Are pre-launches back in real estate?

Investing in real estate is a costly affair. In a country like India, where the majority of people depend on institutionalised finance to be able to purchase a single property, timing the real estate purchase is of utmost importance. Seasoned investors understand the importance of investing early on in a project completion cycle. Not only this reduces the cost of the purchase but leaves a higher scope to earn a return on investments. This concept rendered the now obsolete stage of a realty project - pre-launch - as one of the most popular amongst investors. While it helped investors multiply their investments over the years, it was also one of the most risky phases since majority developers invited pre-booking without pocketing necessary approvals and clearances.

Cracking a whip on transactions in such projects, the Real Estate (Regulation and Development) Act [RERA] barred developers from pre-launching projects, which essentially meant they could not market projects prior to acquiring all requisite approvals. However, a year after the implementation of RERA, pre-launch seems to be finding its way back into the Indian realty sector. The only difference being that with a watchful eye of RERA, they could be less risky for the homebuyers.

Karim Khan, a Bangalore based proprietor from Network Ventures, avers, “With developers pocketing all approvals and buying a completion timeline of 3-4 years under RERA, it has again become possible to allow the sale of homes at competitive prices, offering a resurgence opportunity to investors. The growing demand for under-construction homes QoQ is a testimony to the trend as buyers look more confident of investing in new launches than before.”

The pre-RERA era

Pre-launch or soft launch of a realty project was done as a marketing stint to allure investors before the official launch of the project. The technique was commonly used by the developers to raise the initial funds to successfully complete their projects.

At this stage, homebuyers could save up to 30 percent of the overall cost of the property. This monetary benefit of the plan attracted a huge chunk of the home buying population. However, there was a high risk involved since this did not mark the official launch of the project. In the absence of all necessary clearances, the project would often land in trouble later, blocking the investor’s money for an elongated time.

Post the implementation of RERA

The introduction of RERA reversed the functioning of the realty sector, developers and agents in India. The Act, which was adopted to infuse transparency and accountability in the real estate sector, instantly put pre-launches at a backburner. Now, no developer or agent can advertise their projects before registering with the regulatory authority. Moreover, a project cannot be registered unless it has all the requisite approvals and clearances, cutting the odds of cheating homebuyers to nil.

Demand for ‘Pre-launch projects’ post RERA implementation

With the emergence of RERA, the risk attached to pre-launches has reduced by a huge margin. How? As per the RERA rules, developers must obtain commencement certificate and other necessary approvals from the concerned authorities before registering them and their projects under the Act. They must also not advertise or market the projects before acquiring a RERA registration number. Thus, the risk of investing in a project without approvals has been diminished drastically with the advent of RERA.

The return of ‘pre-launches’ will come associated with increased transparency and security for homebuyers. Even as developers extend the delivery timeline by a year or two, the expectation of the buyer will be set right. Thus, anyone wishing to invest at a time when the prices are at its lowest can now do it without the fear of landing in a legal trouble after years of delay. Overall, a pre-launch under RERA may not be a bad idea, at least for a homebuyer.