The Pre-Launch Story
The Mumbai property market is always buzzing with some activity or the other. The focus now is clearly shifted from Under Construction homes to Pre-launches for both the Home Buyer and the Investor. From the buyers/investors perspective, they see dual arbitrage opportunities in the Prelaunch and the Launch, and the Launch and Completion. So effectively, there is a 3 dimensional growth opportunity during the project cycle with and a relaxed staggered payment outflow. On the other hand, for the developers it’s more pre-sales to the tune of selling of an inventory of up to 70% in pre-launch to launch stages.
|Different Launch Stages||Rate PSF – Example|
|Market Rate/Current Rate of Location||10000/-|
|Structured Launch Rate||6000/-|
|Soft Launch – Pre Launch Rate||7000/-|
|Gain from Soft Launch – Till Completion||6000/- PSF –|
*3 Year Project cycle, considering real estate market growth at a conservative 10% per annum on an
Average Launch prices based on market trends.
The real estate market in today’s date and time is based on opportunities and with property prices being all time high across each micro market the arbitrage available is only in pre-launches as the returns after possession on an average seems to be diminishing and then its actually depends on the product developed and the micro market.
If you look at the current property market and invest in today’s date and time in a project which is already launched and advanced stages of construction, then your returns may be quiet low and you will may not realize the same returns viz a viz your investment in a prelaunch. If you are a homebuyer than there is no need to think any further to buy a home as that is more linked to your personal use than an immediate investment.
The trend of Pre-Launches is clearly dominant in the real estate circles in Mumbai Metropolitan Region as on current day and this is one of the only ways the developers are getting traction and cash flows and at the same time the Investors and Homebuyers are getting max returns in the lowest time frame.
|Developer||Location||Type of Launch||Launch Rate PSF and Year||Units Sold||Current Rate in April 2015|
|Kalpataru Ltd – Project Sunrise||Kolshet, Thane||Structured Launch||Rs.7500/-Dec 2013||600+||Rs.8500/-|
|Runwal Group – Project Runwal Forest||LBS Road, Kanjurmarg||Structured Launch||Rs.9900/-Jan 2014||400+||Rs.12500/-|
|Oberoi Realty Ltd – Project Eternia and Enigma||LBS Road, Mulund West||Soft Launch||Rs.12,250Jan 2015||400+||Rs.12750/-|
|K Hemani – Project Uptown||Kandivali East||Soft Launch||Rs.9400/-March 2015||200+||Rs.9700/-|
|Shapoorji Pallonji – Project – Vicinia||Powai||Soft Launch||Rs.12400/-March 2015||80+||Rs.12900/-|
Non Resident Indians usually plan for future and for them getting in early in a project is a key. When any project is launched in Mumbai, the project is simultaneously launched in the international markets and developers send their teams to Dubai, Singapore, UK and USA to give presentations to the clients of the launch.
A lot of investors and homebuyers are skeptical about Pre-launches and they keep on wondering, why the price is so low and “where is the catch” and why should they invest without proper permissions and documentation.
The truth only here is ‘High Risk and High Gains” and a general understanding of the real estate markets, launch price, incidental costs, developer reputations, market trends and infrastructure impact in a micro location.
Let us decipher what are the different kinds of pre-launches and what really it means and what are the issues one can typically face in such launches.
There are typically 3 Types of launch strategies in the real estate market currently:
- Air Launch/Structured Launch
- Soft Launch or Pre-Launch
- Formal Launch
Air Launch/Structured Launch
An Air/Structured Launch is when the Developer buys the land or is allotted the land by Government or through SRA, JV etc., but does not have the possession of the land, but an in principal title of the land in his name. This is typically a case of redevelopment of a society or an SRA or an acquisition of a property with a corporate body etc.
In most cases, the developer signs with the society or buys the land from a landowner and is yet to apply to the government for basic plan approvals etc.
The developer here opens up the Air/Structured Launch either in chunks for example 5000 sq.ft. or more to its investors or retail. The investors pay up to any where from 30 to 50% of the value agreed upon of the property and some times with a pre-determined minimum guarantee of the interest etc.
This kind of structured launch is ideally for Bulk Investor or a group of Investors who come in to the project at this nascent stage.
This is a high risk investment as getting into a project where there are no approvals etc. in place, some times, the delay is inevitable and in- definite which could be a cause of concern, but then the developers counter the concerns by allowing an exit with refund of the amount with an Interest so the buyers feel assured at least of their refund of investment with interest.
The returns here are pretty neat as the developer off loads the investor stock in the form of retail sale when he is at Soft Launch or Pre Launch or Launch stage depending on the stage the investor wants to exit. This launch is usually 40 to 50% below the market value.
A few developers in Mumbai use this to part finance their project and at the same time investors are benefited with a higher upside. This is a High Risk and High Returns game played solely on the goodwill and track record of the Developer, the Location and ascertaining the Demand/Supply in the micro market and evaluating the deal signed by the Developer be it in the Redevelopment or SRA.
Soft Launch or Pre Launch
After the developer acquires the land he gets the plans approved and one of the permissions he receives is the IOD (Intimation of Disapproval) from the BMC or an equivalent Intimation. After the IOD the next important permission required for initiating work is “CC”, which is popularly known as “Commencement Certificate”. Only once the developer receives the commencement certificate, then itself he can start the construction as this comes with approved plans etc. The time taken during this period could be a good 6 months or more, which is good for the market to align and appreciation to happen.
Usually, the pre-launches are done between the interim period of receiving the final IOD or the CC. Since CC in Mumbai comes in phases depending on the developer etc, the CC some times comes up to Plinth or till any floor etc.
During this period, the price of the project is around 25 to 30% lower than the market price. So let us say, if the surrounding location rate is around 10000 PSF, the pre-launch is usually successful in the range of Rs.7000 PSF to Rs.7500/-.
Most NRI’s and HNI’s prefer this, as this gives them a better rate at the beginning, gets them a choice of inventory, lower or higher floor depending on the views and topography around and of course the pre-launch rate.
“For Investors it is most important to get the Right inventory on Day One and the Day One Price, as if he does not get the Launch Price and the Good Inventory like a Lower Floor facing the Swimming Pool or Garden, or a Higher Floor with better views etc”, then the whole joy of getting into a pre launch disappears as his profits are dependent to a great extent on the premium inventory.
The Pre launch comes typically with a 20% payment to be made in a span of any where between 1 to 3 months, with the next payment usually to be made in the next 6 months. The next payments are all construction linked in most cases, save and except going forward if there are any variations offered like a 25;75 or a 20:80 Scheme etc.
This Investment is relatively less riskier, and if you are going to a good branded developer, the risk is mitigated in short span of time as soon as the permissions come and you can easily exit in 2 to 3 years by getting a margin of around 20 to 30% on your invested amount of say 40 to 50%.
It is important to understand the exit loads and the lock in period. Majority of the builders in Mumbai are allowing the first transfer free or a nominal 1% or 2% charge of the consideration value or as mentioned otherwise.
This is the Eureka Moment, which an Investor waits for, and this is the time when the Builders/Developers commitments or the estimations come to life. So typically, this launch is nearly 10% to 20% above the Pre-launch prices.
This launch is a full scale launch with all legal Permissions, media, ads, home loans and even structured inventory etc for the residual inventory. Some times, a new tower or a higher floors are opened here at different rates, so this is the moment the Investors who invested in structured launches or soft launches see the price appreciation.
We have seen that developers who sell very well at the pre-launch stage do not get into a formal launch because of the residual inventory, which is limited. For Example SD Corp launched a project named “Alpine” at Kandivali East in March 2013 and within a month they sold off around 70% inventory and now they are left with nearly 20 odd flats to sell within 2 years. One of the most classic examples where the investors have made more than 20% in the price appreciation and they have paid not more than 30% till date. This means that they have got fabulous returns on their investment so far.
I have heard people saying, “There is No Emergency in the Real Estate Business so there should be no pressure on the buyer”, but I would like to continue my belief in the old age saying that, “Opportunity knocks only once at your door”.
So if you are looking to invest in Real Estate and you have decided that you will look at a Staggered payment approach where the payments have to be made in a good 5 years, then you must look at each and every launch seriously, else you will have enough coffee table discussions that you missed this launch or that launch and now the price today is this much.
Highlights for Home Buyers/Investors in Pre-Launch
- Pre-Launches usually happen at least 6 to 12 months before the formal launch and statutory approvals.
- The Buyer gets a price advantage of any where between 20 & 30% in the launch price and some times, with some more sops of floor rise waiver or inclusion of car parking.
- Prices between Pre-Launch and Launch move up any where from 10 – 20% depending on the project size, developer and location.
- Buyers outflow remains to be in the range between 20% to 30%
- Staggered payment approach gives the Home Buyer enough time to pay the total consideration value
Check List for an Investor/Home Buyer in Pre-Launches
- Developer Reputation
- Location of the Project
- Current Rates in the Location
- Opening Price
- Floor Rise
- Preferential Location Charges
- Know the Topography of the Plot and Directions
- Competition in the micro market
- General Infrastructure in the location
- Any USP
- Watch out for Infrastructure Charges and Development charges
- Car Parking Charges
- Exit Option with or without Transfer fees
- Lock in Period
Articles by Sandeep Sadh, CEO- Mumbai Property Exchange