NRI’s Guide to Prelaunch Properties – Definition, Benefits & Risks
Non resident Indians (NRIs) from all over the world are getting intrigued by the rise in property prices in Mumbai. They have a strong desire to invest in real estate in Mumbai. This is more so true now that the foreign exchange rates has strengthened tremendously against the rupee. NRIs buying power has automatically improved by 10% and is increasing every day. However, a lot of them are first time investors and are a bit hesitant due to the lack of information and transparency in Indian Realty. Here is a guide for investing in Mumbai’s real estate market.
What is a Prelaunch (or Soft Launch) Deal?
Prelaunch (or soft launch) is a situation where a developer informs an inner circle of brokers and investors of the availability of properties in a project that has not been officially put on the market. Word of this arrangement spreads by word of mouth and email but does not figure on the developer’s website or in other direct marketing media like news papers, realty portals, etc. A Pre-Launch property may be disclosed to the inner circle at any stage of development. Some times there might be no government approvals in place, just an agreement or MOU may have been signed.
Who Buys Prelaunch Properties?
The buyers who show interest for prelaunch projects are usually investors and end-users who seek to benefit from the price advantage and can wait for a couple of years before getting possession. There are some individuals with discretionary income through inheritance, sale of property, etc are also first time investors in prelaunch properties. Most times prelaunch properties are purchased by individuals who have the entire purchase price readily available.
Prelaunch flats and apartments are much cheaper than properties found in resale, ready possession or even in new construction projects that are nearing completion. The price advantage of buying a property at the prelaunch stage can be a discount of 5% to 20%, depending on various market factors. The builder’s reputation also plays a huge role in the pricing of prelaunch properties. The better the reputation, lesser the discount.
How much do I need to pay to book my flat?
In most cases, developers request you to book the apartment with a nominal figure, about 3% to 5% of the total flat value. This is the earnest money, also known as token amount. However, within 30 to 45 days you are required to pay at least 20% of the total booking amount. In some cases, this money could be as much as 50%. It is important to note, the higher the amount you pay within this initial time, catapults you in a position to bargain the best possible price for the flat.
Is there a lock-in period?
Most builders require a binding agreement where you are not able to re-sell the flat within a stipulated time period. This ranges from 18 months till the project completion. On one hand, this ties your funds with the developer for the stipulated lock in period. On the other hand, it also ensures that the price increments are regulated by the builder, thereby guaranteeing you a positive annual return on your investment.
What are the risks in Prelaunch Properties?
PreLaunch flats and apartments are distinctly cheaper but much riskier. Buyers must keep in mind that the project may not have all the required approvals. This means that they are not cleared for home loan approvals by bank lenders. In most cases, prelaunch properties are not qualified for loans since they do not have all the government approvals. Before investing, check if all approvals and titles are in place. If the approvals are in process or not confirmed then it’s important to see the builder’s own past record. The developers reputation then becomes of utmost importance. Better reputation means better chances of a timely delivery. On the other hand, the lesser the chances of a timely delivery, the more is the prelaunch discount.
Do you get a Loan on Prelaunch Properties?
Loans on prelaunch properties depends on the requisite approvals. Most times, pre launch properties do not have all the approvals needed for a loan. A bank does not provide loans on properties missing any document. However, once all the government approvals are in place and the floor plan has been approved, then the project is approved by banks. This normally happens within 6 months of the launch.
Should you invest in a Prelaunch property?
Investing in prelaunch projects is a high-risk undertaking, which can pay heavy dividends as long as you have factored in all possible variables. It makes most sense to investors who have a high risk appetite and the ability to weather an eventual setback. Investing in prelaunches is, generally speaking, not a route that end-users are advised to take, unless there is a high degree of certainty implied in the builder’s brand and track record.
They must establish if the builder has free and clear ownership of the land on which the project is being built.
The project must have an Intimation of Disapproval (IOD), a set of instructions a developer must comply with, so that he can legally construct the building. The project must have a commencement certificate in place, which gives him permission to build a certain amount of floors. It is necessary to investigate the builder’s record on transparent dealings and compliance with legal formalities, overall record for timely project completion and the experience he has.