Vanishing species!!! Where are the genuine mid-segment promoters? Vanishing species!!! Where are the genuine mid-segment promoters? If you are a wannabe apartment buyer and if you are looking for apartments in the mid-segment in Chennai and its suburbs (by the way what is mid-segment –anyone ??) and you are not comfortable living in a huge colony kind of development or a high rise and instead prefer to buy in a small development of say 6-8 apartments, within a budget of say Rs.60-80 lacs within the city limits and proximate suburbs (this is the mid-segment I was referring to !!!), chances are that you will not easily get to see a development sans approval deviations or construction violations vis-à-vis the sanctioned plans. Till about five years back there were plenty of developers operating in this segment all over the city and suburbs and they were sticking to the regulations to much better standards. Today it needs enormous amount of patience and a generous dose of luck to come across such a development. Even though scores of such midsize developments are taking place in every neighborhood, on closer look one would find the compliance of approvals by the builder very patchy. If you were to raise a question ‘is my apartment built as per approvals’ , it will be a miracle if the answer is a firm, true and convincing ‘yes’; you ask a question ‘have I got the right proportion of undivided share of land in my apartment’, the answer, if at all given, will make you none the wiser. If you soldier on and ask about things like water treatment plant, waste water re-cycling, power back up, energy saving measures, electrical safety norms and the like you will soon realize it is a monologue as no answer would be forthcoming. While multi-storied buildings and buildings needing completion certificates from CMDA have to be perforce built as per the sanctions (except a small minority who still manage to commit deviations in the hope these violations would get regularized- may God help the buyers in these projects), the above referred mid-segment is where one finds there is a compromise galore when it comes to sticking to approvals. The situation today is such hardly 5% of the buildings in this segment will qualify as completely above board as far as compliance is concerned-leaving alone the high standards and modern features of buildings described above. Apart from this there is under delivery of amenities in terms of improperly sized car park slots, absence of water treatment plant, grey water re-cycling, heat insulation for roof, operating licences for lifts, usage of smoke retardant wires for electrical services, safe trips to avoid electrical shocks and the like. Why is this so? If we look at the scenario closely, the following is the possible explanation! Land prices of small parcels rule high as there is always a demand for purchase of these small properties for development of independent houses or small offices or shops ! ; there are always quite a number of potential buyers given the small size of the lands ! If the ruling apartment price in a neighborhood is, say Rs.5000/-, for a genuine builder the cost of land will have to allow him to incur the applicable cost of construction (for the area that can be developed as per norms) and approvals, provide for the interest on capital invested , absorb the applicable overheads and give him a decent margin. If he assumes a marginal rise in the apartment prices by the time he starts the sale, the price can at best be Rs.5500/- But invariably if one goes by this method, the value which a genuine developer can pay can never exceed the price band of Rs.80-90 lacs per Ground (2400 sq.ft.) for the abve said apartment sale price band. If he were to offer this price in all probabilities his offer would be turned down. This is because the land owner would be guided by the local real estate dealers that the price of land had already touched Rs.100 lacs and he can always get such a price. So the land owner starts quoting a price of Rs.110 lacs assuming certain negotiation margin. Soon the news spreads and every such potential land seller in the vicinity quotes this as the base price. We should understand a majority of the sellers are generally under no pressure to sell the land unless they get a fancy price. This is because the land prices have gone up over the years due to various macro and micro economic reasons and the land owner has nothing to do with that; having made the purchase of land decades or years back he has been just a passive investor; thus very few of them are under a big pressure to sell at a price below their liking. If an ‘ambitious’ builder decides to take the plunge and buys the land for say Rs.105 lacs, the only way he can recoup his investment is to build more than what is allowed and sell the extra space at the normal apartment rates. So instead of 5 apartments you have six or seven apartments; or each apartment is bigger that what is approved by say 15-25% by eating into the side open space around the building. So the undivided share of land applicable for every sq.ft. of constructed space becomes lesser than what the figure should ideally be ! A typical buyer looks at the legal opinion pertaining to this property and compares the prices of apartments and decides he had made a wise choice by going for such an apartment blissfully unaware of the deviations that have taken place and the reduction in the lighting and ventilation due to compromises in the side open space. In such a scenario a genuine developer who wishes to build only as per the approvals will end up not getting any piece of land as he will always be priced out by other members of his fraternity who are more ‘enterprising’ !! In the absence of strict enforcement of building regulations in this smaller segment, there is no dis-incentive for non-compliance of bye-laws and it is left to the knowledge, conscience and value systems (rare commodities these days !) of the individual builder to decide how he is going to build ! So in such a scenario, a honest developer can operate only when he gets a land where the landlords are going to occupy some apartments and if at all they are an enlightened lot who care for compliance of rules and quality and good construction ! Such people search for reputation and quality rather than just craving for more and more built space ! Nor they are knowledgeable enough to insist on these aspects before signing the joint development agreement ! Such deals are getting limited as land lords want to encash their holdings and move into posher locales within the city and so they would care two hoots if the buyer –developer is going to construct in a poor way as the landlords are not affected in any way. No doubt such honest mid-segment builders are a vanishing tribe!! So what is the solution? Strict enforcement of the bye-laws even in this mid-segment (utopian expectation, I guess) coupled with proper due-diligence of construction or technical assessment of the property on the part of the buyers/funding institutions as to the compliance of the norms before purchase (possible !!!) will drive those who deviate from approvals out of the market; this will also help stabilize the land prices over a period of time !!! If this happens the buyers in this mid-segment will be assured of truly compliant construction at competitive prices !! bveconsultingengineers/vanishing-species-genuine-mid-segment-promoters/
Posted on: Mon, 13 Oct 2014 07:22:18 +0000
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