Pay proper diligence before investing in Pre-Launch Property Projects
Pre-sales of residential units is a widely followed practice universally-you pay for the property in instalments as it comes up. Most of these instalments are paid by the housing loan which an individual has taken from a bank and the individual keeps on paying the EMI which includes the reducing principal balance and interest.
In India, developers even offer units for sale at a pre-launch stage and offer lucrative bonuses to the buyers who book it at that stage. The whole idea is to raise money for the entire project and continue with the construction. However in India many developers do not even procure all the necessary approvals before selling the pre-launch units to the buyers. Most of the times, the land title due diligence or product-mix (retail, residential, commercial) considerations are still underway.
During pre-launch, developers apprise an inner circle of brokers/investors that a property not officially launched in the market is available for sale. However now the trend has changed and pre-launch announcements are made on public hoardings and in newspapers. For developers, pre-launch provides funds, which could be used for part-payment of land (or to acquire another piece of land) or meeting approvals related costs (which in India are usually higher).
Also during the soft launch the builders can gauge the market and assess demand for the particular project and accordingly launch the second or third phase of the same project. If the market response is lukewarm, then they may even construct only the sold apartments and stall the project for further funding and bookings.
Investing at the soft-launch stage is more risky than at the advanced stage because the hidden issues come up to the surface later. Whether it is a legal matter, construction quality related matter, or necessary approval related matter, most of it is sorted out when the project is in an advanced stage. Hence it is not advisable for a person with a low risk-taking ability to invest in pre-launch projects, unless the project is launched by a reputed builder and has all the necessary approvals. The project should be approved by reputed banks too. By the time a project is open for the public, its status becomes clear and several risks are eliminated.
Source- Financial Chronicle
Buy realty before launch, Buying a property before formal launch may get you a good discount, Buying pre-launch housing units is risky, Online applications for Mhada flats see poor response, Ready-made homes lure buyers
