Cartel of black money behind myth of appreciation-I

By: Prameet Narula

Rupee, Rupees, Indian currency, Indian money, Cash, Indian real estate news, Indian realty news, India property market, Finance, Track2Realty, Track2Media ResearchTrack2Realty Exclusive: How realistic is the reported appreciation of property in a market where the buyers are unable to exit at even half the reported appreciation figure? Track2Realty Focus tries to decode the mystery of property appreciation to unveil the worst kept secret of the business.

It is a sellers’ market where developers inflate the property prices every now and then with the backing of brokers and underwriters who have cartel of black money to absorb the hike in property prices. It happens in many micro markets across the country, but laboratory of such price appreciation happens to be Delhi-NCR market.

Gaurav Sharma bought an apartment in Noida couple of years back at a price of Rs. 3000 per square feet. The developer had then verbally assured that any appreciation less than 30 per cent and the developer will buy back the apartment. Two years down the line Gaurav is in a fix as it is the endless wait for the project to be even halfway of completion. And it is not just the delay in possession that is pinching the gullible home buyers like Gaurav Sharma.

The property under construction has appreciated more than 60 per cent as per the claims by the developer, but the existing buyers are stuck mid way as beyond the developers’ claims of appreciation they are neither getting the possession anytime in near future nor are they getting the chance to exit with even a decent 15 per cent appreciation.

The developer, in the meantime, is selling the inventory in the same apartment at Rs. 49oo per square feet. Why are then the buyers finding it hard to exit at even Rs. 3500 p sq ft? They have even contacted the developer to dispose of the booking at Rs. 3500 per sq ft that is Rs. 1400 per sq ft less than what the developer is actually selling. However, the developer has refused to oblige the existing buyers to buy back.

In this grievance of Gaurav Sharma and many such harassed buyers lies the stark reality of property appreciation in many parts of the country in general and North India in particular. There is an apparent cartel of black money lying with the chain of brokers and underwriters who are absorbing the so-called price appreciation that looks all too glorifying in the account books of the developers and such reported figure in media shapes the outlook of a booming property market.

When many of the developers, some even with pathetic track record of delivery, announce the entire new launched projects being sold on the day of launch itself, it defies the conventional wisdom of economics in a market where beyond the demand-supply gap stands the gigantic issue of affordability. The reason behind the selling of these new real estate projects in a day or two is not the actual buyers booking flats but an artificial demand being created by the developer with the nexus of brokers and financiers who underwrite such projects. Needless to add, actual buyers like Gaurav are put in a fix.

Real estate project underwriting in its broader term means the developers’ nexus with the operators of black money in the market where the brokers/financiers underwrite the given project, in many cases with the condition that henceforth they will control the marketing strategy and the price point.

Of course, with the deep pockets (read black money) that they have it is easier for them to make money by the huge price gap between launch price and the artificially inflated price. Average buyers living under the illusion of property prices appreciating and the brokers/underwriters discounted price being offered (which is much higher than the launch price) are easy trap and the underwriters make money through this channel.

This gap in price point between launch price & developers’ revised price is what is being projected as the appreciation of the property wherein the gullible buyers fear with ‘now or never’ psyche whereas the actual end users who have booked at the time of launch hardly find a market to exit at that level.

…to be continued

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