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In a dull market, many real estate developers are using pre-launch offers and assured return schemes to woo buyers. Estimates suggest three of every five real estate SMS crowding your handset are hardselling such schemes.
Buyers are promised high discounts on property through pre-launch offers, where bookings are announced for projects even when many approvals are still pending. In the case of assured return, buyers are given a commitment of a fixed monthly assured income after the investment. In most of the assured return cases, commercial property is leased/rented out and buyers get regular income out of it, a broker who had sent out such an SMS explained.
From the look of it, buyers do stand to gain, while developers get easy access to funds at a time when banks are still wary to lend to builders, said experts. However, it's important to read between the lines and the hidden clauses when such schemes are offered, they caution. There are chances of fly-by-night operators dangling such offers. Nikhil Jain, chief executive officer, Ramprastha, which gave out pre-launch offers for its Primera luxury project in Gurgaon, said such schemes help build customer confidence. "They also enable us to judge the market response to a specific product," he said.
The company sold out apartments in Primera recently at Rs 5,000 a sq ft in the pre-launch phase; strengthened by the response, it would sell at Rs 6,500 a sq ft after the launch scheduled for next week. "We usually sell 20-25 per cent of the stock in the pre-launch phase," he said. By offering such schemes, he added, developers have to forgo some profit to attract customers.
Unitech has also recently started pre-launch of its luxury project, The Palms, in Noida. At Rs 5,250-5,400 a sq ft, the company is giving a pre-launch discount of Rs 250 a sq ft.
The assured returns scheme, where developers offer interest of 10-12 per cent, works in several ways. Take a commercial property in Noida selling at Rs 6,500 a sq ft, with an assured annual return of 10 per cent. If the total cost of a 1,000-sq-ft property is around Rs 65 lakh, the developer will at 10 per cent give a return of Rs 6.5 lakh annually or Rs 54,166 monthly, paid through post-dated cheques till possession. Some developers also lease out the property with a lock-in period for you. Such schemes help developers reduce their finance cost, said an expert tracking the sector. Banks are still wary of lending to realtors and even if they do, the interest rate is 15-20 per cent and in the case of non-banking financial institutions, 20-26 per cent.
By offering their customers an assured return at 10-12 per cent, the finance cost is reduced for them, while giving quick cash flow. Some developers factor in the cost of interest rate and include it in the price of the project, which is then passed on to the buyers.
Vikas Raj Sharma, Director, Cosmic Group, offering assured returns in a Greater Noida project, said assured returns were akin to discounts, given after the investment. He said the company had got an overwhelming response to the offer. At this Cosmic project, the returns will be calculated at an annual interest of 12.5 per cent, to be paid monthly. While 10 per cent of the total price has to be given at the time of booking, the rest has to be paid in the next 45 days. In another plan, 10 per cent has to be paid at the time of booking, 40 per cent in the next 45 days and another 25 per cent after a year, and the remaining amount after two years. The return would be 11 per cent in this scheme.
Sharma agreed such offers help developers get easy access to capital, besides attracting investors. Gaurav Pandey, senior vice-president and head, research and consulting, PropEquity, said, "Investors should be careful of the schemes offered by developers. Instead of looking at the face value of it, he/she should evaluate the investment potential of the opportunity on the basis of merits of location and future prospects of finding a tenant in such an office development space."
BENEFITS GUARANTEED
* In assured return schemes, commercial property is leased or rented out and buyers get regular income out of it
* Some developers also lease out the property with a lock-in period for you
* Under the scheme, developers offer interest of 10-12 per cent and pay through through post-dated cheques till possession
* By offering customers an assured return at 10-12 per cent, developers reduce their cost of finance and get quick cash flow
