Builder Raj Ends
What are the reasons for the downfall of D S Kulkarni Developers – one of the oldest & biggest builders in Pune? I wanted to know.
DSK is not an exception. There are many more old & big builders in Pune who are on the verge of going down. People told me.
Yes, everyone knows that most of the builders in Pune are facing financial difficulties.
All of them, including DSK, are blaming government & economy for their problems – RERA, Demonetization, GST, No new job creation, increasing job insecurity, home loan interest rates, etc.
Agreed! These can be the causes of the slowdown in Pune real estate market.
But these cannot be the reasons for the downfall of so many old & big builders in Pune. I am sure.
So, I asked Mr. Sanjay Deshpande of Sanjeevani Developers –
Why are so many old, established, big builders in Pune in financial difficulties? Why are they debt-ridden and on the verge of bankruptcy?
You know? Flat buyers are scared to book because of this.
You know what Sanjay said?
Yes! This is a scary situation!!
But this is not only about the old & big builders.
It’s about any builder.
Big or small.
A builder who has failed to understand that the ‘the rules of the game’ have changed – is in financial difficulties.
In the old days – Land Appreciation – was the rule of the game.
Appreciation of land was the reason for the property price rise & huge profits for the builders.
That’s why every builder was batting on land appreciation.
Borrowing money at exorbitant interest rates.
Diverting flat buyers’ money from the on going projects.
Investing in other lucrative business.
Assuming that they were good businessmen.
But fact is that – they were not.
They were gamblers.
They were earning huge moneys because the land was appreciating like anything.
Why was land appreciating?
Because supply of land was short.
But in the last 10 years – every government went on changing development rules to increase the supply of land.
Because of the increased supply – land stopped appreciating – result is – property rates remained stagnant – builders profit margins shrunk substantially.
Not only that!
Number of players increased too.
So the monopoly of the few big builders ended. Now, there was competition.
There were more options for the flat buyers.
More options about the locations. More options about the projects.
Obviously, flat buyers stopped booking at the pre-launch or at the lunch of the project.
Means interest free fund supply from flat buyers to construct the project started drying.
Builders had to borrow construction finance from the banks at heavy interest rates.
Most of the builders were running their business on the borrowed money and paying nearly 40% interest to the lenders.
What was the profit margin?
The profit margin was less than the interest builders were paying.
Obviously, for these builders there was no option but to go down.
Some have gone down. Others’ days are numbered.
Result is builders’ Raj is over.
Those builders who have financial discipline, right property, right price, good service, and are ready to do business on less profit margin are going to survive in Pune real estate market.
Flat Buyers’ Raj Begins
Because of the abundant supply, now, property rates are stable.
So, there is no need to rush to book a flat.
Book only when you are financially ready.
Now, there is no need to book at the launch.
Because property rates at the launch and at the almost ready for possession stage would be almost the same.
In fact, because there is no GST on ready possession flat – price of the ready possession flats would be less than the under construction flat.
Since no builder is in dominating or dictating position, he can’t say no if the flat buyer’s demand is reasonable.
For example, if you want to book a flat in Dhruva, my project at Punawale, and you ask me, “How many flats are booked?”
“3 flats out of 50 are booked. And I am casting the last slab. Means RCC would be ready soon,” I will tell you.
At this point you have to ask me – “Only 3 booking? If you don’t get more bookings – how are you going to complete the project?”
“I have taken construction finance from the bank so even if I didn’t get a single booking I can complete the project and sell ready to move in flats,” I will tell you and show my financials.
“But what if you couldn’t sell at ready possession stage?,” you will ask.
“Bank will acquire the project and sell those unsold flats to recover it’s money!,” I will tell you.
“What about my flat?,” you will ask.
“You flat will be yours because bank has given NOC to you, So you don’t have to worry!,” I will tell you.
Point is before booking a flat find out whether the builder has enough funds to complete the project.
If the builder refuses to share information – don’t book a flat. Simple!
2018 is the buyers’ market.
Don’t gamble. Take an informed decision.
Keep in mind – “The Rules of the Game” have changed.
Not only for the builders but for the flat buyers too!