With developers taking on more risks, they will also keep much more of the gains. So, while you may not lose your money or have to wait endlessly for home delivery — which eats into your wealth and returns — the lucky ones will also make far less returns on investments in projects that get completed in good time and register significant appreciation.
DLF’s move may be prompted by its need to re-establish credentials after being mired in several regulatory controversies. With a regulator for the sector in the offing, the build first and sell later model may well become the norm. What DLF seems to be doing is pre-empting this to come out looking like a pioneer and using this model to re-establish itself as perhaps the most reputed and trustworthy developer in the country. What this spells for home buyers, is less stress on regulatory issues, (read clearances from authorities), no worries on completion schedules and an end to pre-EMIs.
That means property buying becomes less of a shot in the dark. There is more certainty; deals are cleaner (more white, less black); you see what you get. However, the costs will rise. A developer will likely sell a completed project at a much higher rate per square feet, leaving little scope for any appreciation in the short-to-medium term.
A natural outcome of this will be lower returns on residential property investments, but a more predictable trajectory. The ultra high net worth individuals may still have a play. To live through the launch to completion cycle without buyer funds, realtors may turn to realty funds and high net worth investors, who are willing to take the risks for greater gains. In essence the risk will shift from the buyers to the investors, and so will the gains.
Get ready for a new paradigm in Indian realty!
Former Editor, Outlook Business and Executive Editor, NDTV Profit, the writer is a personal finance expert. Mail him at propertyplus
@thehindu.co.in
