Pre Launch Projects have become popular across India during the last decade. Generally, you would come across such offers through sms, emails, brokers and sometimes through print and online media also. The offer would be hard to resist as the property is offered at really attractive price. But what is the logic behind these pre launch offers, what are the advantages and risks involved with them? We must have answers to all these questions before we think of investing in such pre launch projects.
Let us now try to find answers to each question one by one.
What is a Pre Launch offer?
A pre launch offer is a scheme in which a builder sells part of the project even before getting approvals at a 10-30% discount as compared to the market price. Most builders market such projects through their network of brokers who have their regular investor clientele. Some builders also market pre launch projects through print and online media channels. They would not explicitly say that it’s a pre launch project but to attract customers, they will highlight the price which would be much below the ongoing market rate in the area.
In most states, it is illegal to launch a property without getting the layout and building plan approved, yet, due to lack of checks in the real estate industry, many builders are able to raise money through pre launch offers.
Advantages of Pre Launch Projects
The biggest and perhaps the only advantage of investing in a pre launch project is that the offered price is at a discount. Generally, such projects are meant for investors who have a large appetite for risk. The investor plays on the risk arbitrage. As soon as the builder gets the approval, the project price is increased by 20-30%. The investor in this case can exit the project by making a good return in a short period of time. However, high returns come at a high risk. Let us now look at the possible risks with pre launch offers.
Risks involved in Pre Launch Projects
- Delay in Completion – The project clearance may get delayed due to policy change, change in government or any other reason. In turn, the whole project will be delayed and your money can get stuck for a long time.
- Rise in Construction Cost – Due to delay in approvals, the construction cost will also increase. The developer may try to pass on some of this increase in cost to you.
- Entire project may get cancelled – The whole project may not take off at all i.e. the application of the developer can get rejected due to many reasons.
Why do builders pre launch projects?
Builders find it difficult to get bank financing without approvals, hence they raise funds at no cost from the investors. Some, builders may offer assured returns on your investment. But you should be careful about such assured returns schemes on pre launch projects. If the builder gets into financial problems, you would neither get returns nor your principal amount.
Conclusion
With reference to our experience in the past, we recommend end users to refrain from investing their hard earned money in pre launch projects. Although, you may get attracted to the discounts and returns of a pre launch project, you should also be aware that the same project can make you lose your sleep.
An investor who has a large risk appetite is well aware of all risks involved with pre launch offers. He has a working relationship with the builder. He can get his money adjusted in some other project and get his returns through some other arrangement with the builder, if the project does not take off.
If you are an end-user or a small investor, you will be better off avoiding such projects. In fact, the very first question you should ask the builder or the channel partner is whether the project has received all approvals.
A builder needs more than 30 approvals for construction, but you can ask the builder about these 4 major approvals:
- Ownership Certificate/ Land Records Extract
- Change in Land Use (CLU) Plan Approval
- Layout and Building Plan Approval
- Commencement Certificate
If you are not sure about the approvals, leave the project and keep your search on. There is no dearth of properties for you to invest.
Over to You
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