Identifying The Mr. Right Real Estate Developer
This article is dedicated to all home buyers who are confused about how to select within cram-full of developers in a region – The Right Developer.
“SUKHDEV DHABA,” Murthal, Sonepat – yehi hai right choice dost. Suppose you are traveling on National Highway 1, and you are hungry, and you are at Murthal where you see more than 500 + Dhabas (eating joints). In that case, all your research will take you to Sukhdev Dhaba, which has proved itself to be the BEST outlet basis for its quality, service, setup, neatness, and cleanliness, the comfort of finding parking. All the 500+ eating joints typically serve the same kind of food, but Sukhdev Dhaba is where you have to wait in a cue to be seated.
It takes time to create a brand, and then it needs a mindset to sustain it.
POLO RALPH LAUREN: You go to a mall looking to buy a T-shirt. All eyes look for the brand store, which carries a T-shirt having a “HORSE Logo” – yes, of course, I am referring to the Polo Ralph Lauren Store. Many stores start from Tommy Hilfiger to Nike, but all eyes search to locate the Polo store.
Suppose the brand raises itself to a level where the customer sees it as a market leader and becomes the first choice. In that case, there is surely a lot that has been invested in creating such credibility by investing in manufacturing and carrying a correct business approach, having a transparent thought process on delivery of the product, quality, and service. These are the ingredients that make you different from the crowd.
I am sure by now you think that either I did not sleep well or I am drunk since the topic and the write up above is not in sync. The truth is that I slept well, and I am not drunk!
I am bombarded with a host of questions from home buyers, brokers, and bankers on identifying the right developer in a particular region or geography.
Here are my learnings:-
- LOCATION is the first parameter in-home search exercise(I have written many articles on the right way to select an area). Once you finalize a place, please make a list of developers that are constructing in that region. Within this list, separate the corporate developers from the others.
- Corporate developers who are registered with SEBI are responsible for submitting financials Quarter-on-Quarter: Sales-Cash Flow – Construction and all payments(Administrative-Debt Servicing-Vendor-Broker-Employee). Suppose you are buying from a corporate developer. In that case, there are fair chances that you will not be cheated, and you will get delivery because the scope of diverting money from one project to another is almost curtailed. Corporate Governance is the need of the hour in every developer's office today.
- Check the delivery record of the developer – delivery record of all his projects. Suppose you see NO DEFAULT on delivery in all the projects that he started. In that case, you are perhaps at the right door but if you find delivered-delayed-under construction inventory better, be careful. The default in one project can kill the organization's finances, which can be harmful to your investment in another developer project.
- Check the financials of the developer from all the institutions where he is leveraged. He may be servicing debt on one institution and defaulting on another. Do not invest your hard-earned money with a developer who had defaulted with any financial institution.
It seems very difficult how to find this data from the financial institution. Indeed it is a very herculin task; however, today, a credible consulting firm in Real Estate came forward that is backed by people who have worked in the industry for 20-30 years and maintained top class trust and credibility throughout. The task is to reach these people and to get the financial health check-ups done for such developers.
- Land Payment record: Please check the status of land payment with authority or with the investor. This will ensure that land is not at risk; hence the project is safe on this front. Most of the lands are bought in installments by allotment from an authority, or the developer takes a loan from a private equity fund for purchasing the land. Hence, the lands get hypothecated to that private equity fund, so there is a fund payment schedule in the developer's case. Therefore to check the land record, you can check on the RERA website or check with the fund providers if repayments are happening as per schedule.
- You might want to talk to a couple of Vendors, Brokers, Employees to take a feel of the developers working. Corporate developers are process-driven. Hence, it is easier to figure out; however, Entrepreneur-driven or Owner-driven organizations are less regulated. Therefore, there is no control over their work. Very risky to invest with such developers.
Many years back, I had read a quote, “ if you see a person on the front page of a magazine, it is almost certain that the failure is around the corner for him.”
I have attempted to put together a checklist for selecting the right developer. The data required seems enormous, but trust me, it is easy. Most of the data is available on the RERA WEBSITE. & For corporate developer’s quarterly data is available on the website of the developer and with SEBI. A little bit of research on the developer can be done by making a few calls. After all, you are investing your life savings.
YOU DON’T BUY HOME EVERY DAY. So, Identify the Mr. RIGHT DEVELOPER before you invest.