Pre-launch prices can hide project risks

Attractive entry prices may not reveal the full funding challenge

Property Pulse

A low pre-launch price can be difficult for a homebuyer to ignore. In Hyderabad, buyers are being offered apartments at prices such as ₹4,799 per sq ft in Pragathi Nagar, ₹5,500 near IDL Lake, ₹3,500 in Kollur, ₹5,299 in Kukatpally, ₹3,999 in Dundigal and ₹5,199 in Miyapur. Other offers cited in the market include 2.5 BHK homes at around ₹74.25 lakh and three-bedroom homes at about ₹85 lakh.

For a buyer looking to enter a growing location, such offers can appear to provide an opportunity to lock in a lower price before a project formally takes shape. But the lower entry price also means the project is at an early stage, when approvals, construction, funding and sales still have to come together. The key question is not simply what the apartment costs today, but whether the developer can sustain the project until completion.

LOW PRICE, HIGHER UNCERTAINTY

A pre-launch project requires money long before the building starts generating revenue from completed homes. The developer may have land-related payments to meet, approvals to obtain, consultants and contractors to engage, initial construction to fund and marketing and sales expenses to bear. Money collected from early buyers therefore becomes part of a much larger financial cycle.

If the initial collections are insufficient to sustain construction, the developer may have to arrange additional funding from banks or private institutions. Such financing, however, may come in stages and may not always cover the entire project requirement. The pressure can increase once construction moves beyond the initial stages. A developer needs continuing sales and cash flow while construction expenditure keeps rising. If sales slow, the ability to maintain the same pace of construction can also come under pressure.

This can become particularly difficult in a competitive market such as Hyderabad. While one project is moving through construction, another developer may launch a new project nearby with a fresh pre-launch offer. Buyers who have not yet committed may naturally compare the newer project, its price and its specifications. If sales in the existing project slow, the developer can face a cash-flow problem at precisely the stage when construction expenditure is increasing. Delays can then affect buyer confidence, which can make subsequent sales more difficult.

The experience of buyers associated with the Sahiti project in Ameenpur illustrates why the initial attraction of a pre-launch price needs to be weighed against the longer construction and delivery cycle. Several buyers who invested years ago have continued to face uncertainty over the project and their money. This does not mean every pre-launch project will face such difficulties. Developers with adequate funding, a strong execution record and a viable project plan can progress successfully. 

What should buyers check?

The issue is particularly relevant for proposed high-rise projects in areas such as Kukatpally, Pragathi Nagar, Gundimaisamma, Kollur, Patighanpur, Tellapur, Miyapur, Chandanagar and Patancheru. A 40- or 50-storey project involves substantial expenditure on the structure, lifts, fire and life-safety systems, electrical and mechanical infrastructure, parking, common amenities and other facilities. Buyers should therefore understand how the developer proposes to fund the project through to completion.

Before paying a substantial amount, buyers should verify the project’s regulatory status and approvals, land title and encumbrances, the developer’s track record, construction schedule and funding arrangements. They should also establish who is actually receiving the money — the developer, landowner, channel partner or another entity — and ensure that all payments and commitments are properly documented.

●        Rish and reward

• ●        Verify approvals, land title and regulatory status.
• ●        Assess the developer’s funding capacity and execution track record.
• ●        Understand payment terms and contractual safeguards before committing money.
• ●        Establish who is actually receiving the money — the developer, landowner, channel partner or another entity.
• ●        Ensure all payments and commitments are properly documented.