Business
Investing in Indian Real Estate
Is Your Checklist Complete? Think Again!
In the last two years probably the four words that have made the most frequent headlines in news articles and magazines has been the 'Indian Real Estate Boom'. Various authors have published tables showing 30 to 100 percent gains in a year through real estate investments. Reading about this dream 'money making industry' time and time again has made most to believe that there indeed exists the 'Midas Touch'. People from all walks of life have either invested / in the process of investing or planning to invest there hard earned life's savings so as to multiply it by at least a factor of two in the recent future. This has got the Developers laughing all the way to the banks. Even though the last three months have seen a price correction of upto 30% in resale of properties there seems to be hardly any coverage in the press. Each day you find the dream still selling, people who have made investments like such headlines as it gives them a false sense of satisfaction.
Most up-market apartments give there occupancy levels to be in the range of 70-90 percent. However if you happen to take a late evening walk (when you expect at least one member of the family to be present), 50-60 percent apartments would have there all lights turned off leaving a question mark on what is being claimed. This collaborates the point made earlier that most such apartments and houses belong to those who have made investments and are waiting for the 'Midas Touch'.
The so called real-estate boom has attracted so many new players in the market that it is a near impossible task for the common man to identify those who follow the laid down rules and laws from those who believe in hood-winking the authorities. The glossy newspaper advertisements that greet our eyes each morning surely succeeds in making us believe that buying the advertised apartment would take us into paradise. How many times do we see developers addressing issues like 'earthquake safeguards and total land area of colony' in their advertisements? The agreement between the buyer and developer would certainly contain the clause that if the electricity bills are not paid in time the electric supply to the apartment would be stopped but how many times do we read that that incase it is found that the building is not meeting the minimum Earthquake Safety requirements spelt out by the Government the builder would be held responsible, alternately how many times do we see the area calculations giving out the total area of the colony. The municipal authorities generally sanction a Floor Area Ratio of approximately 1.5 for group housing colonies, this implies that incase the plot area is 100,000 square feet then the developer is authorized to construct 150,000 square feet. Alternately we can say that if an apartment building has 150,000 square feet as it's built up area then the land area of the colony should be 100,000 square feet. However if not most, many developers do not hand over the entitled land to the society and keep chunks in their possession so as to be used at a later date.
I attended the '13th Symposium on Earthquake Engineering' organized by IIT Roorkee which took place from 18-20 Dec 2006. Prof. A S Arya the National Seismic Advisor and also member of the newly constituted National Disaster Management Authority and Prof. D K Paul, Head of the Earthquake Engineering Department in their speeches expressed deep concern that even after so much has been done to increase Earthquake awareness amongst all, most builders are yet not following even the minimum guidelines for earthquake safety. 'Earthquake Resistant' is the minimum safety standards that a building should be designed for; Government has laid down these minimum guidelines after great deliberations so that as a minimum, Life-Safety is ensured by preventing a total building collapse. Incase the damage to the building is above a threshold level it can be demolished and reconstructed, but at least there will not be any loss of lives. It is time that the consumer starts demanding these clauses to be included in the 'Buyers Agreement' in addition to clauses that warn him of the electric supply being stopped.
Unlike other Seismic regions of the world, today No Developer in India is offering 'Higher than Earthquake Resistant' construction. Even the high-profile projects which want the consumer to shell out exorbitant sums are claimed to have followed the 'Minimum Earthquake Safety Standards' i.e. Earthquake Resistant, however even this minimum safety is not endorsed in the buyers agreement. A small additional cost of Rs. 150-200 per square foot used to install 'energy dissipation devices/ dampers' can achieve a ' Higher than Earthquake Resistant' safety standard. Most manufacturers of energy dissipation devices/ dampers guarantee their products for upto 35 years which is further renewed after testing.
What the Indian Real Estate investor needs to be doing is deliberately evaluating if he is making the right investments, not by getting carried away by glossy advertisements but getting relevant provisions endorsed in the buyers agreement.
26-Nov-2006
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Sandeep Donald Shah
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