The new middlemen in Real estate sector
Facing the problem of increase in unsold inventory and with working capital hard to come by, the real estate developers in last few years bend heavily on a class of investors to bring sales and bring in that much-needed cash flow. These types of the investors are referred as the ‘underwriters’ which buy the large proportion of the upcoming inventory to be sold directly to buyers.
They are like saviors for the real estate market; the industry noticed that underwriters are currently holding nearly 40 percent of the unsold inventory in Delhi-NCR. The Underwriters mainly sell their holdings at a discount to the developers’ cost but the experts mentioned that the buyers should be careful in dealing with them because there are situations of fake promises made, in order to make deal attractive.
Underwriting in the real estate is becoming a full business and this sector is populated by the large number of broker who has marketing to increase sales.
Some industry insiders like Raj Nandini Estate, Favista Real Estate are some major players in this business.
Business Model
This business model is to purchase in bulk and sell few at a time. Mainly an underwriter books nearly 30 to 40 percent of the inventory that is to be developed at the discount of range 10 to 20 percent.
After the time period of one year the underwriter transfers his unsold inventory back to the developer and take back their booking amount. The one portion that is sold gives the margin of 10 to 20 percent to the underwriter.
One of the underwriters says that as they make money in the market at the time when the demand is high. They also noticed that business decreases in slow market as they are not able to sell the inventory.
How do homebuyers benefit?
An industry expert agreed that the most of marketing is done through newspapers and radio spots are done by them.
Mr. Samir Chopra, founder chairman, Re/Max India, a brokerage firm, says that the Underwriters currently are busy with their investments because they are offering big discounts to the customers.
In situation where buyers are not dealing directly with the developers then they should check whether the party they are dealing with is broker or an underwriter. With underwriter, there is always a situation to grab huge discount.
Mr. Abhay Kumar, CMD of Griha Pravesh Buildteck, says that there are situation where underwriters make fake promises to the buyers regarding the facilities or give a credit report for a discount to be given by the developers.
Regulatory gaps
There has been an increase of this investor class in the real estate sector. This is due to the state’s laws call for compulsory registration of the property in case 20 per cent of the price is paid.
Mr. Kumar says that as registration is done and the stamp duty is deposited then the transfer of property to another buyer becomes difficult, therefore in this case, the margin for the underwriting business goes for a toss. This situation does not occur in Delhi because in Delhi registration is done and stamp duty paid only at the time of possession.
Source: The Indian Express
Abhay Kumar, Delhi, Delhi NCR, Favista Real Estate, Griha Pravesh Buildteck, Investors, like Raj Nandini Estate, Re/Max India, Samir Chopra, Stamp duty, unsold inventory
