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Any Thing Can Happen - 1st Dec, 2007. Times Property (Times of India)

Expect the unexpected in a city where there is an acute shortage of premium property

Just when you start hearing comments during social gatherings, that the market is slow and going through a low phase and is sure to start correcting, there is news waiting to explode, only to prove everyone wrong. I for one have wisened to the fact that anything can happen in a market like Mumbai where there is an acute shortage of premium land or property.

Whether it is the sale of a an apartment at NCPA for Rs 34 crore or a land deal at Bandra Kurla Complex (BKC) one thing is for sure, most of the demand has been local. Just this week I have had the opportunity to speak with three prominent businessmen with regard to either sale or purchase of their properties. All of them have confessed that they have made obscene amount of money in the last two years and are looking upgrade their home requirement to the very best and most expensive that is available. The reason I stressed on local is because foreigners cannot buy properties in India. They can through their companies formed in India, but very few do. Which only proves that the growth in economy and soaring stocks have attributed to such demand, which is all real. 

The BKC deals have left everyone with their mouths wide open, now that is "shock and awe". A lot of people wonder, where is the profit margin if one buys FSI at such rate? Profit margins are created by adding "Super Built Up", on which there has been no strict enforcement by anybody. There is no stopping here. Developers add upto 100% for retail properties and upto 65% for commercial properties, giving them enough room to make profit. Additional FSI can be purchased directly from MMRDA in case of BKC land, for a premium, taking total FSI to 4 and hence making the average rate better.

Developers like 'Maker & Maker' who have developed 'Maker Towne' at the BKC are the only folks who have been fair in adding only maximum of 30 to 33%, which is genuine built up (Dimensions of out to out walls). Similarly, Oberoi Constructions have been fair in their Carpet to Built up ratios in most of their projects. I mention this because the end user is hugely affected by the different area calculations during an investment or purchase.

Now, all this buzz has created all kinds of excitement for land owners and property owners. No matter where they are between Virar and Colaba and as far as Navi Mumbai and Panvel, they all feel the heat waves caused by such land deals. I was not surprised when a dear old friend of mine called me on the morning where all possible newspapers flashed news of the BKC transactions. His family and he have been sitting on a land of 2100 sq. metres in Andheri east and he was seeking advice, whether it was a good time to cash out. I get a grin on my face as I type this, because of the statement I made above saying that I have "Wisened." So finally, I told him what I would do if I was in his place; I would get into a Joint Venture with the most reputed developer and bring in my land and the developer brings in his expertise and money to construct etc. In addition, I would take some premium in cash (liquid) I would almost call it my "Sweat equity" for holding on to the land for so long and then wait out till final product is ready. At that final stage, sell some area only if I needed to, or rent it for a permanent income. 

Moving on to the residential segment, the bitter fact is that 'sale transactions' have slowed down. By such one-off deals in a NCPA or any other premium property, it only proves that only the very affluent are being able to buy either for prestige (backed by genuine requirement) or for 'No lack' of funds. But, sadly such deals in A+ grade properties get owners of B+, B and C grade properties excited giving them fuel to their greed, more so in a situation where they have not been able to find a buyer at their existing demand. I can cite so many examples of people who have become victims of such situations, especially in South Mumbai re-sale segment.

These folks have been trying to sell their properties in the last one and two-year period respectively. One of the owners was honest enough to admit that in the last six months only three people have visited to view his apartment and there has been no positive feedback. In two other cases, where the apartments are at Breach Candy and Nepeansea road, originally priced at Rs 9 and 12 crores respectively revised their prices to Rs 12 and 15 crores three months ago. I know for a fact that there has been not a single viewing worth mentioning after the revised price.

My sincere advice to sellers and owners is to evaluate their property strictly based on their property credentials and neighbourhood analysis. In a city where two buildings like 'Mont Blanc' and 'Grand Paradi' which are on the same hill and land have similar view and layout, but have a major difference in age, quality and gentry, the price difference is of almost 75% higher in case of "Mont Blanc". Hence, a realistic approach should be taken for valuation, and it should not be based on expectation and feel good parameters.