Groups of high networth individuals make the best of slowdown in home sales
May 08, 2014
Source : The Economic Times


DELHI: High networth individuals (HNIs) are making the best of the slowdown in home sales. With developers under pressure, groups of HNIs, usually close friends, are offering to buy multiple properties but are negotiating hard with developers, extracting deep discounts and built-to-suit payment plans.

Sample this: A month back, a group of Delhi-based HNIs picked up around 15 luxury apartments from a builder on the Noida-Greater Noida expressway for 15 per cent less than market price and a much favourable payment plan — 10 per cent upfront, 65 per cent construction linked and 25 per cent on possession.

For regular deals, builders offer a 40 per cent upfront, 50 per cent construction linked and 10 per cent at possession plan. In another transaction, a private wealth management firm negotiated a discount of almost 40 per cent with a Gurgaon real estate developer for a group of HNI clients.

In this deal, the developer offered to buy back the 10 apartments from the HNIs after three years. "Developers are willing to give big discounts, bigger than ever, if the deal size is large. That's why we are forming consortiums to grab this opportunity for high returns," says Sandeep Madan, a New Delhi-based high networth individual, who is in the merchandise and services exports business and is part of a group of 10 HNIs.

This group has bought apartments in Noida and Gurgaon in the last few months at significant discounts, though Madan declined to name the developers they dealt with. While some of these HNIs go through their private bankers and wealth managers, a majority of them are informal groupings of close friends. "It's usually a small group of friends.

One guy volunteers to negotiate on behalf of the group. There's also a tendency among NRIs to pool in for bulk deals," says a private banker, who did not wish to be named. These HNIs are usually promoters of companies and top-level executives from across industries.

Real estate is certainly the most preferred asset class among the rich — almost 60-70 per cent of an HNI's networth is in real estate, say private bankers. "Real estate is close to people's heart. Many HNIs have made a lot of money in this asset class. They are now looking at taking advantage of this situation," says Himanshu Kohli, co-founder of Client Associates, a boutique wealth management firm.

With slowing home sales over the last year and a half, developers have been facing a liquidity crunch. Unsold inventory levels have risen dramatically.

According to property research firm Liases Foras, in the December quarter, unsold inventory levels rose to about 650,000 apartments, which would take over 30 months to be sold. That number went up to 700,000 by the end of March 2014.

While many developers held out for some quarters, hoping for a recovery in home sales, but with pressure mounting, they are now starting to offer various schemes to buyers.

Kunal Banerji, chief marketing officer of Gurgaon-based developer M3M, agrees that bulk discounts on group purchases are being offered by developers. "Plans are being built for specific groups. Better discounts of up to 15 per cent, are on offer," says Banerji, though he declined to comment whether his company has struck any such bulk deal.

Kohli's wealth management firm has negotiated with developers in the NCR, Kolkata and Punjab on behalf of HNI clients. "Developers are willing to offer flexible payment plans and buyback options in case of bulk purchases. For a developer who is short on cash flows at the moment, this helps in arranging interim liquidity," he says.

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