Buying A House? Assess The Freebies

The festive season is when many people plan to make large purchases like a home, especially as many real estate developers offer attractive freebies. Looking out for your dream home can be a time-consuming process if you want to do the due diligence thoroughly and look for potential surprises that may lie hidden in the builder’s closet.

These days, almost all real estate developers in major markets in India provide freebies, discounts and other offers that an average homebuyer may fall for. But if you make a hasty decision without checking crucial details like the builder’s land ownership, outstanding debt, possible legal battles, ability to repay loans, management practices, reputation, etc., you may have an incomplete picture of the project.

In cases where there are problems with these aspects, freebies may be worth little in the long term. Take the case of Saroj Pattnaik, 46, who lives in Noida with his wife and 13-year-old daughter.

Pattnaik booked his flat by making an initial payment of Rs 1 lakh in May 2010. The builder, Today Homes Pvt. Ltd, promised a discount of Rs 200 per square foot if he completed his booking by paying the required 10 per cent of the total value along with the first instalment as per the construction-linked plan he had chosen, before Diwali in November 2010.

Two months later, in January 2011, he made another deal to pay in full for his two-bedroom plus study house after receiving a substantial discount, with the delivery date fixed within 30 months. Though he thought he was benefitting from the deals, ultimately, he faced losses as the possession got delayed by four years. Meanwhile, he had to continue paying for his rented house in Munirka in South Delhi.

When Pattnaik finally took possession of his flat in Sector 135, Noida, most of the facilities promised, such as a swimming pool, clubhouse, park, covered parking, etc, hadn’t been completed. But that was not all: a bigger trouble awaited the family and the other residents when the builder filed for insolvency in 2017. As a result, the flats couldn’t be registered, and there’s still a status quo. The owners moved their case to the National Company Law Tribunal (NCLT), where a final hearing is pending.

Says Pattnaik: “I was lucky to get possession in 2016, while about 600 buyers are still waiting for the delivery of their flats. It saved a lot of money which I would have spent on my rented house otherwise. More than that, I live in my own house, which gives me a special feeling. The only pain point is that the flat is still not registered.”

Are Freebies Bad?

Most real estate developers traditionally dole out freebies in the festival season after spring and autumn, mainly to attract potential buyers and differentiate themselves from their competitors.

Says Rahul Purohit, national sales head of Square Yards, an online real estate marketplace, “Freebies like nil goods and services tax (GST), luxury holidays, gold coins, property registrations, etc. act as incentives for homebuyers, resulting in higher footfall and decent sales. However, developers locked with excess inventory and debt often offer them to clear off their pending stock and generate cash flow.”

However, freebies do not lower the property’s base price. “Since they impact the rate of returns, developers resort to limited-period freebie offers,” adds Purohit.

Still, taking a broad sweep with a prejudiced view to label freebies as outright bad or offered with a malicious intent to cheat is not right either. Says Ankit Gupta, director of The Reach Group, a real estate developer, “To some extent, festive offers and freebies serve as an effective marketing tool in a competitive market to create buzz and generate interest in a property. These offers go beyond the conventional benefits, enabling buyers to make substantial savings on their property investments.”

Instead you must do your due diligence to ensure the freebies and the deal are worth their while.

Safeguard Your Deal

Know Your Budget And Needs: While freebies may seem attractive, they can sometimes lead to financial troubles for the homebuyers as these concessions may be available only on more expensive properties. Builders may nudge you to buy a bigger house at a higher cost or in a prime location to avail of these benefits.

Sunil Dewali, co-CEO of Andromeda Sales & Distribution, a loan distributor, says, “People should stick to their budget and not be swayed by properties offering freebies that may come at an additional cost. It’s crucial to prioritise financial stability and ensure the property aligns with one’s budgetary constraints.”

Saroj Pattnaik, 46, Dhriti Ranjana Ray, 43, Noida. Photo: Tribhuvan Tiwari

Saroj Pattnaik booked a home in Greater Noida in May 2010, but finally got his house in 2016, without any of the promised facilities. He is still lucky compared to the other buyers in the project, as the builder, Today Homes Pvt. Ltd, filed for bankruptcy in 2017. His main worry now is that his house is still unregistered

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Gupta agrees that freebies attract people, but “they should be viewed as supplementary benefits rather than the primary criteria for choosing a property. The foremost consideration should always be whether the property meets the buyer’s essential requirements. It can be a wise choice if a property aligns with their needs and comes with attractive schemes and offers.”

Check The Builder’s Reputation: The builder’s reputation could have an impact on the construction quality, delivery timeline and other financial implications. Says Purohit: “Developers often offer steep discounts and attractive payment schemes during project launches to generate cash flow and register maximum bookings. However, one can only enjoy such privileges when they are handed the keys to their home within the scheduled timeline, which only a reputed real estate developer can promise.”

Aman Sarin, director and CEO of Anant Raj Ltd, a real estate developer, explains, “The builder’s reputation stands as a cornerstone in the realm of the property market. When individuals invest their hard-earned savings and embark on long-term loans to secure a home, they should prioritise the evaluation of the builder’s credentials.”

Homebuyers should also consider whether an undue delay due to the developer’s weak financial position or wilful default could wreck their plans of owning a dream home, like it happened with Pattnaik.

The builder’s ability to deliver a quality project on time should be the primary aspect that homebuyers should consider before looking at the freebies on offer, as, ultimately, they will be residing in these houses.

Adds Sarin: “Historically, buyers have been enticed by lavish launches, events, presentations and glossy catalogues, but the essence of a home lies in its construction and delivery.”

Check List of Sponsoring Banks: Most major banks fund real estate projects today. So, checking the list of sponsoring banks is a vital factor that homerbuyers should consider as it can indicate the project’s financial health and whether the developer can complete it within schedule. Besides, says Purohit, these days banks also thoroughly analyse the developer’s track record and reputation before financing a project. So, the chances of project delays are minimal as the cash flow for the task will be sound.  

According to Dewali, a bank’s involvement in a project is a sign of the bank’s stringent due diligence into the project,  which reduces the buyers’ risk. “However, buyers should conduct their own due diligence and not just rely on the bank for checking the project’s viability,” he adds.

But could banks also be more than willing to entertain customers for loans in projects where they have invested? Dewali believes this perspective holds merit. “Banks that have invested in a project have a vested interest in its success. This not only implies that they have confidence in the project’s viability but may also lead them to offer more favourable terms to potential borrowers, such as competitive interest rates or flexible repayment options,” he says.

Also, in pre-approved housing projects, the loan sanctioning process of banks tends to be faster as the lender is already familiar with the project and possesses all the necessary documents.

What Should You Do?

As a buyer, keep an open mind and not take freebies at face value. Instead, focus on getting correct information about the project.

One of the ways to look for such information is checking the records at Real Estate Regulatory Authority (Rera), which scrutinises builders’ track record, past project deliveries, financial stability, legal standing of the projects, and other vital factors. Besides, Rera ensures that builders can only start a project after it checks and approves all the parameters in the registration process. It may be, however, noted that several cases are stuck with Rera as well.

The giveaways offered during project launches or on occasions like Diwali, Christmas, and New Year, shouldn’t be high on your priority list when looking to buy a house as they may unnecessarily distract you from asking bonafide questions regarding your purchase. In the excitement of buying a house, don’t miss out on checking relevant information about the builder or the project.

Don’t forget to separate the grains from the chaff.

sanjeeb@outlookindia.com