Why Builders in Patna prefer investors as project riders

13 Aug

Real estate project approvals in Patna can take anything but not less than one year. During that phase nobody is going to stand by developers in Patna except the investor. Even the banks are not going to fund builders. All the organized funding starts once builders in Patna have something ready to offer to them. But developers cannot keep waiting that once the project gets approved then only they will launch it; they need some quasi investment at each every level. Here is the advantage of having an investor as project rider.

Not many developers in Patna would publicly admit it but the fact of the matter is that there are many advantages for the builders in Patna to have investors as project anchors. They are the one who bring to the table initial investment, often even without any collateral or receivable. The developers in Patna need investors to provide cash, to give them money even for land sometimes, and only and only investors will give them money at that early stage of the project (say the PLANNING STAGE).

There are two models that work in the Patna real estate investment arena. Mostly it is a pure investors’ pre-launch with minimum amount of understanding as to what kind of a project it would be in future. The second kind of pre-launch in Patna real estate is crowd-funding where there is little higher understanding.

In the second case the developer in Patna has the plans of what would be the shape of the project but he does not have sanctions. He has the layouts ready, even floor plans and unit plans ready and he would go for crowd-funding. So, it is a mass pre-launch and not depending only for the select set of investors.

Though the law of the land does not allow this kind of opaque transactions but it is an open secret in the Patna property market today. It is often done in an IPO model when the entire Patna knows about it. The advantage of this IPO style pre-launch for the developers in Patna is that the price point here is higher than the price point at which they offer it to the select set of investors in Patna.

However, the developers in the city have their own reasons to hail investors in Patna and calling them GENTLEMAN. According to him, unlike end users the investors are not problematic to ask so many questions. Even if there are some escalation charges, it is easy to deal with one such gentleman than 15 or 20 other people who will keep fighting. He will understand it. So he is an easier person to deal with once he comes in.

Whatever we are saying is unfortunate reality and we give credit to the developers in Patna who weather so many variables and still are delivering despite of all the odds. Everything is against them– court, ministry, municipality, local factors, environment and market forces. The fact is that investor remains an asset for the developer in Patna. It is not just about his entry that brings money to the table. But even when he exits in many cases he does not sell it to the end users but sells it back to the developer in Patna, who buys it at thousand odd rupees cheaper than the price at which developer, will sell to the end user.

So, other than the fact that the investor brings first flush of money to the cash starved Patna real estate sector, what also suits the developers is the fact that the investor is not going to ask them so many questions, like whether the apartment in Patna is vastu friendly or where is the wind blowing.

Investors just want a certain number of flats; not even bothered about the floors etc. He is not questioning the carpet and built up area. He is an easy guy to deal with as opposed to an actual user who will ask uncomfortable questions and make the life of builders in Patna miserable.

Moreover, once the investor in Patna has given in his money he is non-interfering. Whereas an actual user wants to visit the site every month and then he will seek explanation about the pace of construction and every other thing. But for the investors all that matters is that his money keeps growing and hence he has a win-win relationship with the developer in Patna.

Advertisements

Blockchain a gift to Freedom

2 Aug

Those wanting to learn more about the blockchain and its possibilities would be wise to follow Prof. Aggelos Kiayias. The chair in Cyber Security and Privacy and director of the University of Edinburgh’s Blockchain Technology Laboratory, Prof. Kiayias is also the chief scientist at blockchain technology company IOHK. Prof. Kiayias said he began to study…

via Blockchain systems a more democratic option — Bankless Times

RERA, BENAMI PROPERTY and DEMONETIZATION

25 Jul

Real estate sector has remained in headlines due to many policy level changes. Real Estate (Regulation and Development) Act 2016 (RERA), Benami Transaction Prohibition (Amendment) Act 2016, amendments in Real Estate Investment Trusts (REITs) regulations, Goods and Services Tax (GST) and Demonetization, are the ones that are considered to have the potential to change the way real estate sector work till now. Besides these, a couple of announcements seemed to be made in the passing but is extremely crucial to this sector. These were the intent to digitize land records, change in arbitration norms for construction industry and setting up of a government committee to look into the strategic sale of government assets that include land and manufacturing units.  All these changes are perceived to be the game changers for the real estate in coming years and the shift would begin in 2017.

digital

Residential sales dwindled and ready to move in inventory was the flavor of the year, 2016-17 – a trend that will continue at least in short term for the residential units in Patna.  2016 was not one of the best years as prevailing caution affected investors as well as end-users in the Patna real estate market, due to the predominant economic risks. Despite huge demand, transaction volumes remained low in 2016. Pressures of increasing unsold inventory, delay in passing of maps and a liquidity crunch resulted in fewer project launches in Patna. There was an increase in the incentives being offered to sell the property, such as innovative payment plans, discounts, and gifts with bookings. However, such incentives have not proved to be much of a booster and ready to move in apartment remain the most preferred one among end-users.

new ad3

Buy Sell Rent Patna

Overall Long-term outlook is positive! Although it’s hard to forecast the Patna real estate market that is highly sentiment driven. Several factors will drive the future trend in combination with each other. Recent demonetisation that became the front-page news and a most debatable topic of the year 2016 and now the GST in 2017 are the major factors that may drive the short-term trends.  While everybody agreed that the measure would help the economy in the long term, the short-term consequences were harsh for the residential real estate sector as the overall transaction volume come to a halt. Transaction volume in the residential sector will remain constrained, but the current oversupply in the market will be mitigated in the coming quarters, as very limited new projects are being launched in Patna. Yet, things are looking up in the coming year, with end users may start looking the market again.   Having said that, BuySellRentPatna.in is a firm believer of the positive impact of all these reforms and believe that these are just small hurdles and the overall Patna property market should come on the recovery path shortly and we will see a resurgent Patna real estate.

Residential Rental property market in Patna has Stabilised

1 Jul

Rental property market is flattening in Patna, with residential rentals in prime areas of Patna being stagnate since last two years. The residential property market across Patna has witnessed same average rental values for the year 2016. In Boring road for example a residential 2 BHK flat of about 1200 sq.ft is still available around Rs.15000 as it was in 2015.  Though, Real estate in Patna is bearing the brunt of the currency ban due to a high dependence on unaccounted cash transactions with residential sales taking a direct hit. Additionally there is RERA and new Benami property act. Home sales have come to a minimal across Patna. Still, the residential rentals in Patna are not moving.

The main reason for flat residential rentals is the increasing connectivity of western Patna, Shaguna Mode area with central area. The flyover from Golf Club to the End of Jagdeo Path on Bailey road has drastically reduced the travelling time. Secondly, all the new corporate offices are coming up in western Patna, in commercial complexes like Sai Corporate Park on Bailey road near Rukunpura. A number of good new schools and hospitals too have cropped up in this “mini Gurgaon” of Patna.

The supply of residential inventory in western Patna is great and is getting added every day. It is not only the higher supply but also reducing demand. With the Banking, Insurance, Pharma and Telecom sectors feeling the slowdown the demand for rentals have dwindled. The new jobs are less and less people entering the job market always adversely affects rentals.

The shift towards western Patna has further diminished residential rental demands of areas like Kankarbagh and Rajendra Nagar. Though there is expansion across the bypass and Sampatchak area but the modern Patna is coming up on western frontiers. Today, a flat in Boring Road, Ashiana Road has greater rental yields than a flat in Kankarbagh or Rajendra Nagar. The congestion and water logging are two common owes cited by tenants in Kankarbagh and Rajendra Nagar. Additionally the properties in these areas are older and demand higher maintenance.

As we mentioned that a 2 BHK flat of 1200 sq.ft is available for around Rs 15000 in Boring road, the same with better modern facilities is available for around Rs 8000 in areas like Gola Road, RPS mode, Ramjaipal Nagar. If you have to travel from Boring road to say Exhibition road during office hours and from Gola Road to Exhibition road during office hours the travel time will be only 15 minutes more from Gola Road. The properties too are newer in western Patna and for tenants it means less maintenance hassle.

These developments on western frontiers of Patna have rendered the residential rental prices in erstwhile modern localities of Patna like Boring road to stagnate. The preferences are changing and rentals are adjusting according to the new demand and supply equations in Patna Property Market.

Joint Venture Projects or Conversion as called in local Parlance will be Modified under RERA in Patna Real Estate

6 Feb

Pre launch offers will become extinct under the new Real Estate regulation Act (RERA) to be implemented by 2017 in Bihar. It has already been notified by central and many states government. Financial prudence and transparency have to be carried out under the Act. This will impound the “free” (according to whims of developers) flow of cash and the diversion of funds from one to another project will be a thing of past. Each project is supposed to have a separate ESCROW account. The developers in Patna will therefore have to change a lot of older ways in which they have been conducting business till now. A lot of consolidation will take place in Patna property market. Clear and transparent deals will be struck. RERA will compel developers in Patna to look towards Technology to control and lower costs. Project management and ERPs will be implemented and therefore the entry barriers will rise. It will be advantage for established and organized builders of Patna.

The crowded arena of Builders and developers will get organized into EFFICIENT few. In Patna real estate one has seen varied backgrounds of the builders. The jewelers, the churi (bangle)walas, confectionary, cloth merchants and who not diving in this pool to earn some quick buck. After RERA the plunge will need more planning and more long term commitments.

All this will also change the way the Joint ventures or conversion deals as it is called in Patna real estate is conducted at present. The tradition of paying a non-refundable amount popularly known as NON will have to be called off. In fact the NON amounts put pressure on the cash flow from the planning stage of the project and leads to builders compromising on essentials like marketing, consulting etc. The project management has lot to do with cash flows and a tightening by RERA will mean more scarce cash flow if not well managed from the very start. With fewer builders as buyers or takers of the land, the land owners too will have to wake up to the realities.

 A Joint-Venture (JV) OR CONVERSION works in a couple of ways in Patna currently..

  1. 50–50% ratio – Wherein investment and profit sharing is equally divided.
  2. 50% of the total saleable area: This is generally provided to the land owner, wherein the developer pays nothing for land, but the investment is entirely owned by him. In turn, the developer offers 50% of the total inventory to the land owner.
  3. Premium (NON) & Inventory Sharing: The developer pays a premium to the land owner (not the total value of the land, just some premium) plus a share in inventory, say around 40% or 50%
  4. 60–40%: In this scenario, the land owner wants to get associated with a brand in the construction industry and hence, is OK to offer his land for free. In turn, the owner gets to learn the know-how of the construction industry, gets a brand for his project plus a 40% stake in the entire inventory.

 

It is the number three; Premium (NON) and inventory sharing that will come under the lens after the RERA. The land owners in Patna will have to understand the new ways of business and the advantages of have a fixed turnaround time for projects. The lure of initial money delays the projects. A Project completed within the stipulated time is always more beneficial for all stakeholders, rather than delayed ones. The onus is also on builders to educate the land owners and show transparency in all works of the project.

Changes in the taxation aspect of JDA (Joint Development Agreement) in the budget of 2017 that tax liability will kick in only on project completion will greatly encourage more land owners to partner with developers in Patna that will benefit the real estate developers in Patna and in turn likely to benefit end consumer. It allows the project to manage its cash flows in a more optimal way. Better project cash flows will also help home buyers in Patna get better deals and pricing.

It may take time to sink in but the Joint Ventures will no more be the same in Patna Real Estate. It will be for better, more transparent and will save Patna’s real estate from a number of ills.

%d bloggers like this: